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Did they put that in writing?

12/06/2014

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United Kingdom

A reminder to property buyers of how important it is to ensure that any representations which they have relied upon are confirmed in writing between solicitors.

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First appeared in Informer: Real Estate Newsletter - Spring/Summer 2014

The recent Court of Appeal judgment in Lloyd v Browning (2013) provides a reminder to property buyers of how important it is to ensure that any representations which they have relied upon are confirmed in writing between solicitors.  Under typical terms of sale, a failure to do so is likely to mean that a buyer cannot rely on an oral representation – even if it can prove it was made, was false and has led to loss.

Non-reliance clauses and misrepresentation

It is standard practice when selling land that the agreement will contain a non-reliance clause (a “non-reliance clause”).  For example, a non-reliance clause will provide that the buyer is not relying on any statement made by the vendor unless it is contained in a written reply by the vendor’s solicitor to the buyer's solicitors' preliminary enquiries.  This is intended (amongst other things) to prevent disputes post completion about what someone did or did not say.  

In very general terms, the law on misrepresentation enables one party to claim for losses suffered as a result of a representation made by the other party which induced that party to enter into the contract and which has resulted in loss.

Lloyd v Browning

The Brownings were farmers who sought planning permission for a disused outbuilding to be converted to residential units and extended from an L shape to a U shape building with the construction of a new extension wing.  The original application was refused, but planning permission was then obtained keeping the current L shape. The permission obtained made no reference to the revised plans.  

The property was then sold to the Lloyds, but the property particulars (incorrectly) attached the U shape building plans.

Meetings had also taken place between the Lloyds and the Brownings before exchange of contracts, in which the Brownings produced the U shape plans. The Brownings also provided their solicitor with the U shape plans with the message that the Lloyds knew that these were not the correct plans.

Following completion it was revealed that the property did not have permission for the U shaped building and that the Brownings had given the Lloyds the incorrect plans. The deduction in potential value as a result of this difference was £55,000.

The buyers sought a claim of misrepresentation against the Sellers.  The Court held an oral misrepresentation had indeed been made by the Brownings. However, it also held that the non-reliance clause was effective as in all the circumstances it was reasonable and fair – it therefore prevented liability for the misrepresentation.  

The Court of Appeal held:

  1. As a general overriding point, it was a legitimate and reasonable aim for parties to a contract such as this one to introduce certainty by agreeing (a) that no reliance could be made on oral misrepresentations made before the contract and (b) reliance could only be placed on written statements made by the sellers’ solicitors in response to pre-contract enquiries.
  2. More specifically to the individual circumstances of this case, it was reasonable for the non-reliance clause to apply and be relied upon because:
    1. There was no imbalance in bargaining power between the parties. In this case both had legal advice and the Lloyds had also instructed planning consultants.
    2.  The clause was not a "take it or leave it" clause in the small print (which are more often found in consumer contracts).
    3. The non-reliance clause actually provided a route for important issues to be given legal protection by allowing them to be included in written replies to enquiries.
    4.  Non-reliance clauses are standard clauses that are expected within land contracts.
    5. The clause was one used by a local branch of the Law Society and therefore did not prefer sellers over buyers.

Getting it in writing

The case highlights the critical importance of committing all matters which are of significance and importance to a party to writing (and in the contract). 

Parties may well have been given an oral misrepresentation (one which they can prove, which they have relied upon and has caused a loss). However, assuming the existence of a ‘standard’ non-reliance clause, they are unlikely (in the event of the circumstances listed at 2 above applying) to be able to successfully rely upon it if that representation has not been put in writing.

William Thompson, Senior Associate, Investment Group  

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