Pre-contract enquiries can be time consuming and look cumbersome but replies to enquiries are an important source of information for a buyer and a seller must be aware that some stock responses can have significant legal implications.
At the start of most property transactions a prospective buyer will raise enquiries about the property which it intends to acquire. This article explains why replies to those enquiries are important, the meaning of some commonly used phrases and offers practical advice to sellers.
Why are enquiries used?
The onus is on the buyer to carry out a thorough review of the property and to spot any potential issues. This is summed up in the Latin principle caveat emptor - let the buyer beware. In commercial transactions the Commercial Property Standard Enquiries or CPSEs are usually raised. These are a comprehensive set of enquiries which help a buyer to understand the property and the interest that it is acquiring. A thorough set of replies can facilitate a speedy conclusion to a deal.
Does a seller have to offer replies?
The seller is not under any duty to give replies but it is under a legal duty to disclose latent defects affecting the property. Examples of these include a right of way not obvious from a site inspection or noted in the deeds, rights of drainage and third party interests. Offering full replies helps to ensure that the seller has discharged its duty.
Why is the accuracy of replies so important?
Replies to enquiries may amount to statements of fact or law and these can form representations to the buyer. The buyer will rely upon these representations when deciding whether or not to proceed. An inaccurate or misleading representation may mean that a buyer could bring a claim for misrepresentation or negligent misstatement if it could show that it relied on the seller's misrepresentation, it was reasonable to do so and that it suffered loss as a result.
What happens if the seller's replies are incorrect?
If the buyer brings a claim against the seller then depending on which type of misrepresentation is established, rescission of the contract (i.e. requiring the seller to buy back the property) and/or a claim for damages may be available to a buyer.
Why could giving replies be difficult?
Sellers find it difficult to draft replies, for a variety of reasons. For example, sellers who have owned a property for a long time may find it difficult to recapture the property's full history. It may be that the seller, being a company, has had changes in its workforce and those with direct knowledge of the property are no longer within the business. Issues could also arise if the transaction is confidential - there could be a situation where those with knowledge of the property cannot be asked about it.
How should sellers draft their replies?
It is important that all replies given are accurate and truthful. Proper and careful consideration should be given to the content of the replies. Phrases such as "not so far as the Seller is aware" and "the Buyer should rely on their own enquiries and inspection" should be used with caution.
What does 'not so far as the Seller is aware' mean?
This means that the seller has no actual knowledge of the issue but that it has taken reasonable steps to identify the correct reply. If the seller has not investigated the matter and has not taken steps to identify the correct reply, this should be made clear.
Does using the phrase "the Buyer should rely on their own enquiries/inspection" shift the burden from the seller to the buyer?
No, not if the phrase is used after 'not so far as the Seller is aware'. It will not negate a misrepresentation. A seller should either make it clear that it has not carried out any investigations itself or avoid any form of words that suggest it may have done so.
Should caveats and non-reliance clauses be used?
Caveats should be used, but only if appropriate. For example, if the Seller is a company, trust, or not an individual, it is prudent to qualify the replies by stating that the replies are limited to the knowledge of the individual answering them or are purely based on the company's management files.
What happens if the seller's replies become inaccurate during the course of a transaction?
If an initial reply subsequently becomes inaccurate or misleading the seller should inform the buyer of the correct position as soon as he becomes aware and, in any event, before exchange of contracts. If the seller does not do this, the original inaccurate representation will continue to be made up until exchange. This will amount to a misrepresentation which the seller will not be able to defend.
Practical tips for sellers
- Property files should be up to date and regularly reviewed.
- Take time to draft the replies - make sure all replies are as full and accurate as possible.
- Do not rely on common phrases without understanding their true meanings and implications.
- Clearly state if something is unknown, a document does not exist or there are gaps in the author's knowledge.
- Always try to investigate the position.
- State who is giving the replies, their position and what their knowledge is based on.
- Update any replies and inform the buyer as you become aware that a previous reply is incorrect or misleading.