Action for rescission and return of deposit – Allegedly misleading replies to preliminary inquiries relating to disputes and notices – Whether letter can amount to a "notice" – Conduct amounting to "recklessness" for purpose of standard conditions of sale – Operation of those conditions where consequences of misrepresentation go solely to monetary value
By a contract made between the parties in March 1995 the plaintiff contracted to buy two blocks of flats for £640,000 and paid an initial deposit of £32,000. At the time of the contract some 18 of the 30 flats had been separately let by the defendant to the University of Greenwich, each for a nine month period expiring early July and upon terms that the defendant would as landlord comply with any requirements of the local housing authority (the council) in respect of regulations relating to houses in multiple occupation (HMO). The university had sublet each flat to groups of up to three students for occupation during the academic year. At the time of contracting the plaintiff was unaware that the subject of HMO had been raised in three letters some nine weeks earlier whereby the council informed the university of their anxiety over reports of non-compliance with the relevant regulations; (ii) the university conveyed the substance of that letter to the defendant with a reminder as to the express provision in the leases; (iii) the defendant replied that they would do such works as might in due course be required by the council. No reference to these matters was made in the reply to the local authority search made by the plaintiff’s solicitors, but the plaintiff learned about them from another source some eight days after entering into the contract. The plaintiff sought rescission and return of his deposit on the ground of various misrepresentations alleged to have arisen from the defendant’s failure to mention the earlier correspondence when they responded to certain standard pre-contract inquiries. The relevant inquiries were: PE no 45, as to whether the vendor was aware of any past or current disputes relating to the property; PE no 46, as to whether the vendor was aware of any circumstances which may lead to such disputes; PE no 48, requesting details of all notices received or given by the vendor which relate to the property, its use or enjoyment; Tenancy Inquiry no 5, as to whether a tenant had complained or had cause to complain of any breach of covenant on the landlord’s part; Tenancy Inquiry no 8, requesting details of notices served on or by the local authority relating to or affecting the terms of any existing tenancy or the use of the demised property.
The defendant denied the misrepresentations and further contended that, on the facts, the remedy of rescission was in any event excluded by condition 7 of the Standard Conditions of Sale (2nd ed), which confines that remedy to misrepresentations which are (i) made fraudulently or recklessly; or (ii) of such a kind that enforcement of the contract would oblige the buyer to accept a property differing substantially (in quantity, quality or tenure) from what he had been led to expect.
Held The plaintiff was entitled to rescind and recover his deposit.
1. No misrepresentation arose out of PE no 45, as there was no relevant dispute; nor out of PE no 48 as the council’s letter was neither sent nor copied to the defendant; nor out of Tenancy Inquiry no 5, as the council’s letter did not amount to a "requirement" as such.
2. The reply to PE no 46 was a misrepresentation, as the last letter and evidence given in court disclosed a combative attitude on the part of the defendant which could have led to a dispute. It was furthermore made recklessly in that it was plain that the author did not care whether his reply to the inquiry was right or wrong.
3. The reply to Tenancy Inquiry no 8 did amount to a misrepresentation. There was no reason why the council’s letter should not be described as a "notice" (no general definition put before the court). Furthermore, it was fair to say that the premises were "affected" even though an HMO determination had yet to be made. However, these difficulties of interpretation negatived any allegation of recklessness. Nor could the plaintiff rely on the second limb of clause 7 as the difference could be readily made good by a price reduction reflecting the cost of complying with any MHO requirement, which on the highest estimate would not exceed 5% of the purchase price.
Jonathan Arkush (instructed by Stock Fraser & Co) appeared for the plaintiff; Alex Leitch, solicitor advocate (instructed by SJ Berwin) appeared for the defendant.
