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Misrepresentation when selling property interests

Two developers recently came head to head in a dispute over what was said in pre-contract enquiries (Wilson and Sharp Investments v Falmouth Property Investments [2019])

Background

The Seller Developer “Developer S” had an option to buy a site for a proposed student accommodation development.

The Buyer Developer “Developer B” bought the rights to the option for the tidy sum of £200,000, with a further premium of £226,250 due if it obtained planning permission and exercised the option.

What happened next?

Developer B obtained planning, exercised the option but decided against paying Developer S the premium due.

Being out of pocket to the tune of £226,250, Developer S, unsurprisingly, sues.

So, where does the misrepresentation fit in?

Unluckily, it turns out there were possible rights of light issues for the student accommodation development. Developer B discovers this upon obtaining a rights of light report.

So, Developer B sues Developer S right back (a counterclaim) for misrepresentation, because Developer S had said in replies to pre-contract enquiries that it believed there were no rights of light issues.

What did the court say?

The court looked at the context of the spat and the fact that both parties were commercial developers and had access to the same information. They factored in that Developer S had explicitly said why it didn’t believe there were any rights of light issues (which incidentally, was due to the location of the site) and that there was no evidence to suggest Developer S didn’t genuinely believe that a rights of light report wasn’t needed. The court concluded that there was no misrepresentation and Developer B should settle up the premium due.

Lessons learnt…

The court in this case took into account the balance of information (i.e. access to relevant information) available to the parties, and as they were both developers this meant a fairly level playing field.

The outcome of a misrepresentation claim could be a different story where a developer sells to an ordinary person on the street, where that person relies on representations made by the developer, to his/her detriment.

So, when replying to enquiries raised by a buyer, whether you are selling your own house or your company’s shopping centre, always check what you believe to be true about the property… and then check again. Misrepresentation, however unintentional, can be a costly business.

If you have any queries in relation to whistleblowing or any other HR queries please contact our employment team on 01228 552600 or 01524 548494.

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