Date 12 September 2011
Misrepresentation claims in property transactions are notoriously difficult to succeed with. When the recession hit, I saw an increase in clients wanting to explore misrepresentation claims as a means of escaping the consequences of contracts that they had entered into, alleging that the agents had promised them the earth but that the vendor had only contracted to provide them with the moon.
The best way to protect yourself against these circumstances is always to ensure that the contract fully reflects the parties expectations and if some of those expectations are not going to feature in the contract that everyone is at least aware of this. However, there will always be some circumstances where a disagreement will emerge some time after exchange of contracts.
As I stated above, misrepresentation claims are difficult to succeed with. However, a recent Court of Appeal case has shown that they are not impossible, even where the misrepresentation was innocent and not fraudulent. That case was Cleaver and Others (“Cleaver”) v Schyde Investments Ltd (“Schyde”) [2011] EWCA Civ 929.
The Facts
Schyde wanted to buy a garage site from Cleaver with the intention of developing it into flats. Another interested party wanted to develop it into a medical centre.
Cleaver reached an agreement with Schyde on the price and the usual pre-contractual due diligence was undertaken including Cleaver supplying replies to the British Property Federation Commercial Property Standard Enquiries (commonly used in commercial property transactions). Cleaver set out that there were no planning planning permissions etc affecting the property at that time but agreed to notify the buyer on becoming aware of anything which may cause any reply that it had given to be incorrect.
Two days later the other party applied for planning permission to turn the site into a medical centre, Cleaver was informed of this but failed to update its replies to Schyde thereby making a misrepresentation.
Schyde went on exchange contracts for the purchase of property. The contract was based upon the Standard Conditions of Sale (4th edition) (“the Standard Conditions”), which contain the standard contractual nuts and bolts needed to convey commercial property from one party to another.
Schyde then became aware of the planning application itself. They were very concerned that the application would prejudice its residential development plans. Despite contracts being exchanged, the other party refused to revoke the planning application. Schyde then gave notice of its intention to withdraw from the contract on the basis of Cleaver’s misrepresentations. Cleaver, issued a notice to complete and court proceedings were pursued by the parties.
The Law
The essence of those proceedings was whether or not a particular provision in the Standard Conditions was enforceable as fair and reasonable. If it was enforceable, then Schyde’s conduct was a breach of contract as they were not entitled to rescind for misrepresentations of this type. If it was not enforceable, then Schyde were correct the rescind.
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For further information or to discuss a particular matter or situation in more detail, contact Chris Alexander at our St Albans office by email at chris.alexander@salaw.com or on 01727 798042.
© SA LAW 2011
Every care is taken in the preparation of our articles. However, no responsibility can be accepted to any person who acts on the basis of information contained in them. You are recommended to obtain specific advice in respect of individual cases.