The recent case of Thorp and another v Abbotts and another [1] has provided useful guidance on the construction of certain key phrases in standard form enquires before contract. In this case, the High Court dismissed a claim for damages for misrepresentation as a result of alleged fraudulent responses to standard form property enquiries before contract. In order to reach its decision the court was required to consider a number of terms, including what comprises a notice, discussion and neighbour for the purpose of the standard form enquiries. It held that the terms should not be construed too widely as to do so would oblige sellers to disclose speculative information. Furthermore, the court held that a possible effect on value alone was not sufficient to require disclosure as the words "affecting the property" required the possible future event to have an effect on the property, or its use and enjoyment.

Background

It is standard practice for a buyer to raise enquiries of the seller when purchasing a property. The enquiries are in a standard form; in the case of residential property enquiries are raised using the Seller's Property Information Form (SPIF) and when dealing with commercial property enquires are raised using one, or more, of a number of sets of standard enquiries called the Commercial Property Standard Enquires (CPSE). It should be noted however that, under common law, a seller is under no obligation to respond to enquiries raised. If responses are given by a seller, care should be taken to ensure that they are accurate as inaccurate responses to enquiries raised before exchange of contracts (be they formal pre-contract enquiries or not) may give raise to a claim for misrepresentation or negligent misstatement.

Thorp and another v Abbotts and another - the facts

In 2006, three local authorities in South Worcestershire commenced a planning and consultation process known as the South Worcestershire Joint Core Strategy (JCS). The process continued for a number of years and eventually became known as the South Worcestershire Development Plan (SWDP). Landowners and developers could put forward proposals for development and the JCS considered what land might be designated in planning terms as suitable for development. A reference in the JCS documents or on its website did not mean however that there was any view from the relevant bodies as to whether in planning terms a site was approved for housing. 

The JCS indentified three sites in the vicinity of a residential property known as Oakwood Lodge that could potentially be developed for large-scale housing projects. Two of these sites featured in a 'preferred options' document which was the subject of a consultation in 2008 but it remained clear that no decision had been reached on the sites.

Between August 2008 and September 2009 the sellers of Oakwood Lodge (S) became involved in the JCS planning and consultation process and at one point submitted an online response to the consultation in addition to attending public meetings and signing a petition. S's involvement ceased in 2009 because in their view there were no specific proposals being considered that affected Oakwood Lodge. 

In October 2010 S sold Oakwood Lodge to the buyer (B). S had provided B with replies to a SPIF which contained the following two questions:

"3. Notices

3.1 Has the seller either sent or received any communications or notices which in any way affect the property (for example from or to neighbours, the council or a government department)?  If yes, please supply a copy.

3.2 Has the seller had any negotiations or discussions with any neighbour or any local or other authority affecting the property in any way?  If yes, please give details."

S answered 'no' to both questions. 

In May 2011, a planning application was submitted for 800 houses, a care home and other development in the vicinity of Oakwood Lodge.  The application was initially refused but subsequently granted on appeal. 

B commenced proceedings against S for damages for fraudulent misrepresentation on the basis of their assertion that if S had answered the SPIF honestly, the replies would have revealed the proposals for development in the vicinity of Oakwood Lodge and they would, as a result, have withdrawn from the purchase. B argued that the response to questions 3.1 and 3.2 were false because S should have disclosed the following:

  • as 'communications of notices affecting the property of the neighbouring property:'
    • public consultation documents inviting S to the meetings arranged by the JCS authorities;
    • other unspecified documents that the court was requested to infer were received; and
    • a flyer delivered by a local campaign group that opposed development.
  • as 'negotiations or discussing with [a] neighbour or [a] local or other authority affecting the property:
    • a discussion with a resident of a nearby housing estate who was a leading member of the local campaign group; and
    • other unspecified discussions that the court was invited to infer that S would have had with neighbours of the local authority.

Decision

The court held that S's responses to the SPIF were not misrepresentations and B's claim failed. To constitute a fraudulent misrepresentation the person providing the response must either know that a representation is false or suspect it to be false but fail to make enquiries to check the response. There is no requirement for a dishonest motive in giving the false reply. 

