Replies to enquiries: they aren’t just a formality

Summary and implications

You are all familiar with the thud (or the electronic ping) as a set of draft replies to enquiries arrives on your desk from your solicitor asking if you can approve the draft replies. The solicitor has produced the usual set of replies: “not so far as the Seller is aware”; “the Buyer must rely on its own enquiries” etc.

The temptation is simply to say they’re fine without much further consideration, but a recent case shows the dangers of inaccurate replies.

Buyer beware

The basic principle on which property deals are carried out is caveat emptor or let the buyer beware. In essence, this means that it is the buyer’s responsibility to make sure they have asked all the right questions and found out as much as they can about the property before they commit to buying it by exchanging contracts.

There are exceptions to this rule and one is that the seller tells the buyer information about the property he knows about and which the buyer might not be able to find out in any other way. Replies to Commercial Property Standard Enquiries (CPSEs) is one way in which the seller can share this information. Failure to disclose information can give rise to an action for misrepresentation against the seller and so it is important that replies to CPSEs are considered properly and not just dismissed as a formality.

Cleaver and another v Schyde Investments Limited

Cleaver and another v Schyde Investments Limited

[2011] EWCA Civ 929

In this case, the buyer had exchanged contracts with the seller to purchase a property which the buyer intended to develop as a block of flats. Prior to exchange of contracts the seller had given replies to CPSEs. The CPSEs contained a confirmation that the seller would inform the buyer if it became aware of anything which meant that the replies that had been given needed amending. Also prior to exchange, but after the date the replies to CPSEs were given, the seller found out that a doctor, who was also interested in buying the property, had submitted a planning application to develop the property as a medical centre. The seller did not tell the buyer about the planning application.

The buyer became aware of the planning application after exchange and tried to persuade the doctor to withdraw his application, but the doctor would not do so. The buyer therefore attempted to rescind (terminate) the contract, but the seller served a notice to complete. The buyer sued the seller for rescission but the seller claimed (due to a separate clause in the contract) that the buyer could only succeed if the error in the seller failing to notify the buyer of the doctor’s planning application was made fraudulently or recklessly.

The court found in favour of the buyer, concluding that it had the right to rescind even though the seller’s misrepresentations were made innocently rather than fraudulently.

Morris v Jones

Morris v Jones

[2002] EWCA Civ 1790

This is another case which neatly highlights the dangers of relying on standard forms of words for replies to enquiries without considering whether the reply is really correct. In this case, the buyer had bought a residential property which was suffering from damp. Following completion, it cost the buyer a lot of money to repair the property and they sued the seller for misrepresentation. The seller had been asked in formal enquiries whether there had been any damp affecting the property at any time. Other than works which were covered by a particular guarantee, the seller said there was “none to the Vendor’s knowledge but caveat emptor must apply and the purchasers should rely entirely upon their own inspection and survey”. The seller knew that the damp went beyond that covered by the guarantee but did not disclose this. The buyer carried out some investigations but was not able to do complete investigations. The buyer asked the seller more questions but still the seller did not correct the reply.

The court found in favour of the buyer. The seller had made an incorrect reply about the damp problem; the buyer relied on this and suffered loss as a result. It did not matter that the misrepresentation was only part of the information the buyer relied on as the misrepresentation was material to the facts. The Court of Appeal said that “material” in this case meant that it was “relevant” to the buyer’s decision to enter into the contract.

Conclusion

Whilst there is a strong temptation to dismiss replies to enquiries as just part of the process that has to be gone through when selling a property and that ultimately the buyer must satisfy itself as to the condition and title to the property, replies to enquiries are important. The consequences of failing to adequately consider the replies that are being given could be very costly.