Richard Honey
Posted on 11 Sep 2014

Caveat Venditor? When a seller must beware

It is a fundamental part of the conveyancing process - but one which many property professionals (on the receiving end, at any rate) - regard with a certain amount of dread. Replies to pre-contract enquiries.

That being said - and looking on the brighter side - those of us that are longer in the tooth will remember that many solicitors had their own standard forms of enquiries, and in answering these, the wheel was re-invented numerous times.

Now, at least there are standard forms of pre-contract enquiries, which are widely used for both commercial property transactions (Commercial Property Standard Enquiries or CPSEs) and for residential property transactions (as part of the Law Society Protocol).

As the real estate market is beginning to show a little more activity, now is the time to recall a trap for the unwary. And it lies within the standard form enquiries.

Do we have to have pre-contract enquiries?

Yes. The principle of "caveat emptor" - let the buyer beware - goes only so far. Whilst it is up to the buyer to find out about the property he is to buy before he buys it, a seller is nonetheless under an implied duty to disclose "latent" defects in the title. These are defects that would not be obvious on an inspection - the existence of drains, for example, or a covenant in favour of an adjoining landowner.

In a standard property sale, a seller will usually tell the buyer about those defects either in the disclosure of his title, or in replies to pre-contract enquiries. These replies will be delivered before contracts are exchanged.

Disclosure is a continuing duty

Delivering replies to the enquiries is not a one-off. Circumstances have an inconvenient habit of changing. And if they do, and it means that a reply previously given is now incorrect, the seller must update the initial replies. And the buyer does not have to ask him specifically to do that.

There is a preamble to the CPSEs under which a seller confirms that, in giving the replies, he will (before exchange of contracts - or before completion, if there is no contract) tell the buyer if he, the seller, becomes aware of anything which may cause a previous reply to be incorrect. There is a similar note to the residential enquiries.

Getting it wrong

In a 2011 case, at the Court of Appeal, a seller was dealing with a buyer who wanted to redevelop the property in to flats. However, a doctor was interested in the same property, with a view to developing it in to a health centre, with flats.

The seller provided his buyer with replies to CPSEs in the usual way. But two days later, he received notification of a planning application lodged by the doctor for the health centre development.

Contracts were then exchanged with the buyer but, importantly, without the buyer having been told about the planning application.

When the buyer learnt what had happened, he was worried that the requirement for a health centre for the community would override his purely residential development and so prejudice his own planning application.

As a result, the buyer served notice to rescind the contract. On his part, the seller sought an order for specific performances, or damages for breach of contract.

The county court judge found for the buyer. He ordered the contract rescinded, and the deposit returned. Amongst his reasons for doing so was that the buyer had relied on the accuracy of the replies to the CPSEs. Had he known about the existence of the planning application - which the seller itself had known about prior to exchange of contracts - he would never have committed to the purchase. The Court of Appeal upheld this decision.

Getting it right

If you are selling land, remember that the provision of replies to pre-contract enquiries is not the end of the story. If you become aware, before exchange, of any new information that changes any reply you have previously given, then you must tell your solicitor. 

Failure to do this might mean that your contract will be rescinded and you will have to repay the deposit.

 

This article is for general information and is not legal advice. For further information please contact Richard Honey, Partner and Head of the Estate Management team, at richard.honey@michelmores.com.