When the Consumer Rights Act 2015 (“the CRA”) came into force on 1 October 2015, many in the property development business thought that its provisions would not affect them. However, where developers (for example, house builders) sell to consumers, the sale contracts will probably be caught by the legislation.
This is important because the CRA may make it easier for consumers to make successful claims against developers based on things said by the developer pre-contract.
Why does the CRA affect property developers?
Among other things, the CRA applies to agreements between a trader and a consumer for the supply of services. Although the CRA does not specifically say so, it is probable that the design and construction of properties are “services” under the Act, because this was the case under one of the CRA’s predecessors, the Supply of Goods and Services Act 1982 (the “1982 Act”).
There is an argument that the CRA will only apply to sale contracts where the property has not yet been constructed (ie “off-plan” purchases where the service of designing and constructing the property is still to be performed), as opposed to sale contracts where the properties have already been built (ie where the services have been performed). However, this distinction is probably academic, because most sale contracts contain terms by which the developer agrees that it has constructed the property to certain standards, in which case the sale contract will be caught by the CRA in any event.
How does the CRA affect developers?
The CRA implies terms into contracts for the supply of goods and services that the services will be carried out with reasonable skill and care, within a reasonable time and for a reasonable price. This is a repetition of the terms implied by existing legislation (the 1982 Act).
Crucially, however, the CRA introduces a new provision. Section 50 provides that every contract for the supply of services is to be treated as including as a term anything that is said or written to the consumer, by or on behalf of the trader, if it is taken into account by the consumer when deciding to enter into the contract, or when making any decision about the service after entering into the contract.
This provision is of particular concern to a developer who sells to a consumer because it means that any statement that it makes (including anything spoken) which is taken into account by the consumer may become a term of the contract. In effect, section 50 is a statutory implication of oral statements into a contract, which may make it is easier for consumer buyers to succeed in claims against developers based on things said by the developer (eg misrepresentation claims).
Can reliance clauses still be relied on?
Historically developers have tried to head off these type of claims by including non-reliance clauses in their sale contracts. These come in many forms, but generally they involve the buyer acknowledging that he or she has only relied on written statements made by the developer. This makes it very difficult for a buyer to argue that he or she has relied on oral statements.
However, the effectiveness of these clauses may be under threat. This is because section 57 also contains a ban on excluding or restricting the terms it implies into contracts, including implied oral statements under section 50. So if non-reliance clauses can be said to be an exclusion or restriction on oral statements falling under section 50, then they will be unenforceable.
Unfortunately, the CRA does not directly address this point, and so it is not clear whether non-reliance clauses will be deemed to be a restriction or exclusion.
The good news is that under previous legislation (section 3 of the Misrepresentation Act 1967), certain non-reliance clauses were held not to exclude or restrict liability. The reason for this was that a non-reliance clause merely creates an “evidential estoppel” which means that the purchaser is prevented from arguing that he or she relied on the statement. This is not the same as an exclusion or restriction on the seller’s liability for misrepresentation.
However, the same may not apply to the CRA. This is because section 57 also provides that a contract term will not be binding on the consumer to the extent that it will “restrict rules of evidence”. It is not evident exactly what this is aimed at, but no doubt some buyers will argue that creating an evidential estoppel is restricting a rule of evidence, and so a non-reliance clause is an exclusion or restriction of the statutory implication of oral statements under section 50.
Practical implications
There is little doubt that the CRA will encourage consumers to make misrepresentation claims against developers based on things said by developers pre-contract. But will non-reliance clauses still constitute a reliable defence against such claims? As yet, the answer is unknown. No doubt the question will be litigated in the near future, but until then developers should be even more careful about what they say to consumers pre-contract. In addition, they should review the non-reliance clauses in their sale contracts. At the very least, they should be re-drafted (and re-named) to reflect the fact that the consumer only has to show that they have taken a statement into account, a much lower hurdle than the current requirement of “reliance”.
William Cursham is an associate at Gateley plc
