A recent case has highlighted that care must be taken when responding to any pre-contractual enquiries whether you’re selling your business or a property.

The case involved the seller of three office buildings who provided replies to standard commercial property enquiries in which he stated there were no disputes outstanding, likely or in the past and that there were no arrears of service charge. The seller did reveal that a tenant had raised some questions relating to “historical issues and had recently raised further enquiries”. When further information was requested by the buyer’s solicitor, none was given.

In fact, over a period of nearly 6 months, the tenant had been in correspondence with the seller’s managing agent, had said on 5 separate occasions its concerns amounted to a dispute and had twice withheld payment of service charges.

Contracts for the sale of the building were exchanged and a deposit of £812,500 was paid. When the service charge issue came to light, the buyer claimed the contract was rescinded and the seller counterclaimed that the deposit was forfeit.

The buyer won the ensuing legal battle on the grounds that the seller recklessly or fraudulently made an untrue representation. It was awarded return of its deposit and the sum of £395,948 in damages for deceit.

The law is clear that a claim can be brought for fraudulent mis-representation where an untrue representation has been made and the person making it either knows it is untrue, doesn’t believe it is true or is reckless as to whether it is true or not.

Although there are remedies for all forms of mis-representation fraudulent mis-representation allows the contract to be rescinded and for additional damages to be paid. It is therefore vital when selling property or your business that you are honest with your replies to enquiries. If any replies become untrue during the period before completion, they must be updated otherwise you could still find yourself liable for mis-representation.

The case is an expensive reminder to take care when you are selling any asset that you check all your replies to any pre-contractual enquiries. That includes the information you provide yourself and any replies to enquiries that are prepared on your behalf. Your solicitor should be able to assist you in preparing your responses. However, it is your responsibility to check the facts and to ask relevant members of staff or advisors if you personally do not know the answers to a question.

If you are considering selling a property or any part of your business, please contact Farleys and we will be happy to discuss the process as well as the risks involved in such transactions.

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