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Buyer Beware!

Buyer Beware!

Anyone who has ever sold or purchased a property will know very well that there is a significant amount of paperwork and communication between the parties involved and their solicitors. The recent case of Hardy v Griffiths [2014] EWHC 3947] serves as timely reminder that all correspondence and communication between the parties should be considered extremely carefully, otherwise the consequences can be devastating.

The background

Mr and Mrs Griffiths agreed to purchase Laughton Manor (“the Property”) for £3.6 million in 2011. On exchange of contracts, Mr and Mrs Griffiths paid £150,000 of the 10% deposit. Mr and Mrs Griffiths then proceeded to instruct a Surveyor to consider the state of the Property (please note that it is usual for such to be instructed prior to exchange of contracts and that practice would always be recommended!) The survey revealed the property suffered from damp and rot and as a result, Mr and Mrs Griffith promptly tried to extract themselves from the purchase. They argued that the sellers must have been aware of the issues and therefore they had failed to communicate the same to them throughout the conveyancing process. They refused to complete and requested that their deposit be returned.

The issue

The primary issue was therefore whether Mr and Mrs Hardy were aware of the problems with their property and had duly failed to bring those to the attention of Mr and Mrs Griffiths.

The replies

In response to enquiries raised by Mr and Mrs Griffiths’ solicitors, Mr and Mrs Hardy’s solicitor noted that they were not aware of any problems but “as you will appreciate this is an old property and therefore this reply cannot be taken as a warrant as to condition.”

The contract

The contract for the purchase of a property often follows a standardised contract. The relevant terms of the Standard Conditions of Sale provide that:

  1. A buyer accept the property in its physical state as at the date of the contract. This means the responsibility for discovering defects rests with the buyer.
  2. If the buyer refused to complete the purchase, the seller (after service of a notice to complete) can end the contract, retaining the deposit and re-selling the property. The seller is not precluded from bringing a claim for any further losses (for example if it were unable to sell the property at the same price or have suffered claims by other parties in the chain due to the Griffith’s failure to complete the chain). Alternatively, the buyer could seek to bring a claim seeking an order that the buyer purchases the property and seeking damages for any further losses.
  3. If any plan or statement in the contract (or negotiations leading to it) was misleading or inaccurate due to an error or omission by the seller, the buyer has remedies. If there is a material difference between the description or the value of the property, the buyer is entitled to damages. If the error or omission results from the fraud or recklessness or would result in the buyer accepting property substantially differing to that he believed to be purchasing, he may terminate the contract and claim the return of the deposit.

Additional terms can be agreed and are referred to as special conditions. In this case there was, a commonly seen, a special condition which provided that the buyer was unable to rely on any statement other than from the seller’s solicitors in writing before the date of the contract.

The judgment

The Court found that:

  1. Mr and Mrs Griffiths were not allowed to terminate the contract as there was no evidence that Mr and Mrs Hardy had been fraudulent or reckless in their response to the question regarding the knowledge of damp and rot.
  2. Mr and Mrs Griffiths were unable to rely on any other statements by Mr and Mrs Hardy as the contract only permitted them to rely on written statements from the Hardy’s solicitor. This was a fair and reasonable clause being negotiated by parties of equal bargaining power and still permitted any questions to be put to Mr and Mrs Hardy’s solicitor.
  3. Given the above, Mr and Mrs Griffiths were not entitled to terminate the contract and therefore, by failing to complete the purchase, Mr and Mrs Hardy were entitled to terminate the contract and not only retain the deposit but seek further payment of the balance of the 10% deposit.

Buyer Beware!

The long established concept of “buyer beware” clearly continues and the penalty for failing to comply with a contract can be costly. In addition to losing their deposit, Mr and Mrs Griffiths would have had to pay significant legal costs.

Both parties to a conveyance, ought to carefully consider their responses to any enquiries, any communication and the terms of the contract to ensure that the parties are fully advised of any issues and responsibilities associated with proceeding with the transaction.

Investor beware?

The Consumer Protection from Unfair Trading Regulations 2008 prohibits a trader from engaging in any commercial practice that is considered unfair when dealing with a consumer. From 2014, the definition was amended to include “immovable property”. It is therefore believed this could affect those whose business is the selling or letting of property, imposing a greater burden on them to ensure they are acting in a manner in accordance with honest market practice and good faith.

CONTACT LYNSEY

If you would like more information or advice relating to this article or a Property Litigation law matter, please do not hesitate to contact Lynsey Newman on 01727 798092.

© SA LAW 2017

Every care is taken in the preparation of our articles. However, no responsibility can be accepted to any person who acts on the basis of information contained in them alone. You are recommended to obtain specific advice in respect of individual cases.