In the court's opinion:

  • enquiry 3 should have a narrow interpretation.The SPIF was designed to be interpreted by lay people and therefore should be interpreted in a manner consistent with that.The questions should not be interpreted in such a way that expert advice would be needed to understand the scope of response required
  • enquiry 3 should not be interpreted so that it became a matter of subjective assessment as to whether information was pertinent. The enquiries were to be considered objectively, so that the decision to be made was whether a reasonable person with the seller's knowledge of the facts would consider the property was affected
  • enquiry 3 was aimed at future events which would affect the property.A balance had to be struck between opinions or conjecture and matters which actually had approval and could be implemented
  • enquiry 3.1 sought to identify the point at which future possibilities should be disclosed as that at which 'a communication or notice' has been given 'which affects the property'.The terms' notice and communication suggested a degree of certainty of intention was required sufficient that a formal notification must be given.'Communication' could potentially also cover less formal notifications but these would still be notifications where there was a reasonably definite intention to take some steps that would affect the property.In other cases a notice may be required by law to be given, or may be voluntarily given to persons who are entitled to object or be consulted
  • furthermore enquiry 3.1 only applies to notices or communications coming from someone proposing to take some action or some regulatory body responsible for authorising or permitting the action.It does not apply to communications from other people, e.g. someone who has heard rumours of a development that they wish to oppose but who is, themselves, not responsible for the development.
  • enquiry 3.2 referred to negotiations or discussions with a neighbour or authority affecting the property.This was aimed at circumstances where there was a proposal or intention to do something which would affect the property and negotiations or discussions occurred with the person whose proposal or intention it was, or an authority in a position to authorise or permit it.A discussion with a person who was not in a position to either carry out, or authorise, the proposal would not affect the property because the outcome of the discussion would not affect whether the proposal went ahead
  • the phrase 'affecting the property' required that the possible future event, if it happened, would have some effect on the property itself or its use and enjoyment.The test was objective, in that the question to be asked is whether a reasonable person with the seller's knowledge of the facts would consider that the property was, indeed, affected.A possible effect on the value of the property would not be sufficient on its own.
  • Applying these conclusions the court confirmed that letters received from the JCS authorities was a communication and S's attendance at meetings were discussions capable of being disclosed in questions 3.1 and 3.2.  However, at the date of exchange of contracts they did not affect the property because a reasonable person would have concluded thus.  Flyers put out by a campaign group were not communications affecting the property and discussions with the local resident were not discussions with a neighbour (as the resident's house was too far away) and further, the resident was not putting forward any development proposal that would affect Oakwood Lodge and was not acting in an official capacity where they could approve or reject a proposal.

WM Comment

The court's comments on what constitutes a notice, communication, discussion and neighbour are interesting. The court confirmed that these terms should be construed in a relatively narrow way in order that there is no obligation on sellers to disclose mere speculation. A degree of certainty that the event would happen, and affect the property would be needed before a requirement for disclosure arises. The current version of the SPIF frames questions more broadly in order that disclosure of proposals for development of land nearby is also required. The comments of the court however still remain useful although it should be noted that an application for permission to appeal the decision of the High Court has been made, to be heard in November 2015. The application is however on a discrete point (the definition of 'neighbour' for the purpose of the SPIF).

In terms of CPSE affecting commercial transactions, enquiry 19 deals with notices affecting the property and neighbouring property and the court's comments would provide useful guidance to sellers responding to these enquiries. Enquiry 20, which relates to disputes, uses similar language. Whilst the CPSE relate to commercial properties and it could therefore be argued that, unlike the SPIF, they may not be designed to be used by lay people, often the people providing responses to CPSE are not property professionals and as such an increased level of understanding cannot be imputed. The likelihood is though that such people will have engaged solicitors to represent them and should therefore consult with those solicitors as to whether information is pertinent and ought to be disclosed. As such, whilst this case does provide an interesting discussion as to interpretation of these terms, and some helpful guidance, a degree of caution should be exercised in applying it to a commercial transaction.