24 July 2017

You say it best when you say nothing at all….5 things to know about replies to commercial property enquiries

In a typical commercial property transaction, the seller/ landlord will provide the buyer/ tenant with replies to CPSEs (commercial property standard enquiries), and often, replies to additional enquiries. Whilst the preparation of replies can be a laborious, time consuming process, a failure to provide accurate and up-to-date replies can have unfortunate consequences for sellers and landlords. Here are 5 key points to remember for anyone involved in the preparation of replies.

1. There is no legal obligation to provide replies

In general, the principle of “caveat emptor” (let the buyer beware) applies, but if the seller is aware of or ought reasonably to know of latent defects in title in the property, there is a duty to disclose. A latent defect is one not discoverable on a reasonable inspection of the property, such as third party rights (if identified in the title documents, these may come to the buyer’s attention and needn’t require separate disclosure). Otherwise, a seller is entitled to remain silent.

2. Silence is less risky than a “half-truth”

If a reply is given, it is vital that this is accurate and not a "half-truth", perhaps painting a misleading picture of the actual state of affairs. In Greenridge (discussed on this blog in October 2016), in response to a reply asking for details have of “disputes…or complaints that are currently outstanding, likely or have arisen in the past”, the landlord stated that there had been “no complaints or disputes as such”, only “queries on mainly historic issues” and recent “further queries”[1]. Whilst the decision didn’t turn on this specific point, historic correspondence with the tenant over the service charge was such that it had repeatedly referred to a “dispute”. The judge concluded that the reply created a “misleading” impression.  

3. You may look to qualify a reply but this is risky

In the recent case of First Tower,  the landlord failed to disclose the presence of asbestos[2]. CPSEs asked the landlord to provide details of notices etc “under environmental law or otherwise relating to real or perceived environmental problems that affect the Property”. The landlord replied that it had not received any notices but the tenant must “satisfy itself”. However, the landlord could not rely on the attempted qualification given the prior statement. Similarly, in Morris, the seller attempted to qualify a statement (“None to the Vendor's knowledge but caveat emptor must apply and the purchasers should rely entirely upon their own inspection and survey”)[3]. The qualification was also unhelpful. The reply contained a misrepresentation (i.e. the seller did know).  In this instance, a seller is well advised to just state “rely on your own inspection/ survey”, or say nothing at all.

4. You may not think you are aware but…

Replies are often littered with the words "not so far as the seller is aware". However, this implies that the seller has taken reasonable steps to ascertain whether this is the case. A seller should ensure that it has consulted records and all employees/ agents who may know. If it cannot (e.g. records no longer exist, employees have left), a seller should explain and qualify the reply. As per William Sindall Plc, there’s no duty on a seller to maintain adequate records, but if “deeds have been eaten by mice or destroyed by enemy action, the vendor must disclose these facts”[4].

5. Updating replies is crucial

Replies must remain accurate and up-to-date until the buyer contractually commits. In First Tower, the asbestos specialist notified the landlord of its presence only 10 days before exchange. In Greenridge, CPSEs stated there were no “service charge arrears” and when originally drafted, this was true. However, the position changed before exchange. In each case, the landlord didn’t update the reply and bore the consequences.

Greenridge is also a reminder that if a seller relies on the input of others, they need to involve those right up until the point of exchange, verifying replies as at that point. If a split exchange/ completion, a seller is typically asked in pre-completion replies to re-confirm those already provided. Here a seller needs to check again.

[1] Greenridge Luton One Ltd & Anor v Kempton Investments Ltd [2016] EWHC 91 (Ch)

[2] First Tower Trustees Ltd & Anor v CDS (Superstores International) Ltd [2017] EWHC B6 (Ch)

[3] Morris v Jones [2002] EWCA Civ 1790

[4] William Sindall Plc v Cambridgeshire County Council [1993] EWCA Civ 14

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