Jonathan Seitler QC guides practitioners through the basics of the law relating to misrepresentation and misdescription as it arises in property cases
Checklist
- What are property misrepresentations and misdescriptions?
- What is an actionable misrepresentation?
- What makes a statement “false”?
- What constitutes reliance?
- Are all misdescriptions actionable?
- If a misdescription is not substantial, is there nothing the purchaser can do?
- What is the role of the standard conditions?
- Does a clause which says that the purchaser has not relied on a misdescription or misrepresentation work?
- Is it better for the vendor just to say as little as possible, then?
Claims and remedies at a glance
|
Claim |
Remedy |
|
Misdescription (breach of contract) |
Damages for breach of contract |
|
Fraudulent and negligent misrepresentation |
Damages and rescission |
|
Innocent misrepresentation |
Rescission or damages in lieu |
What are property misrepresentations and misdescriptions?
A misrepresentation is a statement about a property which is not true, made before the contract for its sale comes into existence. A misdescription is where there is a discrepancy between the description of the property in the contract and what has actually been conveyed. In that sense, therefore, a misdescription is an untrue statement which has become a term of the contract. Each, in certain circumstances, allows the wronged party to treat it as actionable – that is, seek to have the contract set aside or resist its enforcement – and for damages to be claimed.
What is an actionable misrepresentation?
A false material statement of fact which induces the representee (usually the purchaser) to enter into the contract. The representee can claim damages in any case of fraudulent or negligent misrepresentation and can seek to rescind (set aside) the contract in its entirety, unless the right to rescission has been lost by (1) affirmation, (2) delay, (3) the parties not being able to be restored to their pre-contract positions or (4) a third party having acquired rights in the meantime without notice of the right to rescind, where those rights would be prejudiced by rescission. Under section 2(2) of the Misrepresentation Act 1967, in a case of innocent misrepresentation, the court has discretion whether to order rescission, or if the right to rescission has not been lost (in one of those four ways), declare that the contract subsists and order damages in lieu of rescission: Salt v Stratstone Specialist Ltd [2015] EWCA Civ 745.
Damages are awarded on the basis of the difference between the representee’s actual position and the position if the false statement had not been made, ie as if the correct position had been set out.
By way of example, where the misrepresentation consists of understating the service charge, damages would be assessed on the basis of the difference in value between the property with the lower and higher service charge: Heinemann v Cooper and another [1987] 2 EGLR 153.
In CEMP Properties (UK) Ltd v Dentsply Research & Development Corporation [1991] 2 EGLR 197, the misrepresentation related to the availability of documents which would have shown adverse rights to light. The extra costs of redesign and build to accommodate those rights were therefore recoverable in addition to the residual difference in value between the price paid and market value of the redesigned unit.
Consequential losses directly caused by the transaction (such as wasted fees and other costs) will therefore also be recoverable, subject to the representee giving credit for all benefits received as a result of the transaction and not recovering loss which it could and should have mitigated. In cases of fraudulent misrepresentation, damages can be sought for all losses which it causes, whether or not reasonably foreseeable (including a fall in the market) and for loss of profits.
What makes a statement “false”?
If it is misleading. This means that half-truths are enough to constitute falsity. A statement, for instance, in response to preliminary enquiries that there are no disputes with neighbours would be false where a troublesome neighbour had caused disputes with all neighbours in the recent past although it had lulled at the time of the statement: see McMeekin v Long [2003] 2 EGLR 81 and Greenridge Luton One Ltd v Kempton Investments Ltd [2016] EWHC 91 (Ch); [2016] PLSCS 26.
A statement also need not be in words. It can be implicit from a photo, or even from action, such as filling in cracks or covering dry rot in order to mislead the purchaser about the property’s condition: see Ridge v Crawley (1959) 173 Estates Gazette 959 and Gordon v Selico Co Ltd [1986] 1 EGLR 71. It does though need to concern a fact rather than an opinion: see Royal Bank of Scotland plc v Chandra [2011] EWCA Civ 192.
Where the statement is limited to the vendor’s knowledge, such as the common response to an enquiry “not as far as the vendor is aware”, then there is no liability on the vendor unless deliberate untruthfulness or recklessness as to the truth can be proven: see Re Englefield Holdings Ltd and Sinclair’s Contract [1962] 183 EG 863. However, such an answer does carry an implication that the vendor has made reasonable investigations, before giving that answer: see William Sindall plc v Cambridgeshire County Council [1993] EGCS 105.
