The Devil’s in the Detail

The recent case of Greenridge Luton One Ltd and another v Kempton Investments Ltd [2016] EWHC 91 (Ch), highlights the importance of providing up to date and accurate replies to Commercial Property Standard Enquiries (CPSEs) in a commercial property transaction and the devastating consequences of deliberately or recklessly providing incorrect information.

The seller owned three office buildings the majority of which were let to one tenant. The day-to-day management of the Property was carried out by a managing agent employed by the seller. The managing agent referred certain legal and professional matters to their solicitor.

In January 2013, in response to the tenant’s concerns regarding the service charges at the property, the tenant appointed a service charge consultant. In June and November of the same year, the tenant withheld a proportion of service charge payments owing to their concerns. During this period the tenant corresponded with the managing agent’s solicitor about their concerns.  In October 2013, the tenant instructed solicitors to act for them in relation to what they termed a dispute.

In March 2013, after the tenant had raised concerns about service charges, but prior to their retention of service charge payments, the Landlord prepared draft replies to CPSEs in anticipation of a buyer being found.

In the middle of August 2013, a buyer was provided with replies to CPSEs. The answers 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”. The buyer’s solicitors asked for additional documentation, including current year management accounts and confirmation of the collection of the June 2013 service charge. The information was not provided.

On 12 September 2013, contracts were exchanged for the sale of the Property to the buyer at £16.25 million. A deposit of £812,500 was payable by the buyer in two tranches. The contract incorporated Part 1 of the Standard Commercial Property Conditions (SCPCs) and also provided that the seller would sell the Property free from encumbrances apart from the matters which had already been disclosed, or which would have been disclosed by searches and enquiries that a prudent buyer would make before entering into the contract.

The buyer sought funding for the purchase which required a valuation report for the buyer’s lender.  Consequentially, the buyer discovered the service charge dispute had occurred. They did not complete on the purchase and subsequently the property was sold to a third party.

The buyer issued proceedings seeking the recovery of their deposit and damages due to the seller’s failure to inform them of the dispute relating to service charge arrears. On the facts, the court had no difficulty in finding reliance and that the buyer was induced to enter the contract by the misrepresentation. The buyer was therefore entitled to have its deposit returned because of the misrepresentation made that there were no service charge arrears, when in fact there were such arrears. The buyer was also entitled to damages for deceit of £395,948.

The case emphasises the importance of sellers and their advisors ensuring that buyers are provided with up-to-date replies to enquiries and kept informed of changes in circumstances that will affect the accuracy of the replies. Also, that it is essential to ensure that information which should be revealed, is revealed, to avoid a claim for fraudulent misrepresentation.

John Henry – Associate Solicitor

 

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Jury O'Shea