2011 Q2 Conveyancing Periodical- Can You Rely on What the Seller Tells You?

June 2011

by Paul Butt LL.B., Solicitor and Former Professor of Law

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We are always being told that buying a house is the biggest purchase that most people will make during their lives. But despite all the warnings, many still do not seem to appreciate the risks involved. The law gives much more protection to someone buying a new TV or computer than to the buyer of a house. So, under the Sale of Goods Act 1979 and related legislation, it is implied that the seller has the right to sell the item: that it is of satisfactory quality and 'fit for purpose'. But with a house (or any other purchase of land) the ancient rule 'caveat emptor' - buyer beware - still applies.

Many people only visit the house they are intending to live in on two or three occasions and so often know very little about it. They will, of course, question the sellers about any matters of particular concern and it is standard conveyancing practice for the sellers, through their conveyancers, to provide answers to a standard set of questions in a 'Property Information Form.' But what if the sellers answer these questions incorrectly, whether inadvertently or deliberately? Is the buyer adequately protected?

In either case, the buyer is reliant on the law relating to 'misrepresentation'. This is now largely dealt with by the Misrepresentation Act 1967, as amended. A misrepresentation is basically a statement of fact which is untrue and which has been relied upon by the buyer in deciding whether to buy. So if the buyer would have bought the property in any event whether or not the statement was correct, there can be no remedy available to him. The remedy actually available to a buyer will differ depending upon the seller's state of mind when making the 'representation'. Misrepresentations can thus be: (i) innocent, where the seller did not know that what he was saying was untrue; or (ii) negligent, where the seller ought reasonably  to have known that what he was saying was incorrect ; or (iii) fraudulent, where the seller knew the representation to be false or was reckless as to whether it was true or not.

As to remedies, sometimes compensation will be available to a buyer for any loss he suffers - for example a reduction in the value of the property. But if the misrepresentation is fraudulent, 'rescission' is available. This means terminating the contract and getting your money back. As in all disputes, misrepresentation will often boil down to a question of proof of who said what or what actually happened. So in 2010 a Mr and Mrs Morgan brought proceedings against their sellers, Mr and Mrs Pooley. (Morgan v Pooley [2010] EWHC 2447.)

The Morgans had purchased a country property for £1.6 million. The sellers completed the standard Property Information Form which included the question: "Have you either sent or received any letters or notices which affect your property or the neighbouring property in any way (for example, from or to neighbours, the council or a government department)?"  Mr and Mrs Pooley's answer was "No". After moving in, the Morgans discovered that a little used farm track along their boundary was now going to be turned into a driveway to the neighbouring property. This would, it was claimed, considerably interfere with the Morgans' privacy and enjoyment. They contended that the value of their house had been significantly diminished and proceedings were commenced against the sellers claiming misrepresentation. Although it was established that the local planning authority had sent notice of the proposed development to the sellers, the judge accepted the sellers' evidence that, they had not actually received the notice and so the claim failed.

Apart from proof, the other obstacle often facing buyers is the terms of the purchase contract.  Sellers' conveyancers will often include provisions in the contract trying to protect their clients from any liability for misrepresentation. So in Morgan v Pooley, the contract contained the following provision:

"The Buyer acknowledges that this Contract has not been entered into by the Buyer in reliance upon any representations made by or on behalf of the Seller except those made in writing by the Seller's conveyancers prior to the date hereof as being representations upon which reliance is placed and such as were not capable of independent verification by the Buyer."

Although the judge had held that there had been no misrepresentation on the facts, he went on to consider the validity of this clause. In this clause the buyers are saying that they did not rely on statements made by the seller except those made by the sellers' conveyancers. If there is no reliance, there can be no misrepresentation. The judge thought that as the clause was in a prominent position in the contract and thus the Morgans, or at least their solicitors, knew of the clause when they entered into the contract, it was binding upon them. Had they not wished to be bound by it, they should have challenged it before entering into the contract.

But maybe some help is at hand for buyers. The Law Society has just produced a new Fifth Edition of the Standard Conditions of Sale which are generally used in residential conveyancing transactions. The new edition includes a clause to protect sellers, but worded somewhat differently from the above. Special Condition 6 reads:

'Neither party can rely on any representation made by the other, unless made in writing by the other or his conveyancer, but this does not exclude liability for fraud or recklessness.'

This seems much fairer from a buyers' point of view. Written replies by the sellers can be relied upon - not just those by their solicitors - and if fraud or recklessness can be proved, so can oral replies. And what is more, we now have the new Conveyancing Protocol introduced by the Law Society in April. This is part of the Law Society's Conveyancing Quality Scheme, and use of the Protocol is mandatory for solicitors who are members of the Scheme. Item 24 of the Protocol states that further clauses are not to be included in the contract unless '...they are necessary to accord with current law, or specific and informed instructions have been given by the seller that inclusion of such clauses is necessary and that they are required for the purposes of the particular  transaction.'

It is to be hoped that will result in a much fairer balance being achieved between buyers and sellers in the conveyancing process so that replies to enquiries can become much more useful to a buyer.

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