A recent Court of Appeal decision has provided a stark warning to property purchasers and their solicitors and has highlighted the importance of the due diligence process prior to a property being bought, explains partner Peter Lewis.
The case inquestion is Lloyd v Browning (2013) EWCA Civ 1637. Mr. and Mrs. Browning (the "sellers'), sold their property which comprised a farm with outbuildings including a bam (the ''Property") to Mr. and Mrs. Lloyd (the 'buyers'). Prior to putting the Property on the market. the sellers sought planning permission for both the extension of the bam and the conversion of it for residential use.The plans were rejected on the basis that the extension was against the local council's planning policy.The revised plans submitted by the sellers nolonger included the extension but allowed for the development of the barn for residential use.Subsequently, planning permission was granted injanuary 2006 and the Property was placed on the market in 2008.
The Property was marketed using the originalplans including the extension; no reference was made to the revised plans. The buyers expressed their interest in buying the Property with the intention of building the extension. The sellers provided the buyers with the original plans and during various meetings at the Property the development was discussed by reference to the original plans.The buyers hadalso instructed a planning consultant and so advised their solidtors that there was no requirement to assess the position regarding planning permission or raise pre-contract enquiries in this respect. Once the sale and purchase of the Property was completed,the buyers discovered the true position in respect of the planning permission and brought a claim alleging misrepresentation on the part of the sellers.
The contract for the sale of the Property included a non-reliance clause which stated that the buyers would enter into the contract solely on the terms of the contract and no statements made by the sellers applied. However,this is except for written statements, if any, made by the sellers' solicitors to written enquiries raised by the buyers' solicitors or in correspondence between the parties.
The High Court found that there had been a misrepresentation by the sellers which hadbeen relied uponand had induced the buyers to enter intothe contract. However,itwas found that the clause was fair and reasonable. The buyer and seller had agreed by virtue of the clause to limit the sellers'liability in respect of oral representations. As a result. the buyers' claim for misrepresentation against the seller was unsuccessful. The Court of Appeal upheld the High Court decision.
"This is a very clear example of how important the due diligence process is in a transaction."
The decision confirms that a non-reliance clause prohibiting a buyer from relying on anything other than what is inthe contract and written replies to enquiries can be fair and reasonable irrespective of whether they were induced to enter the contract by a representation made by a seller (provided it was not fraudulent).
For a buyer to bring a successful claim for misrepresentation they will need to demonstrate that they believed the statement to be true and that they relied on the statement when deciding to enter into the sale and purchase contract.lt ts for the seller to show that either the buyer did not rely on the statement or that such reliance was not reasonable.
Froma buyer's solicitor's perspective,this case highlights how important the due diligence process is and the importance of ascertaining whether your client is relying on any particular selling point inrespect of a proposed purchase and, if so.obtain written confirmation from the seller's solidtor that your client is getting what they are bargaining for. Further.a buyer's solicitor should check any planning permissions granted together with the plans submitted with the application.to obtain certainty as to what has been authorised.
Should a buyer not take such steps it is at their own risk as Lloyd v Browning demonstrates where a reasonable non reliance clause isincluded within a contract,the Court will give it effect so as to estop a claim for misrepresentation.