Honesty is always the best policy when selling property. As the defendants in McKeekin v Long have found out, anything else could land you in big trouble.
In the sale of a property, one of the first legal steps is for the buyer’s solicitor to send formal written inquiries to the seller’s solicitor. Solicitors use their own unique forms of inquiries, which can typically run to well over 200 questions.
It is very easy for solicitors to dream up ever longer and more detailed inquiries, but it is not easy to answer them. The task of answering can be time-consuming and fraught with traps.
At one time, the practice was to give the minimum of help, with answers such as “inspection will reveal” and “the buyer must rely on his searches” or “this inquiry is too wide”. Today, replies of this sort will often be rejected and there is a risk that the transaction will be slowed down if full information is not given at the outset. It is important, therefore, to take care in answering these inquiries, as highlighted by two recent cases.
The case of McMeekin v Long in March 2003 made national news amid headlines such as ’Sold down the river’, ’£67,000: the price of lying to the people buying your house’ and ’A legal first that could open the floodgates’.
The case concerned the sale of a freehold house in Hampshire. Access to this property was along a private road. The road was owned by a neighbour, although the property had the benefit of a right of way over it. Leading up to the sale, the buyers’ solicitor sent formal written inquiries to the sellers’ solicitor. These inquiries were in the usual industry-wide standard residential form, two of which asked, “Do you know of any disputes about this or any neighbouring property?”, and “Have you received any complaints about anything you have, or
have not, done as owners?”. The sellers replied “no” to both inquiries. Also, in conversation, they told the buyers that the neighbours “were good and friendly”. The sale was then completed.
All was quiet for the buyers for the first 11 months, then they arranged for Tesco to deliver their groceries. The neighbours, who owned the land through which the private access road passed, took exception to the Tesco delivery van. It was then that the true nature of the neighbourly relations reared its ugly head. There had, in fact, been disputes in the past about the use of the access road and there had been a general atmosphere of constant confrontation between the sellers and the neighbours. The buyers commenced proceedings against the sellers for failing to disclose this.
The sellers tried to argue that, at the time of the sale, there were no current disputes with the neighbours, as previous arguments had been resolved. For example, in relation to a dispute over the parking of vehicles on the access road, the sellers and others entitled to use the road had taken advice from solicitors and had accepted the position. This argument did not impress the judge, who held that the sellers had deliberately, or at the very least carelessly, failed to disclose the dispute about parking.
“That is precisely the kind of information which must be disclosed to a potential purchaser for them to be able to make up their minds whether they wish to buy a property with the running sore of constant disputes and antagonism existing between the owners of the access road and those who have rights of way over it,” said the judge.
The judge added that the questions on the standard residential form of inquiries were so simple to understand, and the dispute so obvious, that it was “impossible to conclude other than that the [sellers] must have known that they were not being truthful when they answered those two questions”.
The buyers’ lives were devalued by a continuation of a running dispute with the neighbours and the sellers were held liable for fraudulent misrepresentation.
The case of Morris v Jones is a similarly cautionary tale. It further erodes that already much eroded principle of ’let the buyer beware’.
In Morris v Jones, which concerned the sale of a basement flat, one of the buyer’s solicitor’s formal inquiries requested: “Please give details of any damp which may have affected the property at any time to the seller’s knowledge.”
The seller’s solicitor’s reply was: “Other than the works covered by the Remtox guarantee (copy enclosed), none to the seller’s knowledge, but caveat emptor must apply and the buyer should rely entirely upon his own inspection and survey.”
The Remtox guarantee covered work relating to rising damp only. However, the walls of the flat were partially below ground level and also suffered from damp coming in sideways through the walls. Several years earlier, the seller had carried out tanking work in an attempt to remedy sideways damp. The tanking work was defective, but this did not become clear until after the completion of the sale.
As the seller knew about the sideways damp, his reply to the inquiry was incorrect. He had misrepresented that there had been no damp in the past other than that covered by the guarantee. The court held that the response of “caveat emptor must apply and the buyer should reply entirely upon his own inspection and survey” did not excuse the seller from the consequences of his misrepresentation.
The buyer had relied upon the reply to the inquiry and the incorrect information was a relevant factor in his decision to go ahead with the purchase. The seller was therefore liable to the buyer for damages under the Misrepresentation Act 1967.
This case is yet another warning to solicitors to give careful guidance to clients to be scrupulously truthful when replying to inquiries. It is not worth being economical with the truth. If in doubt, spell it out. A mistaken or untruthful tick in the ’no’ box is likely to have serious consequences for the seller.
For commercial transactions, the industry-wide standard inquiries published last year are the commercial property standard inquiries. The corresponding question from these inquiries relating to disputes and complaints is (paraphrased) as follows: “Please give details of any disputes, claims, actions, demands or complaints that are currently outstanding, likely or have arisen in the past that (a) relate to the property, or (b) affect the property but relate to a property near the property.”
This inquiry is even wider than the corresponding inquiries in the residential form. So for sellers of commercial properties and their solicitors it is worth repeating the warning note from the residential form, which is lacking in the commercial inquiry form.
The residential form states: “It is very important that your answers are correct because the buyer will rely on them in deciding whether or not to go ahead. Incorrect information given to the buyer through your solicitor, or mentioned to the buyer in conversation between you, may mean that the buyer can claim compensation from you or even refuse to complete the purchase.”
Tim Norman is a professional support lawyer at Denton Wilde Sapte