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Seller’s Contract Clause Avoids Liability For Misrepresentation Made To Buyer Of Land

A contract clause saying a seller was not liable for misrepresentations made to the buyer before a sale of land has been upheld as fair and reasonable by the Court of Appeal.

A buyer entered into a contract to buy a barn believing there was residential planning permission for both the barn itself and a proposed extension. This was on the basis that plans produced in three different meetings with the seller showed the extension. In fact, those plans were from an earlier planning application which had been refused. There was no planning permission for an extension, nor could permission be obtained as developing an extension would have been against local planning policies.

The seller knew that the planning permission did not cover an extension, but that the buyers wanted to build one. The court ruled the seller had made a misrepresentation that induced the buyers to enter into the contract to buy the property.

However, the contract contained a ‘non-reliance’ clause stating “in making this contract no statement made by the seller or his agent has induced [the buyer] to enter except written statements, if any, made by the seller’s conveyancers in replies to enquiries raised by the buyer’s conveyancers or in correspondence between the parties’ conveyancers”. The seller argued this excluded liability for misrepresentation.

Contract law states that a non-reliance clause is only valid if it is a fair and reasonable clause in the context of the particular contract.

The Court of Appeal ruled that the clause in this case was fair and reasonable in the circumstances and the seller was not liable for the misrepresentation. Both buyer and seller were legally advised, the buyer had employed an architect and a planning consultant, the transaction was a sale of land requiring specific formalities, the parties had equal bargaining power, and the non-reliance clause was a standard one, in common use, recommended by the local law society. Particularly, the non-reliance clause allowed the buyer to rely not just on answers to enquiries but also representations made in correspondence. This meant the buyer could have turned any representation into one that it was entitled to rely on simply by asking that it be made in correspondence between it and the seller.

One judge also noted that it was the buyer who had been in a hurry, and had deliberately decided to go ahead knowing that they had incomplete planning information.

In addition, the buyer’s due diligence had been poor:

• The buyer’s pre-contract enquiries did not ask about planning permission. • The actual planning permission made no express reference to the plans. • The planning authority’s files included the earlier plans, showed no planning permission had been granted. • The planning committee minutes made no reference to an extension. • Although the buyer employed both a planning consultant and solicitors, it was not clear who was responsible for what. The Court of Appeal also noted that ‘it is not clear what knowledge of the local planning policies the planning consultant had’.

Recommendations

Buyers should ensure they have:

• properly investigated essential aspects of their purchase; • made it clear which professional advisers are responsible for which aspect of their purchase; • made sure all essential issues have been made contractually binding – in this case by including them in correspondence – before exchanging contracts.

Case ref: Lloyd and another v Browning and another [2013] EWCA Civ 1637

Posted by:

Jonathan Waters
Solicitor

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