Julia Mactear, Legal Director in our Property Litigation team looks at the cost to a seller of being “economical with the truth” about a pest infestation in a luxury development property
The decision of Mr Justice Fancourt in the High Court this month in the case of Patarkatsishvili and Hunyak (here, the Claimants) v Woodward-Fisher (here, the Defendant) should act as a stark reminder to sellers and property developers of the importance of providing accurate and complete information during the conveyancing process in relation to the condition of a property, particularly when responding to pre-contract enquiries.
The Facts: The Claimants purchased a renovated Victorian property in London, known as Horbury Villa, from the Defendant in May 2019 for £32,500,000.
The Defendant had bought the property in 2012 for £10,400,000 and had spent £10,000,000 renovating it. The internal size of the original house had been increased by more than 200% making it a very substantial detached property.
When the renovation was completed, the Defendant and his wife lived in the property for approximately 3 years. In early 2018, the Defendant’s wife discovered some expensive clothing had been damaged by clothes moths (latin name Tineola bisselliella). As a result, a pest control company, Environ was appointed to investigate. They prepared various reports and eventually advised that the insulation in the property (which contained a large proportion of wool) should be removed. The Defendant had various spray treatments carried out, but did not remove the insulation.
He subsequently sold the property to the Claimants. Within days of moving into the property the Claimants discovered there was a very visible issue with moths. Various contractors were engaged, and an infestation was discovered which it was established was likely to have been a problem for years rather than months. Works were undertaken to resolve the infestation and whilst these appear to have improved the situation, they did not completely solve it.
In the course of these investigations, the Claimants discovered that the Defendant had had a moth infestation treated in 2018 and reports had been prepared advising on the issue. This had not been disclosed by the Defendant in his replies to pre-contract enquiries. The specific three enquiries of concern were:-
2.1 Has the property ever been affected by woodworm, dry rot or other timber infestation or decay; Subsidence, landslip or heave; any structural building or drainage defect; vermin infestation; asbestos.
2.2 Please supply a copy of any report concerning any matter referred to in 2.1 above or otherwise concerning the fabric of the property.
2.3 Is the seller aware of any defects in the property which are not apparent on inspection (due to the presence of furniture, carpets, cupboards etc?)
The Defendant did not disclose the moth infestation or the reports he had obtained in relation to it when answering the enquiries. As a result of this the Claimants were not alerted to what they described as being red flag issues and they continued to purchase the property.
The Claimants issued a claim in the High Court in December 2021 claiming that they were induced by the misrepresentations made by the Defendant in his replies to pre-contract enquiries to buy the property and they would not have bought the property if the misrepresentations had not been made. They alleged the Defendant knew that his replies to the three enquiries were untrue.
The Claimants sought rescission of the contract of sale and purchase and reversal of the transfer of the property into the names of the Claimants, and damages for the fraudulent misrepresentation. In the alternative they sought additional damages reflecting the difference between the value of the property in its current condition and the price paid for it.
The Defendant disputed the claim.
The Decision: Mr Justice Fancourt found that the Defendant had not answered the enquiries accurately and honestly by not disclosing the moth infestation and reports, and that fraudulent misrepresentation has been established.
He ordered rescission of the sale with the property to be transferred back into the Defendant’s name and with judgment for the Claimants for £32,500,000 plus damages eg £3,700,000 for stamp duty, with adjustments made for the value to them of the Claimants’ period of occupation.
Interesting Points :
- There was a discussion on the meaning of “vermin” – the Judge found that an infestation of moths was an infestation of vermin in this context, broadening the scope of what must be disclosed to potential buyers. It is not just mice and rats.
- Solicitors’ awareness of the replies to pre-contract enquiries is in law the same as the awareness of their clients, it does not matter whether or not their clients have read them.
- The Defendant advanced three defences to recission – delay, affirmation, impossibility of restitution i.e. the Defendant simply did not have the means to return the purchase price to the Claimants, all of which failed.
- There is no duty of disclosure on a seller (caveat emptor – buyer beware principle) except to the extent that a failure to disclose would make information otherwise given to a buyer misleading or incomplete. A seller must provide honest answers to pre-contract enquiries if they answer them at all.
The Warning: It is key that sellers answer pre-contract enquiries honestly and truthfully in relation to the condition of a property and any known infestations or defects and any reports relating to this. It may seem tempting to ignore such issues so as not to jeopardise a sale but a failure to do so can have significant legal and financial consequences for a seller.
Given the significant figures involved in this case the Defendant may well be exploring whether there is the basis for an appeal, so watch this space.
