When acting for a Landlord or a Seller on a commercial property transaction, we will usually receive from the Tenant’s/Buyer’s solicitor Standard Commercial Property Enquiries or “CPSEs” as they are known.
These, when sent to a client, can cause much disdain especially as a vast number of the replies will be “The Buyer should rely on its own survey, inspection, searches and enquiries”.
However, the replies to CPSEs are an important source of information for the Buyer, its solicitor and any lender and may influence whether it enters into the contract. If they prove to be false, the Buyer may expect to be able to abort the transaction (if not yet completed), recover damages or unwind the completed transaction (or a combination of these remedies). It is therefore important that where information is available to the Seller, it is disclosed to the Buyer.
The need for absolute honesty was highlighted recently where an office block owner failed to disclose the existence of service charge arrears to prospective purchasers. The Seller was ordered by the High Court to repay the deposit that had been paid by the Buyer and almost £400,000 in damages for deceit.
The £16,250,000 purchase price for the office block had been agreed and a 5% deposit was paid by the Buyer on the exchange of contracts. However upon learning that the Seller was in dispute with the office block’s principal tenant in respect of the service charge and that there were substantial arrears, the Buyer withdrew from the purchase and did not complete. It claimed for the return of its deposit and damages in respective of the wasted costs involved in its abortive purchase. The Seller argued that the Buyer had itself repudiated the contract and was therefore not entitled to relief.
The Court of Appeal found in the Buyer’s favour indicating that the Seller’s response to the pre-contract enquiries were misleading. The statement that there were no service charge arrears was untrue and “at least reckless”. The deposit was thus returnable in full and the Buyer was entitled to damages of £395,948 as a result of the Seller’s deceit.
Depending on the Seller's knowledge when it made the statement, the remedies will differ but this case highlights the need to give as much information as possible where such information is in your possession.
If the Seller chooses to reply to pre-contract enquires (there is no legal requirement to do so) and makes representations in those replies (note that not all replies to pre-contract enquiries will be representations) then it should give proper consideration to the content of the answers. They should be an accurate reflection of the Seller's knowledge at the date they are given. This is not necessarily the same as the answers being factually correct.
The Seller should make reasonable efforts to check its records for the property, or ask the appropriate people within the organisation (where the Seller is a corporate body and, therefore, has no direct knowledge of the property). This can be difficult for several reasons for example, the Seller may have owned the property for a long time, recapturing information from early in its ownership may be difficult, relevant files may have been destroyed, company employees, who had the relevant knowledge about the property, may no longer be with the company, the proposed transaction may be confidential, which makes it impossible to ask the relevant employees what they know about the property.
Where the seller does not have access to the information, it should expressly qualify its replies to the pre-contract enquiries to make this clear. It is not necessarily sufficient to do so with a phrase such as "Not so far as the Seller is aware", as this may be taken as a representation that the Seller has taken reasonable steps to identify the correct reply.
For more information or advice on this or other related property matter, please contact Shilpa Unarkat s.unarkat@sydneymitchell.co.uk on 0121 746 3300 or fill in our online enquiry form.
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