Buyer beware in the Court of Appeal

The case of Hardy v Griffiths [2014] EWHC 3947 (ChD) considers the often asked question about whether a buyer of a residential property is entitled to rely on representations about the physical condition of the property made by a seller during the course of sale and purchase negotiations.

The case concerned the sale and purchase of Laughton Manor, a substantial 17th century country residence close to Lewes, East Sussex. The agreed purchase price was £3.6m. The house was of architectural significance, in so far as it was designed and built by Sir James Duke Bart, a friend of Queen Victoria, and has architectural links to Osborne House on the Isle of Wight.

At the time of exchange of contracts, the house was allegedly subject to rising damp and rot, which, it was argued, should have been disclosed to the defendants, the prospective purchasers, before they exchanged contracts.

The defendants made verbal enquiries with the one of the claimants and their estate agent about the prospect of damp at the property prior to exchange of contracts; the existence of damp and rot was not revealed to them. The defendants' solicitor also enquired in writing as to whether the property was subject to rising damp or dry rot prior to contracts being exchanged.

In her judgment, Amanda Tipples QC confirmed that defects of a physical quality are among those that are pursuant to the Standard Conditions of Sale (Fifth Edition) 3.2.1, which a vendor of land is not required to disclose to a prospective purchaser. Instead, the responsibility for discovery of those issues is placed on the purchaser, and a full structural survey should have been undertaken by the purchasing defendants before contracts were exchanged.

The judgment concludes that because the purchasing defendants decided to enter into the contract for sale without professional advice from a surveyor, they could not subsequently complain about the physical condition of the property.

A more interesting point was that the judge found that the claimants selling the property did not fraudulently or recklessly misrepresent the position about its physical condition. In evidence, it appeared the claimants probably did not have knowledge of the rising damp and rot at the time when, pre contract, the defendants asked questions about the condition of the property, therefore an actionable assurance (in writing or otherwise) could not have been given.

Actionable misrepresentation

An actionable misrepresentation must be a statement of fact, not opinion and there must be a reliance upon it. In conjunction with Standard Condition of Sale 3.2.1, an actionable misrepresentation may also be an omission or failure to disclose a facet about the physical condition of a property when enquiries are made prior to exchange of contracts.

In Hardy v Griffiths, the claim failed because the judge found that a statement or assurance had not been made by the claimants to the defendants with regard to the rising damp and associated rot and, even if it had, the defendants could not show they had relied on it when making their decision to purchase Laughton Manor.

The parties had sought to limit the scope of actionable representations to those made by the claimants' conveyancers before the date of the contract, and had also agreed that such representations must give rise to a material difference between the description or value of the property, echoing the phrasing used in Standard Condition 7.1.2.

Considering these points, even if the claimants had made a verbal assurance about the physical condition of the property, this would not have been sufficient to constitute an actionable misrepresentation because it was not made by the claimants' conveyancers prior to exchange of contracts.

Diligent investigation

This case currently reinforces the maxim of Caveat emptor; a purchaser of a property must diligently investigate its physical condition prior to exchange of contracts on its own terms or risk not being able to rescind the contract due to physical defects which transpire at a later date.

An application for permission to appeal is due to be considered by the Court of Appeal on 29 October 2015 and, if it is granted, it will be interesting to see how the Court of Appeal deals with the question as to the extent to which the seller is under a duty to investigate the physical condition of the property and reveal its findings to a prospective purchaser.

Liz Turner is a senior lecturer in property law at Leeds Law School, Leeds Beckett University

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