If you have ever sold a commercial property, you will understand the painstaking process of trawling through pages of CPSE (Commercial Property Standard Enquiries) enquiries and providing replies. Buyers of property will know that it is common for the seller’s replies to be couched in such a way that hardly any useful information is revealed. We explore the details.
Why is this?
It all comes down to my favourite Latin phrase – caveat emptor, which translates to “let the buyer beware”. It is down to the buyer to find out as much information as possible about the property.
If this is the case, do sellers have to provide replies to enquiries?
The simple answer is no. In truth, it’s a bit more complicated than that – there are some exceptions to the principle of caveat emptor. For example, there is a duty to disclose latent defects in title (such as an easement that is not discoverable from inspection of the property). Nevertheless, CPSE enquiries are used in most commercial property transactions (there is an equivalent form of enquiries in residential property) as part of the due diligence process.
In dealing with these enquiries it is usual for the response “not so far as the seller is aware” to be used by sellers. This is not the ‘get out’ sellers may think. When tested in court, this phrase has been held to imply that the seller took reasonable steps to provide a correct response. Sellers should think about how to further qualify this response if that has not been possible; is the relevant information available?
Furthermore, if a seller becomes aware at a later date that a reply to an enquiry previously raised is incorrect, there is a duty to update the buyer prior to exchange of contracts – the point at which the buyer becomes legally obliged to purchase the property. This is not new law – but the case of Greenridge Luton One Ltd v Kempton Investments Ltd in 2016 referred to later proves this point.
So, why should a seller care?
Because of a risk of a claim for misrepresentation. That’s why. Misrepresentation is:
- a representation of fact made by the seller (this can be either negligent, fraudulent or innocent);
- that the buyer relied on when entering into the contract;
- that was false at the time the contract was made; and
- as a result the buyer suffered loss.
The terms of the contract may alter the position by excluding liability for misrepresentation (excluding liability for fraudulent representations is not possible), or containing the usual acknowledgement by the buyer that it has not relied on any representations in deciding to enter into the contract, other than replies to enquiries supplied by the seller’s solicitor to enquiries raised by the buyer’s solicitor – this is why it is important that any facts being relied on by a buyer are routed through the lawyers.
In the 2016 case of Greenridge Luton One Ltd v Kempton Investments Ltd, information that was provided early on in a transaction, that there were no service charge arrears, was inaccurate at the point of exchange of contracts. The representation was deemed by the High Court to be at the least reckless and the buyer was entitled to rescind the contract, claim its deposit and was awarded damages of just over £395,000.
What can be taken from this?
- Do not be tempted to ‘gloss over’ replies to enquiries in an attempt to get a deal done quickly.
- Think carefully about how a response should be phrased to reduce the risk of any later claims.
- Review replies given prior to exchange of contracts to check they are still accurate – especially important for those transactions that take a while to get to that point.
If you are relying on any statements of fact made by the seller, make sure it is confirmed in writing by the seller’s solicitor to your solicitor as it is likely the contract will exclude liability in relation to information received directly.