A recent High Court case has demonstrated the importance of giving correct replies to enquiries, and some of the consequences of getting replies wrong.
In Francis v Knapper (2016) a property developer bought a holiday park from a company in financial difficulties for £1.35 million. It transpired that the amenity block at the park had significant damp, rot within the roof, and there had been flooding at the park over a number of years. The sewerage system at the park also needed an upgrade. The buyer's solicitor raised Commercial Property Standard Enquiries (the CPSEs) and replies were provided by the managing director of the seller via the seller's solicitor.
The reply given to enquiries that asked whether there were any defective conduits or fixtures, incidents of flooding or items requiring significant expenditure over the next three years was 'No'. A reply to a later enquiry disclosed an insurance claim arising out of one incident of flooding, and the judge considered this to qualify the earlier negative answer in relation to flooding.
The buyers alleged that they had been induced to enter into the contract to buy the park on the basis of the misrepresentations contained in the replies to enquiries. They brought a claim against the seller's solicitor, his firm, and the managing director of the seller, as the seller company was insolvent.
The judge agreed with the buyers that the replies to enquiries were wrong.
However, the buyer's claim for damages for deceit, and negligent misstatement against the seller's managing director failed because the buyers could not prove that they relied on the replies to enquiries. In fact, the evidence indicated that the buyers had not even read the replies, and had made their decision to purchase on the basis of three site visits and the belief that any required works could be re-charged through the service charge at the park.
The negligence claim against the seller's solicitor also failed on the basis that the CPSEs include an express disclaimer of liability on the part of the seller's solicitor and state that the replies are given by the seller and addressed to the buyer.
Even though this claim arising out of replies to enquiries was unsuccessful, there are some important points for sellers and buyers to be aware of:
- The enquiries had been raised in connection with earlier negotiations for the purchase of a smaller area of land, but the judge found that the replies applied to the subsequent purchase of the entire holiday park.
- The seller's managing director would have been liable in deceit if the buyer had been able to show reliance on the enquiries, and consequent loss. He had answered 'No' to the relevant enquiries without any belief in the truth of those answers. Also, the CPSE disclaimer would not have protected the seller's solicitors against a claim for deceit if it could have been established.
- Even though the seller's solicitor had an interest in the property as an owner of a unit at the park, this was not sufficient to displace the usual case law principle that a seller's solicitor is not liable for replies to enquiries unless it is clear that he has stepped outside the role and undertaken personal responsibility for the replies.
The CPSEs are lengthy, with enquiries in 32 categories, plus supplementary enquiries. However, they reveal important information about a property that may form the basis of a future claim if the seller does not give sufficient thought to the accuracy of the replies.
If a buyer wants redress for incorrect replies given, it must have read and relied on those replies when making its decision to acquire the property.