Last month we looked at the advisability of checking the financial viability of the parties in a conveyancing transaction before contracts are actually exchanged. This month I want to deal with another pre-contract area which can possibly have disastrous consequences if you are not careful.
All standard textbooks and practice guides relating to conveyancing agree that the pre-contract part of a conveyancing transaction is the most important. It is during this time that the conveyancer satisfies his or her sacred mission – that of being a fact finder, discovering facts about the property itself, its state and condition, the fixtures and fittings in it or on it, the bits that have been added to it, the services it is connected to, its title, its neighbours’ rights in it (if any), its rights over neighbouring property (if any). All this is learned so that at the end of the day, the client (if selling) gets his or her money without fear that there will be comebacks at a later date, or (if purchasing) gets what he or she bargained for.
One of the problems, of course, is that conveyancing is one of the largest practice areas in the average firm of solicitors, and of course it is the largest practice area in a firm of licensed conveyancers, and because of this it really is easy to ‘cut corners’ just to be able to keep up with the pace of things. Practitioners never go and visit the property before they draft the contract or raise any enquiries – they do not dream of so doing, and yet no matter how many paper enquiries are raised and answered, they will never actually reveal whether, for example, there is someone living in the house other than the sellers themselves, who may possibly have a beneficial interest in it. It is never possible to dot all the i’s or cross all the t’s, but it is very important to guard against all those that may be un-dotted or un-crossed.
I remember a book written years ago by a solicitor named Michael Joseph, called ‘The Conveyancing Fraud’ (which sold over 50,000 copies), advocating that a person doing their own conveyancing would make a far better job of it than your average solicitor because the person would have a personal interest in ensuring that he was satisfied he was getting what he wanted. (Joseph also wrote a book a few years after, called ‘Lawyers Can Seriously Damage Your Health’, relating to the way in which personal injury claims were dealt with – I don’t think he was top of the Law Society’s list of favourite authors!). There were no licensed conveyancers in those days, but the author has a point. If you were buying a second-hand car, had looked at it and decided that it was just what you wanted, and then asked the AA or the RAC to report on whether it was mechanically OK, you wouldn’t be satisfied if all they did was write to the garage asking a dozen or so pertinent questions. You would want them to go and inspect the vehicle.
Of course, conveyancers learn by experience. Many initial enquiries that are not covered by the Client Information Forms or any other kind of pre-printed preliminary enquiries come about because of past experience. One example is the angry clients who, only a few weeks after completing the purchase of their house, stormed into the office demanding why I had not informed them of the proposed new development of a housing estate on some open land a short distance from the property. Not only was this going to kill their view, but the noise and nuisance whilst the building was taking place would be horrendous. They were not impressed by my excuse that a Local Authority Search related only to the property and anything directly affecting it. So in future I always raised an additional preliminary enquiry: “Is the Vendor aware of any proposed development or redevelopment of any nature which may be visible from the property or of any matter which may affect the current environment enjoyed by the property?” It invariably elicited the response “Please rely upon search or inspection”, to which I would respond, “The enquiry is repeated; a search or inspection may not reveal something that the Vendor is nevertheless personally aware of”.
Another enquiry, and one which is now extremely common, arose after completion when a client was accused by his purchaser of having misrepresented during the course of negotiations the adequacy of the private drainage system (septic tank). The client denied it and it did, in the course of time, all fizzle out. But from then on, to save any future client and myself any possible hassle, I included in draft contracts a clause to the effect that “the Purchaser hereby confirms that in entering into this contract he has in no way relied upon any verbal representation, statement, remark, comment or other utterance made by the vendor or his agents or anyone else on his behalf, in any way relating to the property, its state or condition or otherwise but has entirely satisfied himself by inspection, written replies to written enquiries or otherwise”.
I must admit that in using this clause I was not 100% sure it would be effective. Even though it is not worded as such, it could amount to an ‘exclusion clause’, i.e. a clause excluding liability for any loss suffered as a result of verbal misrepresentation. Those of you who have studied the law of contract in depth will, I am sure, recollect that pursuant to s11 of The Unfair Contract Terms Act 1977, a clause excluding liability for misrepresentation would be void unless it satisfied ‘the requirements of reasonableness’, i.e. ‘is the clause reasonable having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made’. So my dilemma was, would it be ‘reasonable’ for a person who made a verbal misrepresentation which was acted upon by the other party to their detriment, to be able to get out of the consequences just because the representation was not in writing?
Well, I inserted my clause in every contract that I drafted thereafter, and it was generally accepted and in one form or the other became fairly standard, but I didn’t get an answer to the dilemma it posed me until the year before last.
On 4 November 2013, the Court of Appeal handed down its Judgement in the case of Lloyd v Browning [2013] EWCA Civ 1637, which held that where a buyer had been induced by oral misrepresentations to enter into a contract to buy a property, the seller could implement a non-reliance clause in the contract to avoid liability. The brief facts of the case were that the buyer had relied on verbal representations made by the seller about planning permissions concerning a property. The contract for the sale of the property contained a clause stating that the buyer admitted that he had inspected the property, had entered into the agreement solely on the basis of his inspection, and had not been induced by any statement made by the seller, except for written responses by the seller’s conveyancers to written pre-contractual enquiries made by the buyer’s conveyancers. After completion of the purchase, the buyer became aware of the true state of the planning permissions, which was not in accordance with the oral representations alleged to have been made by the seller. At first instance the judge had found that the buyer had been induced by the sellers’ oral misrepresentations and therefore had suffered a loss of £55,000 based on diminution of value. However, the judge held that the buyer’s claim could not succeed, because the seller was entitled to rely on the exclusion clause. The buyers appealed.
The Court of Appeal dismissed the appeal, finding that it was fair and reasonable in all the circumstances for the seller to rely on the exclusion clause. Accordingly, there had been no breach of the reasonableness requirements set out in section 11 of the Unfair Contract Terms Act 1977.
The Court of Appeal considered that clauses in contracts for the sale of land which exclude reliance on oral representations serve a useful purpose, as they help to achieve certainty and to avoid disputes about the content of conversations. The fact that, as is commonplace in the context of a property purchase, the parties to the contract were legally represented and there was a negotiation as to the terms of the contract meant that the case was not one in which a purchaser had been faced with a potentially unfair ‘take it or leave it’ situation. It is also significant that the buyer, if he had wanted to rely on information from the seller about planning permission, could have made a formal pre-contractual enquiry which the vendor would then have answered in writing.
When taking instructions from a purchaser client, therefore, it is crucial to ascertain whether he or she was relying on any matter that had been discussed personally with the seller (or indeed the estate agents) – and if so, it is equally crucial that this situation be formally dealt with.