A review of Greenridge Luton One Ltd v Kempton Investments Ltd

It is customary in both residential and commercial property sales for the Seller to be required to provide replies to enquiries raised by the Buyer, often in the form of the commercial property standard enquiries (CPSEs) for commercial sales or in accordance with the Law Society Protocol for residential sales.  Providing full and proper replies to such enquiries may mitigate against any downwards pressure on the agreed sale price once the Buyer’s lawyers have “opened the bonnet” during the due diligence process and reported the position to the Buyer.      

In the recent Greenridge case ([2016] EWHC 91(Ch)), the High Court considered the extent of a Seller’s liability where the replies contained inaccurate information relating to outstanding disputes with the current tenant of the property being sold.
 

Brief Facts of the Case

In Greenridge, the Seller’s replies to enquiries, relating to outstanding disputes, failed to disclose that the current tenant had withheld service charge payments on account of an ongoing disagreement with the Seller. The replies specifically stated that there were no outstanding disputes, arrears or unresolved breaches of covenant

Contracts were subsequently exchanged and the Buyer paid a deposit.  Following exchange, the Buyer became aware of the service charge dispute between the Seller and the tenant.  The Buyer rescinded the contract (under its terms) which the Seller accepted but refused to return the deposit. The Buyer therefore initiated proceedings seeking the return of the deposit and damages.
 

The Court’s Decision

The court held that, in failing to disclose the existence of the dispute and instead representing to the Buyer that there were no unresolved disputes or arrears, the Seller had acted recklessly and had provided the Buyer a false impression of the state of affairs.  The Buyer had relied on the misleading replies and had exchanged contracts as a result of its reliance on them

The court found that, not only had the Seller provided incorrect information in the replies, it had also failed to update replies throughout the course of the transaction.  Furthermore, the Seller was found to have breached a term of the contract in failing to provide full disclosure in relation to the dispute.

The court ordered the return of the Buyer’s deposit and damages in favour of the Seller in the amount of circa £400,000 (pertaining largely to wasted costs). 
 

Important Points to Note

When considering enquiries raised by a prospective Buyer, a Seller should give consideration to the following practice points:

1. In the first instance, the information provided in replies to enquiries should be correct at the time of preparation and submission to the Buyer (ie prior to exchange of contracts);

2. Buyers are provided with up-to-date replies to enquiries and kept informed of any changes in circumstances that will or may affect the accuracy of the replies. This is particularly important in circumstances in which a sale becomes protracted or replies to CPSEs are issued to an different buyer;

3. If any new information or documentation arises which would affect the replies given, even if not known at the time the replies were initially given, this should also be made known to the buyer; and

4. Failure to provide correct information can constitute a breach of the terms of the sale contract (as well as a misrepresentation), and, subject to the terms of the contract, could allow the Seller to rescind the contract, require return of the deposit, and lead to the Seller incurring liability for damages relating to the Buyer’s losses (including costs), whether or not following termination of the contract.