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Oct 2017

Careless replies to pre-contract commercial property enquiries could land you in trouble

Giving replies to pre-contract commercial property sale enquiries can feel like a chore but misleading answers can land a seller in trouble. As Paula Irvine, commercial property expert with Thackray Williams explains, sellers of commercial property need a clear understanding of what they must disclose, when they should update their replies and the possible consequences if they fail to do this.

What are the enquiries for?

It is up to the buyer to investigate the property to determine whether they should go ahead with the purchase. Some of the information they will need to do this will come from official searches and enquiries, but there are some things that the buyer may be unable to find out for themselves easily and it is these matters that will be the subject of the buyer's pre-contract enquiries. 

As the seller, you have a duty to disclose any matters affecting the property that the buyer could not have discovered for themselves by carrying out a reasonable inspection.  However, in practice, a buyer of commercial property will expect you to go further than this by providing replies to the relevant sections of a wide-ranging standard set of enquiries relating to the property and various relevant or potentially relevant matters related to it, known as the Commercial Property Standard Enquiries (CPSEs).

What must I do?

In dealing with the buyer’s pre-contract enquiries, you are expected to give honest answers based on what you know or believe.  For this purpose, knowledge is not limited to what you actually know; it also extends to things that you are assumed to know, where the thing in question could have been discovered by you making reasonable investigations - for example, by checking your records or questioning employees.  You will also be taken to know information about your property which is held by your solicitor or another professional advisor; for this reason, it is important that you consult with all those who represent or advise you when replies are being formulated.

If, as a seller, you say that you are not ‘aware’ of a particular matter, the implication is that you have made reasonable enquiries about the matter but have drawn a blank.  For this reason, it may be dangerous to reply to an enquiry by saying ‘not so far as the seller is aware’.

The other crucial point to be aware of is that replies to enquiries must be updated if you discover new information or realise you have made a mistake, and this must be done right up to point at which legal completion of the sale takes place.

Why does this matter?

Replies to enquiries constitute representations and if a buyer can show that they entered a commercial property deal in reliance on a representation made by you which turns out to be inaccurate, and they have suffered a loss as a result, it is possible that they may have a claim against you which entitles them to the payment of damages and, in some cases, the right to walk away from the contract. 

In the 2016 case of Greenridge v Kempton, a seller failed to disclose an ongoing dispute with a tenant over service charges, and then also failed to update previously given replies when the tenant started to withhold payments due under the lease.  The seller was ordered to refund the buyer’s deposit and to pay damages. Likewise, in the 2017 case of First Tower Trustee Ltd v CDS, the buyer was awarded damages to cover works to remove asbestos, the existence of which was discovered by the seller after they had given replies to enquiries but before the sale completed.

How can I protect myself?

If you only have access to limited information, because, for example, you have not owned the property for very long or because records relating to the property have been lost or destroyed, you can state that your replies have been given on that basis.  Your solicitor can also suggest wording for the contract in order to limit the statements the buyer is taken to have relied on; however, this must be done with care because any attempt to exclude liability for misrepresentation must be fair and reasonable.

Conclusion

Giving replies to pre-contract enquiries is more than just a box ticking exercise. You must take steps to try to ensure all questions are answered accurately and seek advice from your solicitor and other professional advisors to avoid inadvertently exposing yourself to liability.

If you are thinking about selling a commercial property and need legal advice, please contact Paula Irvine on 0208 290 0440 or email paula.irvine@thackraywilliams.com to see how we can help.

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