Providing inaccurate replies to pre-contract enquiries cost a seller almost £400,000 after the buyer withdrew shortly before completion and claimed damages for deceit.
Answering pre-contract enquiries, usually the CPSEs (commercial property standard enquiries), can prove a time-consuming and frustrating task for the seller and its team, who want to get the transaction concluded quickly.
But it is worth the seller's time to ensure that the replies given to the replies are accurate. The recent High Court decision of Greenridge Luton One Ltd v Kempton Investments Ltd is an important reminder that this applies both at the date that the replies are given to the buyer and also in the period between exchange and completion.
At the same time as the owner was selling the property, a major tenant of the building had raised concerns about the level of service charge and started to withhold quarterly payments, accruing substantial arrears.
The seller stated in its CPSE replies that there were no service charge arrears and, although there had been enquiries raised by tenants on historic issues, there had been no complaints or disputes made. No mention was made of the tenant's withholding of the service charge.
The buyer's solicitors attempted to obtain further information about the service charge position. However, the crucial information - that the service charge due had not been paid and that the tenant had written to the landlord stating that it considered that a dispute had arisen - were not forthcoming by the time of exchange of contracts.
Prior to the completion date, further details of the service charge dispute came to light. The buyer claimed that this reduced the value of the property, and decided it no longer wished to continue with its purchase.
On the evidence, the judge found that there had clearly been a service charge dispute in existence between the seller and the tenant. By failing to include details of this dispute in the CPSE replies, and then in failing to update the replies, the court said that the seller had given a 'false impression' to the buyer.
Furthermore, given that the seller could not have 'honestly' believed that the replies given were accurate, there had been an element of fraudulent misrepresentation.
It held that the buyer was entitled to terminate the sale agreement, claim the return of its deposit of £812,500 and receive damages for the tort of deceit by the seller. Damages were assessed on the buyer's wasted costs of the transaction and amounted to almost £400,000.
This was an unusual case, as the court found that the error in the replies had been deliberate rather than (as is usually the case) inadvertent.
However, in the normal course of events, a seller or landlord, and its advisors, must ensure that the CPSE replies are checked for accuracy at the outset of a transaction.
If any circumstances change during the transaction, or further information comes to light, the seller must ensure that the CPSE replies are updated so that they provide a full picture.