Pre-Contract Enquiries: Why the seller should also beware
The legal principle of "buyer beware" places a duty on the
buyer to carry out all necessary enquiries and due diligence before
committing to acquire a property. As part of this process, the
buyer will raise pre-contract enquiries. These can seem long-winded
and cumbersome for a seller particularly where the employee
answering these queries may not necessarily have personal knowledge
of the property. Whilst most replies to enquiries seem to come with
standard issue statements qualifying the replies/seeking to exclude
liability, this won't necessarily let the seller off the hook
should a buyer suffer a loss because a reply is subsequently found
to be untrue.
A seller can be liable for misrepresentation
1. They gave a reply which was an untrue statement of
2. The buyer entered into the contract to purchase in
reliance on that statement of fact; and
3. The buyer suffered a loss as a result of having entered
into the contract.
There are different types of misrepresentation and the
potential remedies include damages and/or rescission (i.e. setting
the contract aside and restoring the parties to the position they
were in before the contract was made). Although a solicitor may
produce a draft set of replies for the seller to review, it is
important that the seller remembers that these replies are being
given by the seller in their capacity as seller. Whilst replies can
be drafted with disclaimers to try and qualify/exclude the seller's
liability, case law has shown that there are no guarantees that
these disclaimers will offer the seller sufficient
Practical steps which a seller can take to try and minimise
the risk of being liable for misrepresentation
1. Make sure that the appropriate person(s) is (are)
responsible for instructing your solicitor in connection with the
replies. Whenever possible, this should be someone with personal
knowledge of the property - it won't necessarily be the person
giving instructions in connection with the sale.
2. If you have specific concerns (for example if an employee
who knew about the property has left or some key papers which might
have answered some of the replies are missing) then make sure your
solicitor is informed so that they can draft the appropriate
qualifications to the replies which you are giving. Even where the
replies state "not so far as the seller is aware", this can still
amount to a representation that the seller has made reasonable
enquiries before giving their response.
3. Don't be tempted to tell half the story by indicating
there is an issue but telling the buyer to rely on their own
enquiries/inspections. For example, in one case, the seller was
asked whether the property had ever been affected by damp. The
seller gave a reply to the effect that, other than some specific
works, there was none so far as the seller was aware and that the
buyer should rely on the buyer's own inspection and survey. The
buyer carried out their own surveys which revealed some damp
problems. However, the seller was still found liable for having
made a misrepresentation (and made to pay damages) on the basis
that the seller had been aware of some serious damp problems which
they 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 the
seller is under a duty to disclose any changes to the buyer. At the
very least, the seller's solicitors will be confirming that none of
the replies have changed when giving replies to requisitions on
title immediately before completion. Therefore, if a seller does
become aware of anything which may be relevant to a reply which
they have already given, it is imperative that they inform their
solicitor so that they can advise on whether this should be
disclosed to the buyer's solicitors.
5. Don't rely on the draft replies containing statements
claiming to limit the seller's liability for misrepresentation - a
Court could decide that it is not reasonable for a seller to rely
on such statements (the Court would look at the individual
circumstances of the case).
Posted on: 07/06/2011
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.
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