RESOURCES | The cost of inaccurate replies to Commercial Property Standard Enquiries
Sellers of commercial property often regard replying to standard form pre-contract enquiries as an inconvenient and unwanted chore, writes Hannah Gavigan. But a failure to treat the exercise with sufficient respect or to remember to update replies if circumstances change can lead to disastrous (and expensive) consequences…
Commercial Property Standard Enquiries (CPSEs) are a detailed set of questions answered by the seller’s solicitor that provides the buyer’s solicitor with essential information regarding the property and the interest being acquired, including any disputes or incumbrances affecting the property. The seller’s input is crucial, since they will usually have the greatest knowledge of the property. Replying to CPSEs can be a time-consuming and tedious task, however it is important that sufficient time is spent ensuring the replies are a true representation of the property.
The recent case of Greenridge Luton One Ltd v Kempton Investments Ltd highlights the importance of replies to CPSEs being accurate, detailed and kept up to date. As well as missing out on a lucrative £16m sale, the seller in this case was liable for the return of the deposit of £812,000, and £395,948 in damages for deceit as a result of providing inaccurate replies.
- Kempton owned three office buildings (the property) which were let mainly to one tenant, TUI. In preparation for the sale of the property, replies to CPSEs were drafted.
April 2013 – July 2013
- TUI raised concerns about the level of service charge. No adequate response was received from Kempton, so TUI treated the issue as a formal dispute and withheld part of June’s quarterly service charge payment. Kempton did not treat TUI’s concerns as a dispute.
- CPSEs were supplied to Greenridge. The replies to CPSEs stated that there were no arrears in relation to the service charge. The replies also stated that there were no complaints or disputes, only that TUI had raised queries on historical issues and had recently raised further enquiries. After considering the replies to CPSEs, Greenridge requested up to date service charge accounts from Kempton, but the accounts were not provided.
- Contracts were exchanged. TUI withheld part of the September quarter payment of service charge.
- When Greenridge sought funding from the bank, it came to light that there was a substantial service charge dispute between Kempton and TUI. The bank advised Greenridge that the dispute should be resolved before the loan was drawn down, as it potentially could have a detrimental effect on the value of the property.
- Grennridge rescinded the contract pursuant to Condition 9.1 of the Standard Commercial Property Conditions (SCPC). Greenridge issued proceedings to recover the deposit and also damages from Kempton.
The Court held that the replies to CPSEs contained clear misrepresentation, which Greenridge relied upon and therefore were induced to enter into the contract.
In relation to the service charge arrears, the court confirmed that the replies given amounted to reckless misrepresentation. This was because Kempton were aware of the arrears when the CPSEs were provided, but failed to update the replies or provide up to date service charge accounts when asked to do so by Greenridge.
The court also held that the CPSE replies given in relation to whether there were any disputes were misleading. By not acknowledging the existence of the ongoing service charge disagreement with TUI, the replies gave a false impression. In the court’s opinion, Kempton were mistaken to believe there was no dispute with TUI.
Greenridge sought to recover the deposit and also damages from Kempton through Condition 9.1 of the SCPC. This Condition deals with the remedies available if any statement in the contract or in the negotiations is or was misleading or inaccurate due to an error or omission. The court confirmed that the contract could be rescinded with the deposit returned under Condition 9.1.3 of the SCPC as there was a reckless misrepresentation. Damages were also awarded for the costs incurred in the prospective purchase under Condition 9.1.2 of the SCPC as the misrepresentations materially changed the description or value of the property.
This case shows the importance of ensuring that replies to CPSEs are updated in order to prevent previously correct replies amounting to misrepresentation because of a change of circumstances. All CPSEs state positively that the seller will notify the buyer of anything which may cause any reply given to be incorrect. As this case illustrates, this advice must not be taken lightly.
This article was originally published through Place Resources