Buyers who enter into a contract on the basis of the Standard Commercial Property Conditions (Second Edition) are not entitled to rescind even though a plan or statement in the contract, or in the negotiations leading to it, is, or was, misleading or inaccurate, unless the error or omission was the result of fraud or recklessness on the part of the seller, or the property differs substantially in quantity, quality or tenure: SCPC 9.1.3.
Greenridge Luton One Ltd v Kempton Investments Ltd [2016] EWHC 91 (Ch) concerned the sale of offices that were let to a subsidiary of TUI Travel plc. The seller’s replies to the Commercial Property Standard Enquiries confirmed that there had been no complaints from, and were no disputes with, the tenant and that there were no arrears of rent or service charge. However, they did state that TUI had, from time to time, raised queries on mainly historic issues, which had been dealt with. In subsequent correspondence, the seller confirmed that TUI had recently raised additional enquiries, to which it was responding and that “no difficulties are anticipated”.
After exchanging contracts to buy the property for £16,250,000 the buyer discovered that TUI had been complaining about the service charge for a long time. To make matters worse, TUI had stopped making service charge payments and the bank’s valuer considered that the issue had the potential to devalue the property by up to £4,565,000. Was the seller entitled to treat the buyer’s decision to rescind as a repudiatory breach of contract and to forfeit its deposit?
The court ruled that the seller’s replies to enquiries had given a false impression that had induced the buyer to enter into the contract with the seller. Were the replies fraudulent or reckless for the purposes of SCPC 9.1.3? The judge accepted that the seller might have felt that TUI had no real grounds for complaint and, that being so, that the buyer should not ultimately be prejudiced by the stance TUI was adopting. Nonetheless, there had been service charge arrears. It followed that its representation that there were no such arrears was, at least, made recklessly. Therefore, the buyer was entitled to rescind the contract and recover its deposit.
That was not the end of the matter. The buyer also claimed £396,000 in damages to cover its wasted costs. The seller relied on SCPC 9.2, which states that “when there is a material difference between the description or value of the property as represented and as it is, the buyer is entitled to damages”. Was this a gateway through which the buyer had to pass in order to obtain damages? Did such a material difference have to exist before the buyer could claim?
The judge ruled that SCPC 9.2 is not sufficiently clear and unambiguous to exclude liability in damages for the tort of deceit. It does not expressly state that damages are to be available “only” if and to the extent that the condition applies (by contrast with SCPC 9.1.3, which states that rescission is available “only” where an error or omission results from fraud or recklessness). Therefore, the buyer was entitled to the damages that it sought.
Allyson Colby is a property law consultant
