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 where:

1. They gave a reply which was an untrue statement of fact;

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 protection. 

Practical steps which a seller can take to try and minimise the risk of being liable for misrepresentation include:

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.

Back to News articles
Back to News articles

Sign up to email news

Sign up to receive email updates and regular legal news from Rollits LLP.

Sign up