The dangers of misrepresentation - Buyer beware

Misrepresentation during a property transaction is a real concern as this impacts, not only buyers and sellers, but equally, solicitors and lenders.

How important is it for a seller to be honest and provide full disclosure during a property transaction? The legal principle of “caveat emptor” (buyer beware) means that the burden is on the buyers to conduct their investigations and due diligence, but to what extent can that be argued? With the introduction of the new Law Society protocol forms set to be mandatory, lets delve further into the consequences of misrepresentation in property transactions.

What are the consequences? - McMeekin V Long [2003].

The consequences of misleading a buyer can be astronomical, as demonstrated by the case McMeekin V Long [2003]. McMeekin relied upon information in the Property Information Form in which the seller had stated “no” disputes had arisen with the neighbours. Post completion, it came to light that the seller was in fact, involved in an on-going dispute with the neighbours. The buyer had stated that they would not have purchased the property if they had knowledge of an on-going dispute. Subsequently, the sellers were liable for fraudulent misrepresentation and a settlement with the buyer of 59% (£67,500) of the original properties value in 1999.

Can the Buyer be held liable? – Rosser V Pacifico Ltd

In July of 2016, Mrs Rosser purchased, what she thought at the time was a 2-bedroom property, for the price of £299,950. The front bedroom on the second floor had a Velux Window installed after the Seller carried out renovation works. There was an express statement in the Law Society Property Information Form, that the seller was not aware of any breaches of planning permission conditions, or of work that did not have all necessary consents. Prompting Mrs Rosser into purchasing the property.

Shortly after, she was served with a letter from the council stating that the Velux Window must be removed, and after seeking advice, she did. The claim was brought to court under the Misrepresentation Act 1967.

The argument against the claim was that, if Mrs Rosser and her Solicitors had checked the Cardiff Council Portal, they would have seen the planning permission was not and never was available because it did not exist. This argument failed due to implied reasonable grounds of belief put behind the Sellers express statement.

More importantly, it was found that if this was disclosed (or the window was never installed) the property would have been valued at £270,000 making the loss at £30,000. This was evidenced in a report by an expert surveyor and accredited valuer. On top of this there was a further £4,142.92 awarded for the difference in stamp duty, the cost to remove the window and the cost of obtaining advice. Bringing the total damages to £34,142.92.

What does this mean in practice?

These cases indicate that the courts are likely to side with the Buyer if a misrepresentation is found, whether this be one that directly impacts the value of a property or one in which the buyer relies on to make a purchase.  However, by understanding this, it makes for a smoother property transaction for both parties and their solicitors.