Sellers beware - Moths, Mansions and the risk of Misrepresentation

Last month, a UK High Court judge ruled in favour of the purchasers in their claim against the seller for misrepresentation. In addition to substantial damages, the judge rescinded the purchase agreement and unwound the sale of a £35.2million 7 bedroom mansion in Notting Hill, London. The legal principles arising from this case apply to Gibraltar residential property transactions too.

For all property transactions in the UK and in Gibraltar, as part of the standard conveyancing procedure, sellers provide replies to Preliminary Enquiries Before Contract to buyers. As buyers rely on these replies when deciding whether or not to proceed with the purchase of a property, sellers must provide honest replies to these enquiries. Any false statement, omission or misleading response can leave a seller exposed to claims for misrepresentation and for damages for breach of contract.

The property in this case suffered from a moth infestation which the seller knew about, received reports about and tried and failed to eradicate the problem. Within days of moving into the property, the buyers found the moths ruined their clothing, wine and even toothbrushes.

In the Replies to the Preliminary Enquiries before Contract, the seller confirmed he was not aware of any vermin infestation in the property, the seller stated there were no reports of any such infestation and the seller declared he was not aware of any defects in the property which were not apparent on inspection.

The judge ruled these responses amounted to false representations and found that the seller did not honestly believe his replies to be true. Damages are the usual remedy awarded by the court for misrepresentation. Indeed, the buyers in this case were awarded substantial damages including their purchase costs such as stamp duty land tax (to the tune of over £3.7million), remediation costs and replacement of damaged clothes. However, in this case, the judge exercised his discretion and also made an order an the equitable remedy to rescind the Purchase Agreement and unwind the property sale entirely. The buyers were entitled to the return of the purchase price with a legal charge called a ‘lien’ over the property until it is repaid by the seller.

A well-known legal principle in property transactions in the UK and in Gibraltar is caveat emptor or ‘buyer beware’. Buyers are advised to carry out their own inspection, searches and surveys relating to a property before exchange of contracts. However, this judgment serves as a warning to sellers to provide honest responses to Preliminary Enquiries Before Contract.

The judgment provides that ‘there is no duty of disclosure on a seller of real property…except to the extent that a failure to disclose would make information otherwise given to a buyer misleading or incomplete.’

The full judgment can be found here. UK case law is persuasive in the Gibraltar courts so when you are selling a property in Gibraltar, it is important to seek the expertise, advice and guidance of your property lawyer on your legal obligations in relation to your replies to the Preliminary Enquiries Before Contract.

Contact us at residential@hassans.gi for any queries relating to property transactions in Gibraltar.