How to get it right – Seller’s replies to enquiries

Insights - 16/11/2017

Cathryn Pernstich looks at the importance of providing the correct information to a buyer when selling a business or property.

Are you in the process of selling a business or property? If so, there are a number of documents you will probably have to provide to the buyer:

1. copies of the title deeds to the property
2. replies to standard and specific enquiries
3. copies of documents referred to in those replies to enquiries

Providing Information

When giving replies to enquiries they need to be accurate both at the outset and during the transaction. If anything changes or new information comes to light, be that before or after exchange, or if you are about to complete the sale, then it must be passed to the buyer. If this does not happen you risk a claim for misrepresentation being brought against you by a disgruntled buyer.

This issue was considered in the case of First Tower Trustees Ltd and another v CDS (Superstores International) Ltd. Here, the seller became aware of the presence of asbestos during contract negotiations but failed to update the buyer with this information. As a result, the buyer made a claim for misrepresentation against the seller. The buyer argued that it had relied on the seller’s representation that there was no asbestos at the property being purchased. The buyer sought damages against the seller for the cost of the remedial works at the property to remove the asbestos and the costs incurred in finding alternative premises whilst the asbestos was removed.

The outcome of not updating the buyer

The seller was held liable for misrepresentation under section 2(1) of the Misrepresentation Act 1967. The Court explained that although the buyer should carry out its own enquiries, if the seller (having given replies to enquiries) was then presented with new information – contradictory or otherwise – then the seller had a responsibility to update those replies. The seller should have told the buyer about the asbestos.

The Court also reaffirmed that any clause purporting to exclude or limit a seller’s liability for misrepresentation, or the buyer’s reliance on replies to enquires would be subject to a test of reasonableness. What is reasonable will depend on the circumstances of the case and the people involved. Ultimately, if it gets to court, it will be for the court to decide.

What should you do?

This case is a good reminder of the importance of giving both accurate replies to enquires and how a buyer relies on those.

As a seller, you should consider:

– Completing replies to enquires with care, precision and accuracy. It may seem an onerous task, but it might be worth it in the long run.

– Be honest. If you do not know, then say that. Do not guess or give information that you think the buyer will “want to hear”.

– Who gives the replies? If should be a person with a good knowledge of the property so replies and information given are accurate.

– Updating the buyer if any information received during the transaction is inconsistent with or alters the replies to enquires already given. The changes should be clearly communicated to the buyer.

Without care and consideration, the consequences of inaccurate or misleading replies to enquiries can be far reaching without needing to be.

For more information and advice please contact Cathryn Pernstich, Solicitor at our Redhill office on 017378 54 521 or email [email protected].

 

 

Disclaimer:

Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.