17 October 2016

How not to prepare CPSEs

Commercial Property Standard Enquiries ("CPSEs") - are pages and pages of questions and replies that are capable of sending even the most ardent insomniacs to sleep. While accusations of the CPSEs being tiresome to complete may ring true, we've just received another stark reminder of the importance of making sure the replies are always up-to-date and paint an accurate picture of the reality rather than glossing over the facts in an attempt not to alarm any prospective buyer or tenant.

In the recent case of Greenridge Luton One Ltd v Kempton Investments Ltd [2016], the High Court considered a claim for fraudulent misrepresentation and held that a buyer was entitled to have its deposit returned because of untrue representations made recklessly or fraudulently that there were no service charge arrears, when in fact there were such arrears.

The seller owned a property let to a tenant who withheld payment of a proportion of the service charge demands for the June – September 2013 quarter. The Seller's managing agents and the tenant corresponded in relation to this over the course of the next couple of months, including the tenant voicing concerns that it has disputed the service charge on at least five occasions. The tenant then instructed solicitors in response to the latest dispute relating to the June – September 2013 service charge payment.

Meanwhile, the seller agreed terms to sell the property to the buyer and sent the buyer CPSEs in August 2013 (although the CPSES were actually drafted in March 2013) which stated that there were no disputes outstanding, likely or in the past and that there were no service charge arrears. The replies disclosed only that the tenant had raised queries on "mainly historical issues and had recently raised further enquiries" in relation to the service charge. The Buyer requested further information, but this was not provided.

In September 2013, the seller and the buyer exchanged contracts for the sale of the property with the buyer providing a deposit of £812,500.

Between exchange and completion, the substantial service charge dispute was uncovered by the buyer. They rescinded the contract in January 2014, claiming that there had been a material misrepresentation by way of non-disclosure in the CPSEs and sought to recover the deposit paid and damages.

The High Court held that the buyer was entitled to have the deposit returned because the CPSE replies were inaccurate and there was an untrue representation made recklessly or fraudulently by both the managing agent and the seller's solicitor that there were no service charge arrears - the statements made in the CPSEs about the tenant's recent enquiries were not enough to explain the current dispute. The buyer relied on this information and therefore was induced to enter the contract by misrepresentation.

The judge also rejected the seller's argument that a buyer could only be entitled to damages if there was a material difference between the description or value of the property as represented and as it actually was because there was liability for fraud, meaning the buyer was also entitled to damages for deceit of £395,948.

Moral of the story:

  1. representations made in pre contract enquiries are treated as continuing representations until exchange of contracts - the obligation to update the replies lies with the seller regardless of whether it is specifically asked to do this by the buyer, or not; and
  2. it's always best to err on the side of caution and disclose all relevant facts.

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