Residential Property Update (May 2012) - Cases - Innocent misrepresentations

In the case of Cleaver and another v Schyde Investments Ltd [2011] the Court of Appeal held that a buyer is entitled to rescind a contract to purchase a site that had potential for development as a block of flats. The seller had provided replies to enquiries to the buyer. However, it failed to update its replies when it became aware of a third party's planning application, despite knowing that this would be a material consideration for the buyer and would go to the merits of the buyer's development proposals. The buyer only became aware of the planning application following exchange of contracts and refused to complete the contract.

The buyer sought the return of its deposit. The seller argued that the buyer was not able to rescind the contract under condition 7.1.3 of the Standard Conditions of Sale (Fourth Edition) (SCS) as a buyer was only entitled to rescind where the error or omission resulted from fraud or recklessness or where the buyer would be obliged to accept property differing substantially from what the error or omission had led the buyer to expect. The county court judge had concluded that the buyer being entitled to the deposit as condition 7.1.3 of the SCS was not fair and reasonable in the circumstances of this case. Consequently, it failed to satisfy the requirements of section 3 of the Misrepresentation Act 1967 and section 11 of Unfair Contract Terms Act 1977.

The Court of Appeal could only interfere with the county court's decision if it was based on some erroneous principle or was plainly and obviously wrong. The Court of Appeal therefore dismissed the appeal and held that the buyer was entitled to rescind.

This case is a reminder for practitioners of the importance of disclosure of changes to the replies to enquiries before the exchange of contracts. Client’s should advise their legal representative of any changes to the property/ matters that arise before the exchange of contracts so this can be disclosed to the buyer to prevent claims such as that detailed in the case above.