What constitutes reliance?
Reliance involves the representee being aware of the false statement, acting on the basis of it (in the sense of inducing it into the contract) and not knowing it to be untrue. The false statement need not have been the sole cause of the representee entering into the contract, but it does need to have played a real and substantial part in that. In practice, though, once the misstatement is shown to have been material, it can usually be inferred that the representee relied on it, especially so in a case of a fraudulent (deliberate and intended) misrepresentation (where the false representation has been made knowingly, or without belief in its truth, or recklessly as to its truth): see Eco 3 Capital Ltd v Ludsin Overseas Ltd [2013] EWCA Civ 413 and Ross River Ltd and another v Waveley commercial Ltd and others [2013] EWCA Civ 910; [2013] PLSCS 187.
Are all misdescriptions actionable?
No. It has to be “substantial”, that is, it must be in relation to something which affects the property in such a way that it can be said that but for the misdescription, the purchaser would not have agreed to buy: see Flight v Booth (1834) 131 ER 1160. This requirement is reflected in most standard conditions.
If a misdescription is not substantial, is there nothing the purchaser can do?
No, there is one remedy left, which is not dependent on the misdescription being substantial. A misdescription which is not substantial might not allow the purchaser to rescind the contract but, if it nevertheless adversely affects the value of the property, the purchaser will still have the right to abate (reduce) the purchase price to reflect such loss of value.
What is the role of the standard conditions?
They regulate the position where they apply, imposing a further layer of necessary analysis. Most common standard conditions standardise the position in cases of error or omission giving rise to a misleading or inaccurate plan, or a misleading or inaccurate statement in the contract or in the negotiations. They therefore apply to misrepresentations and to misdescriptions. If there is a material difference between the description or value of the property as represented and as it in fact is, the buyer is entitled to damages. Only where the error or omission results from fraud or recklessness, or where the buyer would be obliged to his prejudice to accept property differing substantially in quantity, quality or tenure from what the error or omission had led him to expect, may the buyer rescind.
Does a clause which says that the purchaser has not relied on a misdescription or misrepresentation work?
Sometimes. It cannot be predicted with certainty for two reasons. Firstly, it depends on the precise construction of the clause: See, for instance, AXA Sun Life Services plc v Campbell Martin Ltd [2011] EWCA Civ 133. Secondly, it depends on reasonableness – such a clause is subject to the “reasonableness” requirements of section 3 of the Misrepresentation Act 1967 – which can go either way depending on the circumstances: see Springwell Navigation Corporation v JP Morgan Chase Bank [2010] EWCA Civ 1221. Compare, therefore, Cremdean Properties Ltd v Nash [1977] 2 EGLR 80 (“no reliance” clause unreasonable when the purchaser had plainly relied on the representation) with Watford Electronics Ltd v Sanderson CFL Ltd [2000] All ER (D) 1145 (clause reasonable in commercial context where parties would be taken to have had the no reliance clause in mind) and Lloyd v Browning [2013] EWCA Civ 1637; [2014] 1 EGLR 73 (clause reasonable where it only excluded statements other than written replies to pre-contract enquiries and solicitors’ correspondence).
Is it better for the vendor just to say as little as possible, then?
Not necessarily. Unless it is expressly stated otherwise (which it rarely is) a contract for the sale of property contains an implied term that the vendor is selling the interest free from incumbrance. The vendor will therefore have to disclose latent incumbrances (which are not patent and obvious). The much loved principle of “caveat emptor” (let the buyer beware) will therefore only carry a vendor so far. It is unsafe to rely on it across the board. A right of way, for instance, might be “patent” in the sense of being patent to the eye but, if it is a public right of way (albeit little used for that purpose), that fact would still need to be disclosed to avoid a claim for misrepresentation or misdescription: see Yandle & Sons v Sutton [1922] 2 Ch 199.
If the necessary disclosure is made by referring to documents which the purchaser can inspect, however, it still needs to be a clear disclosure, so that an ordinary purchaser would understand what is being revealed. If only “the trained equity conveyancer, reading it, would know, after he had put on a wet towel and consulted all the works available, precisely and exactly what the trouble was”, that is unlikely to be a sufficient disclosure: see Faruqi v English Real Estates Ltd [1979] 2 EGLR 150.
Jonathan Seitler QC is a barrister at Wilberforce Chambers
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