I’ve discovered that the seller didn’t disclose a defect with my house. Is there anything I can do?
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From undisclosed water damage or a mouse infestation to disputes with neighbours, if a seller has not disclosed an issue with a property the buyer may be able to sue or rescind the contract.
In a previous article I discussed the steps a buyer can take to try and ensure a seller discloses all relevant information during the course of a property transaction. Unfortunately there will be occasions where a defect is discovered after exchange of contracts or completion that the seller knew about (or arguably should have known about) but did not disclose.
In those circumstances, the remedies available to a buyer will depend on when the defect is discovered and the nature of the seller’s non-disclosure.
If the defect is discovered between exchange and completion, the buyer may: refuse to complete; secure a reduction of the purchase price; or be entitled to damages.
If the defect is only discovered after completion, the buyer may be entitled to rescind the contract and/or claim damages in respect of breach of contract and/or misrepresentation.
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It is more likely that the defect will be discovered following completion so I will focus on those remedies here.
The standard conditions of sale, which are incorporated in almost all contracts for the sale of property provide that a buyer can claim damages where there is a material difference between the description or value of the property, or any of the contents included in the contract, as they are represented and as they actually are.
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The statement has to amount to one of the following: a description of the property, for example, that it had never suffered from subsidence, when in fact it had; or a statement as to its value, for example the sale price of a comparable house, which turned out to be false.
The standard conditions of sale also provide that a buyer can rescind the contract if either of the following applies: the seller’s error or omission results from fraud or recklessness; or the buyer would be obliged, to its prejudice, to accept property that is substantially different (in quantity, quality or tenure) from that which the buyer had been led to expect by the error or omission. In this scenario, ‘quality’ means the quality of the title being sold or the physical condition of the property.
A claim for misrepresentation is different from a claim for breach of contract. A court has the power to award damages and/or rescission of the contract if a buyer is induced to enter into the contract by a misrepresentation made by the seller and as a result has suffered loss.
There are three types of misrepresentation: fraudulent, negligent and innocent.
An example of a fraudulent misrepresentation is where a seller indicates on the Seller’s Property Information Form that there are no disputes when they know that this is not the case. The buyer relies on these representations for information about the property they are buying and may well not have bought it if they had known the true position.
A negligent misrepresentation would occur where a seller makes a statement to a buyer carelessly or without reasonable grounds for believing its truth.
There is no requirement for the buyer to establish fraud to make a successful claim, only that the statement was in fact false and the burden of proof would rest with the seller to establish that they reasonably believed the truth of the statement.
If the seller can establish this then it becomes an innocent misrepresentation. An innocent misrepresentation can become negligent however where a seller fails to update a buyer when further information comes to light.
The remedies available to a buyer for fraudulent and negligent misrepresentation are rescission and damages. For innocent misrepresentation a court has the discretion to award damages or rescission, but not both.
It is worth noting that the right to rescind a contract may be lost where there is undue delay in bringing a claim. Where the misrepresentation is negligent or innocent time runs from completion. With fraudulent misrepresentation time runs from discovery of the truth.
In some circumstances clauses may be included in the contract to try and minimise or exclude the seller’s liability for misrepresentation. Your solicitor should advise on this prior to exchange of contracts.
This a complex area and should a buyer discover a defect they should notify their solicitor as soon as possible who will provide guidance on the best steps forward.
Sam Smith is a property solicitor at Streathers in Crouch End. Do you have a question for Sam? Email it to email@example.com or tweet @hamhighproperty