Buyer beware, Seller take care Fraudulent Misrepresentation and Property

In MORRELL & ANOR v STEWART & ANOR (2015) High Court has just awarded damages to purchasers of a house, boarding kennels, and cattery, representing the diminution in value of their land. The Court held that the sellers had fraudulently misrepresented that remedial work had been done prior to purchase.

After completion it became apparent that there were problems with drainage that had not been disclosed. The sellers had promised the Environment Agency prior to the sale that they would carry out work to stop waste from the kennels overflowing in to the neighbouring land. The experts appointed by the parties in the legal proceedings both agreed that the work carried out by the sellers before completion was wholly inadequate to stop the overflow.

The purchasers did not commission their own survey before they purchased the property. However, the Court held that the purchasers were entitled to rely on the representations given by the sellers in the pre-contract Property Information Form. The purchasers were also entitled to rely on the sellers’ response to an enquiry raised by the purchases’ solicitors about the drainage works. The sellers claimed that the drainage issue had been dealt with.

The Court held that the sellers made a false statement about the remedial work in the Property Information Form. The sellers had stated that there had been no negotiations or discussions with the Local Authority or neighbours about matters affecting the land. At the time that that statement was made the sellers were aware that the Environment Agency had been in contact, therefore it was untrue. A representation could be fraudulent where it was made knowing it to be untrue, not believing it to be true, or being reckless as to its truth, Derry v Peek (1889) 14 App. Cas. 337 followed.

Additionally, the relevant replies to written inquiries were to be treated as contractual warranties which were untrue, even if the sellers believed that the remedial work had corrected the drainage problem by the time of exchange. The sellers ought to have disclosed past breaches and the work that had been carried out so that the purchasers could have satisfied themselves that the work was sufficient, and whether they wished to proceed. Although contractual liability was excluded under the contract where the purchasers agreed to accept the property in its physical state at the time of exchange, it did not exclude a remedy for fraudulent misrepresentation.

In measuring the extent of the purchasers’ loss, the Court held that it sometimes happened that the cost of repair was an approximate way of assessing the diminution in value. Though there was a lack of evidence on the part of the purchasers as to the exact amount of the loss, the Court adopted a broad brush approach and awarded them £33,000 for diminution in value of their property.

The case emphasises the importance of accurate pre-contract responses by sellers to the purchasers enquiries. It also strips away the shield that insurer companies are prone to hide behind when defending a professional liability claim – that purchasers are at their own risk by not obtaining a survey. This was not a professional liability case, but it affirms the underlying legal principles that the purchaser is entitled to rely on the seller’s representations.  It follows that they are also entitled to rely on advice from any professional involved in the sale.

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