Buyers and Sellers Beware!

Can a claim against a seller for misrepresentation be made when proper due diligence is not undertaken?

The case of Lloyd and Other v Browning and Other (2013) has highlighted the risks of not undertaking proper due diligence before exchange of contracts in property transactions.

In this case, the sellers were selling a barn with planning permission for residential use. The planning permission was limited to the current footprint of the barn. At three separate meetings, the buyers were shown plans by the sellers, which included an extension to the barn; however, the planning permission actually granted did not include the extension. The buyers wished to exchange contracts quickly and informed their solicitors that planning permission has been dealt with by their planning consultant and therefore the buyer’s solicitors did not include planning enquiries in their pre-contract enquiries.

Prior to exchange, the parties agreed to include a clause within the contract which provided that the buyers had undertaken their own inspection of the barn and entered into the contract as a result of this inspection, the enquires raised and correspondence between the parties legal representatives.

Following completion of the transaction, the buyers became aware that the planning permission did not include the extension and made a claim against the sellers for oral misrepresentation. The buyers claimed that the misrepresentation in respect of the extension induced them to enter into the contract for the purchase of the barn.

The Court of Appeal held that the buyers had no claim for oral misrepresentation and stated that there were a number of factors, which they considered relevant. The fact that the buyers were pushing for a quick exchange was considered, as well as the buyers engaging the services of a planning consultant. Furthermore, the court stated that the inclusion of the non-reliance clause in the contract was reasonable and the sellers were entitled to rely on this.

In this case, the Court took the view that the buyers made a deliberate decision to exchange contracts knowing that the information they held on the planning permission was incomplete and as such, the sellers were able to rely on the non-reliance clause contained within the contract.

Accordingly, the buyers were unable to pursue their claim for oral misrepresentation against the sellers on the basis that they failed to adequately do their due diligence prior to exchange of contracts. Had they known that the planning permission did not include the extension to the barn, they may not have exchanged contracts at all.

This case highlights the importance for buyers of undertaking full and proper due diligence on properties before contracts are exchanged. Once a contract has been exchanged, you are legally obliged to complete it. Also, it demonstrates the effectiveness of using a non-reliance clause when selling a property.

If you are looking at purchasing or selling a property let Else’s property team protect you.

If you would like to discuss any of the points raised in the article above please contact our commercial property team on 01283 526 200.

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