Pre-Contract Enquiries: Why the seller should also beware
The legal principle of "buyer beware" places a duty on thebuyer to carry out all necessary enquiries and due diligence beforecommitting to acquire a property. As part of this process, thebuyer will raise pre-contract enquiries. These can seem long-windedand cumbersome for a seller particularly where the employeeanswering these queries may not necessarily have personal knowledgeof the property. Whilst most replies to enquiries seem to come withstandard issue statements qualifying the replies/seeking to excludeliability, this won't necessarily let the seller off the hookshould a buyer suffer a loss because a reply is subsequently foundto be untrue.
A seller can be liable for misrepresentationwhere:
1. They gave a reply which was an untrue statement offact;
2. The buyer entered into the contract to purchase inreliance on that statement of fact; and
3. The buyer suffered a loss as a result of having enteredinto the contract.
There are different types of misrepresentation and thepotential remedies include damages and/or rescission (i.e. settingthe contract aside and restoring the parties to the position theywere in before the contract was made). Although a solicitor mayproduce a draft set of replies for the seller to review, it isimportant that the seller remembers that these replies are beinggiven by the seller in their capacity as seller. Whilst replies canbe drafted with disclaimers to try and qualify/exclude the seller'sliability, case law has shown that there are no guarantees thatthese disclaimers will offer the seller sufficientprotection.
Practical steps which a seller can take to try and minimisethe risk of being liable for misrepresentationinclude:
1. Make sure that the appropriate person(s) is (are)responsible for instructing your solicitor in connection with thereplies. Whenever possible, this should be someone with personalknowledge of the property - it won't necessarily be the persongiving instructions in connection with the sale.
2. If you have specific concerns (for example if an employeewho knew about the property has left or some key papers which mighthave answered some of the replies are missing) then make sure yoursolicitor is informed so that they can draft the appropriatequalifications to the replies which you are giving. Even where thereplies state "not so far as the seller is aware", this can stillamount to a representation that the seller has made reasonableenquiries before giving their response.
3. Don't be tempted to tell half the story by indicatingthere is an issue but telling the buyer to rely on their ownenquiries/inspections. For example, in one case, the seller wasasked whether the property had ever been affected by damp. Theseller gave a reply to the effect that, other than some specificworks, there was none so far as the seller was aware and that thebuyer should rely on the buyer's own inspection and survey. Thebuyer carried out their own surveys which revealed some dampproblems. However, the seller was still found liable for havingmade a misrepresentation (and made to pay damages) on the basisthat the seller had been aware of some serious damp problems whichthey had failed to disclose.
4. Don't see the replies to enquiries as a one-off exercise.If circumstances change whilst negotiating the disposal, then theseller is under a duty to disclose any changes to the buyer. At thevery least, the seller's solicitors will be confirming that none ofthe replies have changed when giving replies to requisitions ontitle immediately before completion. Therefore, if a seller doesbecome aware of anything which may be relevant to a reply whichthey have already given, it is imperative that they inform theirsolicitor so that they can advise on whether this should bedisclosed to the buyer's solicitors.
5. Don't rely on the draft replies containing statementsclaiming to limit the seller's liability for misrepresentation - aCourt could decide that it is not reasonable for a seller to relyon such statements (the Court would look at the individualcircumstances of the case).
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.