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A pharmacist decides to relocate to the country and purchases a freehold property to be run as a pharmacy. The sales photographs show an idyllic location and the agent describes the property as solid. The replies to enquiries do not reveal any problems with the title to the property nor are any problems mentioned by the seller. Within weeks of the purchase it is apparent the building has problems with its foundations, there are several phone masts in the background not visible in the photographs making the property unsightly and the neighbours mention that use of the property as a pharmacy breaches a restrictive covenant from the 1900s.
Is it all the pharmacist’s fault for not properly researching the property before the sale went through? Should the seller and agent take some responsibility for not providing more information or for providing a statement inducing the pharmacist to enter into the sale contract which has turned out to be false and caused them loss?
Caveat emptor or “buyer beware” has long established that the sale of a property may be less risky for seller than buyer. However, both the seller and their agent should beware that statements made during the course of negotiations could later be labelled as misrepresentations. The misrepresentation itself does not need to be the sole reason the buyer purchases the property.
Misrepresentation should be separated from fraudulent misrepresentation (where the seller acts recklessly or untruthfully) or negligent misrepresentation (where the seller acts without reasonable grounds for believing the statement is true). A statement would be false or misleading if so to a material degree or if a reasonable person would infer from the content of the statement a false conclusion. The intention to be misleading is irrelevant.
A comment made in passing or in replies to enquires, artist’s impressions and plans or photographs that have been edited to obscure unsightly details could all (in context) be considered misrepresentations. The seller could face damages or termination of the contract.
Legislation and case law should be heeded by the seller and their agent. The Estate Agents Act 1979 (“EA”), Property Misdescription Act 1991 and Consumer Protection from Unfair Trading Regulations (CPRs) 2008 are all relevant. Estate Agents, which includes commercial agents, must be careful when disclosing information about the property, particularity in sales particulars. Agents must act fairly and the EA provides they should use all reasonable steps and due diligence. There is a fine line between not disclosing information and misrepresenting the situation to the buyer. This may mean disclosing more information than usually offered in standard replies to enquires.
Sellers owe a duty to disclose latent defects on title. This would include a restrictive covenant, for example, against use as a pharmacy. Compare this to a patent defect that a buyer could have discovered on inspection, for example, subsidence.
Failure to disclose could mean a breach of contract by the seller, as well as breaching warranties and implied covenants on title. If the misrepresentation is discovered between exchange and completion, the buyer may refuse to complete. If it is discovered after completion, this may entitle the seller to damages. Failure to disclose changes in the position as negotiations progress could also cause problems.
Whilst the pharmacist would be less likely to make a claim for misrepresentation for the subsidence (if this could have been revealed in searches usually undertaken by a buyer) they may have a potential claim for misrepresentation in non-disclosure of the restrictive covenant and in the photographs not showing the phone masts.
Agents and sellers keen to put a positive spin on less desirable features on a sale should think carefully before producing sales literature and replying to enquiries. They should make sure they are wise to the potential claims a buyer could make should the property bought not match the description provided.
This article first appeared in Pharmacy Business in February 2015.
The above is a general overview and we recommend that independent legal advice is sought for your specific concerns. Contact Katherine Lamprell at katherine.lamprell @crsblaw.com if you have any queries. Katherine is an Associate in the Real Estate team at Charles Russell Speechlys LLP.