Seller beware of innocent misrepresentation

30-09-2011 09:22

Condition 7.1.3 of the Standard Conditions of Sale (Fourth Edition) provides for the circumstances in which a buyer may rescind a contract for the sale of land and states:

“An error or omission only entitles the buyer to rescind the contract:

Where it results from fraud or recklessness,

or where it would be obliged, to his prejudice, to accept property differing substantially (in quantity, quality or tenure) from what the error or omission had led him to expect” 

In Cleaver and Another v Schyde Investments Ltd [2011] EWCA Civ 929 the seller provided the buyer with replies to enquiries in the normal way. The seller later became aware of a planning application made by a third party in respect of the land to be sold. The seller knew that the third party’s application would have a negative effect on the buyer’s development plans for the site, but the seller failed to fill the buyer in on the crucial information by failing to update their replies to enquiries.

The buyer was none the wiser and proceeded to exchange of contracts (which incorporated the standard conditions of sale) without knowledge of the third party’s planning application, only to be given a nasty surprise when they found out that their development plans would not be able to go ahead as intended. Quite understandably, the buyer refused to complete the transaction and requested the return of the deposit. 

The seller attempted to rely on clause 7.1.3 of the standard conditions by claiming that the buyer could only rescind the contract and demand the return of the deposit if the seller’s omission involved fraud or recklessness.

The County Court decided, and the Court of Appeal agreed, that seller could not rely on condition 7.1.3 as the condition was not fair and reasonable in the circumstances and therefore failed to meet the requirements of legislation governing unfair contract terms (Section 3 of the Misrepresentation Act 1967 and section 11 of the Unfair Contract Terms Act 1977). The Judge noted that the buyer would not have exchanged contracts had they known of the existence of the third party’s planning permission.

This case shows that although the standard conditions are endorsed by the Law Society (which was one the seller’s arguments) and are incorporated as standard in to most contracts for the sale of land, the conditions are still subject to the scrutiny of the Courts.

If you would like any more information on this topic please contact Amanda O’Mahony: amanda.omahony@spw-law.co.uk

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