Anything you say in replies may be used in evidence against you

Posted on 2 March 2016

Anything you say in replies may be used in evidence against you

Providing replies to standard property enquiries can be a laborious and tedious task for all involved, whether you're the owner, managing agent or legal adviser. However, the recent case of Greenridge Luton One Ltd v Kempton Investments Ltd serves as an important reminder about the need to ensure replies are accurate at the time they are given and remain accurate throughout the duration of a transaction.

The case involved the sale of three properties which were mainly let to just one tenant. The replies to standard market enquiries were prepared well in advance of the transaction when the properties were still being marketed. At that time the tenant had engaged service charge consultants who had queried a number of service charge matters in correspondence with the landlord's managing agents. The replies prepared at that time referred to this correspondence in very simple terms stating only that queries had recently been raised and these concerned mainly historical issues. The replies to the enquiries went on to state that there we no disputes outstanding or likely and that there were no service charge arrears.

Almost six months later, a buyer was found and the pre-prepared replies to enquiries were issued. However, in the interim, the service charge correspondence had evolved into a dispute and the tenant had withheld part of its service charge payments for the last two quarters. The replies had not been updated to take account of this significant development and despite the buyers asking for further details in respect of the limited reply given, nothing further was forthcoming from the seller. Contracts were subsequently exchanged and it was only when the buyer sought to obtain finance for the transaction before completion that the extent of the dispute and the arrears came to light. The bank's valuer saw this as a material matter and in the absence of funding the buyer could not complete and sought to rescind the contract on the basis of the seller's inaccurate replies. In response, the seller served a notice to complete upon the buyer and then forfeited the buyer's deposit of £812,500.

The buyer sued claiming there had been a material misrepresentation by way of non-disclosure upon which the buyer had placed reliance and consequently suffered loss. The buyer sought recovery of its deposit together with damages relating to its wasted legal and other professional costs. The court established that there had been a misrepresentation within the replies to enquiries upon which the buyer had placed reliance. The seller could not honestly have believed the replies were accurate or was so reckless that fraudulent misrepresentation had occurred. The court ordered the return of the £812,500 deposit and the payment of damages of almost £400,000.

This case highlights the need for an owner and its professional advisors to thoroughly verify replies to enquiries before they are issued. The open sharing of information between those parties should also be encouraged so everyone involved with the transaction is aware of all material matters. Care should be taken to ensure replies are truthful and significant issues are not downplayed. It should be noted that the standard property enquiries require the owner to notify the buyer on becoming aware of anything which may cause any reply that it has given... to be incorrect and a buyer will usually ask for replies to be reconfirmed in its pre-completion requisitions. Therefore, until a transaction is concluded, the owner and its advisers are under an ongoing obligation to ensure that the replies are accurate and remain accurate.

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