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The truth is always best policy when selling.

Byline: By Richard Freeman-Wallace

Misrepresentation is always dangerous, but never more so than when selling expensive property.

Fraudulent misrepresentation can result in the seller being ordered to pay damages or to compensate the buyers for any consequential losses resulting from incorrect information given by the seller or anyone acting on their behalf.

There have been a number of recent cases that highlight the perils of being economical with the truth when selling property. In one case, the High Court awarded damages against a landlord for fraudulent misrepresentation even though the tenant was made aware of the existence of dry rot in the property before signing up for the lease.

In answer to enquiries from the tenant's solicitors about whether the property had been affected by dry rot at any time the landlord's solicitors said: "The vendor is not aware of such matters, however we suggest you make and rely upon your inspection and survey."

The court held the reply was a fraudulent misrepresentation.

It also included by implication a negligent misrepresentation that reasonable steps had been taken to establish whether dry rot existed after completion of the refurbishment.

Even though the tenant commissioned a survey yet chose to ignore the recommendation of its own surveyor to investigate the existence of dry rot in more detail, the high court decided the landlord was in the wrong.

In another case, the vendors sold a house in which a dreadful murder had taken place. The buyer's enquiries before contract included: "Is there any other information which you think the buyer may have a right to know?" The vendors answered "No".

They knew about the murder but considered they were under no obligation to disclose information relating to it to the buyer.

In this case the Court of Appeal agreed and dismissed the buyer's claim for misrepresentation.

The buyers had resold the house for pounds 75,000, instead of pounds 100,000, which would have been its value without the gruesome history.

It is wise to reveal as much as possible about a property to a potential buyer in writing. Remember that an incorrect representation can come back to haunt a seller if the buyer enters into a contract by relying on it.

In a third case, another simple question and answer resulted in substantial damages being paid by the seller. Here the sellers were asked: "Do you know of any disputes about this or any other property?"

The sellers replied "No", when in fact there had been a long-standing dispute about parking arrangements. Months after the purchase of the property completed these disputes came to light. The buyers claimed damages for fraudulent misrepresentation.

They successfully argued that they would not have bought the property had they known about the disputes. The sellers paid pounds 60,000 in damages and legal costs to the buyers.

Landlords and sellers need to be very cautious when replying to enquiries by using terms similar to "Not to the landlord's knowledge" or "Not so far as the landlord is aware". They imply that the landlord has taken reasonable steps to reach a reasoned conclusion.

The Seller's Property Information Form contains two questions about disputes, which have to be completed by the seller's solicitor.

These are: "Do you know of any disputes about this or any neighbouring property?" And: "Have you received any complaints about anything you have or have not done as owners?".

The form explains the importance of accurate answers. "Incorrect information given to the buyer through your solicitor, or mentioned to the buyer in conversation between you, may mean that the buyer can claim compensation from you or even refuse to complete the purchase".

Seller beware. Despite the clear instructions to tell the whole truth about a property, some sellers court danger with evasive answers that could cost them thousands of pounds ( and a possible sale.

Richard Freeman-Wallace is head of property at Watson Burton in Newcastle
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Copyright 2005 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Business
Publication:The Journal (Newcastle, England)
Date:Nov 2, 2005
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