Can a buyer claim damages if a local authority search is incorrect?

Chesterton Commercial (OXON) Ltd v Oxfordshire County Council (2015) EWHC 2020 (CH)

Summary

The High Court held that Oxfordshire County Council (the “Local Authority”) was liable to Chesterton Commercial (OXON) Ltd, a property development company (the “Developer”), for an incorrect reply in a Local Authority search result which was relied upon by the Developer. The Local Authority provided incorrect information to the Developer and did not disclose that it had been investigating whether part of the property the Developer was looking to buy was a highway maintainable at public expense.

The Developer suffered substantial loss in the value of the property it had purchased. This is because, when it bought the property, the price paid was on the basis that the whole of the property was private land when, in fact, part of the property constituted public highway, substantially devaluing the property.

However, as the Local Authority had a duty of care to keep the list of streets which are highways maintainable at the public expense up to date, the Local Authority was liable for the losses incurred by the Developer. Further, the Local Authority was also liable for negligent misstatement as it was entirely foreseeable that, if the Local Authority’s reply was incorrect, a purchaser may purchase a property at a higher price in the belief that the whole of the property was private land. Therefore, the difference in value was a foreseeable loss and damages were awarded to the Developer.

The Facts

The Developer bought a property comprising three buildings and some land fronting them which included several car parking spaces. The Developer intended to redevelop and sell the buildings with their own parking spaces, and to sell the remaining parking spaces. A number of enquiries were made by the Developer before purchasing the property.

In June 2007, the Local Authority responded to the Developer’s pre-contract enquiries confirming that none of the property included highways maintainable at public expense. However, the Local Authority did not disclose that the property had been under investigation since 2005 in relation to whether the car parking area of the property was in fact maintainable as a public highway. The Developer purchased the property in September 2007 in reliance on the Local Authority’s incorrect response.

In 2009, the Developer became aware of the Local Authority’s investigation while negotiating the sale of the buildings on the property. Therefore, the sale of two of the buildings proceeded at a reduced value.

The Highways Act 1980

Under section 36 of the Highways Act 1980 (the “Act”), local authorities are required to make, and keep updated, a list of the streets within their area which are highways maintainable at public expense.

In this case, the Local Authority failed to comply with the requirements under the Act as it did not update its list further, the Local Authority failed to disclose the investigation which it had been carrying out in respect of the property.

The Decision

The Court held that the Local Authority owed the Developer a duty of care at common law with respect to its replies to enquiries.

The Local Authority’s response to enquiries was misleading and represented that the property was wholly private land. Therefore, the Developer purchased the property on the understanding that the land was private land, capable of being used and sold. Had the Local Authority provided accurate information, the Developer may not have proceeded with the sale and may have avoided the loss incurred as a result of the diminution in value of the property purchased. Therefore, it was entirely foreseeable by the Local Authority that if the incorrect information was provided to the Developer, the Developer would pay a higher price in the belief that the parking spaces were private land.

Accordingly, the Court held that:

  • the Local Authority was liable for breach of its common law duty of care to the Developer;
  • the Local Authority was liable for negligent misstatement; and
  • the Developer was entitled to damages for the loss in value to the property.

However, the Developer was not entitled to damages as the result of any loss of development profit. This is because, the Court held that such losses were too remote as the Local Authority had not been made aware that the Developer was seeking to redevelop the buildings and sell the parking spaces.

Our advice

In light of the above case, it is clear that Local Authorities must always ensure the information provided in their search results is up to date and that their responses to enquiries are accurate.

The result of this case is helpful for buyers as it confirms that the burden is on the Local Authorities to keep their records updated and to provide accurate information to prospective purchasers. Therefore, it is comforting that, where a buyer has purchased property in reliance on incorrect information provided by the Local Authority, the buyer is entitled to recover damages for the loss incurred if the property value becomes diminished, provided the loss is not too remote.

It is advisable for buyers to keep detailed records of the information obtained during the pre-contract enquires from Local Authorities as this can be useful to determine the factors relied upon by the buyer when determining the purchase price. Therefore, if new information comes to light following the purchase, which devalues a buyer’s property, the pre-contract information could be relied upon to put forward a case for damages.