Take care when providing replies to pre-contract enquiries

When selling a property, a standard procedure is for the seller to provide replies to enquiries raised by the Buyer and its solicitors.  The standard form of enquiries that is often used for commercial transactions (“CPSEs”) specifically states that the Seller acknowledges that it is obliged to provide the Buyer with copies of all relevant documentation whether or not the specifically requested to do so and that prior to exchange of contracts, it will notify the Buyer on becoming aware of anything which may cause any reply that it has given to any enquiry to be incorrect.

In the recent case of Greenridge Luton One Limited v Kempton Investments Limited [2016] EWHC 91 (Ch) the Buyer was awarded not only the return of its deposit but damages for deceit of almost £400,000.

In this case the Seller owned a property consisting of three office buildings, most of which was leased to a travel company (the Tenant).  The lease provided for payment of a service charge and the Tenant disputed the service charge and withheld payments.

At that time the Seller was trying to sell the freehold property and the consultant acting for the Seller told the Seller that he thought that the Tenant was trying to adversely affect the sale.

In anticipation of a purchaser being found, the consultant had prepared draft replies to CPSEs and had forwarded these to a director of the Seller.  The replies, which were sent to prospective buyers, said that there were no outstanding disputes or arrears, no disputes relating to the service charge, no unresolved disputes or breaches of covenant and only stated that the Tenant had made “further enquiries”.  The Buyer asked for further information, but none was provided.

The Buyer and the Seller exchanged contracts and the Buyer paid a deposit.

The contract specifically stated that the Seller would sell the property free from encumbrances, that full disclosure had been given of any encumbrance, that a buyer would be entitled to rescind the contract where an error or omission resulted from fraud or recklessness and required provision of accounts of outstanding service charges.

The Buyer became aware of the service charge arrears and repudiated the contract in accordance with the contract terms.  The Seller retained the deposit.  The Buyer claimed the return of the deposit and damages arising from the fraudulent misrepresentation of the Seller.  The matter went to the High Court and the judge determined that the Seller had either fraudulently misrepresented the situation or had been reckless as to whether the information provided was correct and therefore the Buyer was entitled to the return of the deposit and an award for deceit.

It is important for sellers and their advisers to ensure that:

• replies to enquiries are compiled with all necessary care and attention so that information which should be disclosed is disclosed and is not concealed or inadvertently omitted;

• up to date replies to enquiries are provided to the buyer and the seller keeps the buyer informed of any change in circumstances that will affect the accuracy of the replies.  This is especially important where a sale becomes protracted or replies to standard enquiries prepared for an earlier buyer are issued to an alternative buyer at a later date;

• Sellers should always respond to any request for clarification of replies provided or further supporting documentation to provide evidence of the information provided.

If you would like any assistance in connection with the sale and purchase of a property or have any query relating to an issue arising from pre-contract enquiries please contact our Commercial Property Team.