When dealing with a property sale or lease the Owner or Landlord will be asked to complete replies to commercial property standard enquiries.
Adam Davies, a Commercial Property specialist here at FBC Manby Bowdler, explains that these are lengthy and detailed questions about the property but they also deal with issues such as tax, insurance, planning and environmental matters. Whilst replying to them, great care needs to be taken, as emphasised by recent cases before the High Court.
Francis v Knapper (2016)
In 2008, Mr & Mrs Francis bought a holiday park in Padstow for £1.35 million. The Buyer’s solicitors raised the usual Commercial Property Standard Enquiries which were completed by the managing director of the Seller. One enquiry asked was ‘Were there were any defective conduits or fixtures or items requiring significant expenditure over the next three years?’ to which the answer came ‘No’. In fact there were significant issues of flooding, rotting of a roof, and a sewerage system badly in need of an upgrade.
Mr & Mrs Francis brought a claim for misrepresentation against the managing director personally, as a result of the replies given by that director, the Seller company having gone insolvent by this point.
The Judge agreed with Mr & Mrs Francis that the reply given was incorrect, and was therefore on the face of it, a misrepresentation. In this case however, the defendants were saved by the unusual fact that there was evidence to prove that Mr & Mrs Francis had not actually read the replies to the enquiries, and therefore clearly could not argue reliance on those replies. The Judge emphasised however, that had Mr & Mrs Francis read those replies, they would have been successful in claiming misrepresentation against the director.
First Tower Trustees Ltd v CDS (Superstores International) Ltd (2017)
In 2015, First Tower (the Landlord) and CDS (the Tenant) were negotiating a lease of some units. In reply to an enquiry raised by CDS’s solicitors, First Tower had indicated that it had not received any notices relating to environmental problems. This was indeed true. So far so good. Three months later, while the lease was still being negotiated, First Tower were made aware that there was a presence of asbestos in the units. It did not update CDS or its solicitors, and the lease was subsequently entered in to.
CDS brought a claim for misrepresentation for the cost of the remedial works to remove the asbestos and the cost of the alternative accommodation, while those works were carried out. First Tower tried to rely on a clause in the lease which stated that the lease had ‘not been entered into in reliance wholly or partly on any statement or representation made by or on behalf of the Landlord’. The Judge agreed with CDS that 1. there was a misrepresentation, owing to the fact that First Tower failed to update its replies to enquiries accordingly, and 2. First Tower could not rely on a sweeping clause trying to exclude its liability. Section 3 of the Misrepresentation Act 1967 states that excluding liability for misrepresentation is only valid if the exclusion clause is itself reasonable. The Judge decided that it was not.
Errors or omissions, even those given innocently or by a company representative or agent, can result in expensive claims for misrepresentation. These High Court cases are a stark reminder of the importance of giving full and accurate replies to any enquiries raised, and also the need to ensure that those replies are updated.