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Buyers beware: forgo the survey and pay the price

The importance of carrying out a survey before exchange of contracts was illustrated in the recent case of Hardy v Griffiths.  The sellers (Hardy) successfully brought a claim against the buyers (Griffiths) for failing to complete the purchase of a house.

The facts were as follows: In March 2011, Mr and Mrs Hardy accepted an offer of £3.6m from Mr and Mrs Griffiths and contracts were exchanged the following day, on 1 April 2011. A deposit of £150,000 was paid. The contract provided that the buyer had to top up the deposit so that it equalled 10% of the purchase price if the buyer failed to complete on the agreed completion date.

A completion date of 31 October 2011 was agreed, later extended to 30 April 2012. When this date was missed, a notice to complete was served on the buyers who were also reminded that the balance of the 10% deposit had become due.  When the buyers still failed to complete, the sellers sought to rescind (set aside) the contract and recover the balance of the deposit.

The buyers objected.  They claimed that the sellers had made false representations about the condition of the property.  They sought repayment of the deposit already paid and damages for the sellers’ “reckless misrepresentation” in not revealing damage due to rising damp and dry rot costing £600,000 to rectify.  The court applied the principle of caveat emptor or “buyer beware”.  This meant that the buyers accepted the property in the physical condition it was in at the date of the contract and there was no onus on the sellers to disclose any physical defects.  It was for the buyer to discover them.  In this case, the buyers did not commission a professional, structural survey prior to exchange and therefore failed to discover the problems with dry rot and damp.

As to misrepresentation, in the replies to pre-contract enquiries the seller had stated that they were not aware of any issues relating to rot or rising damp and the court found that this was a true answer.  In any event, there was no evidence to suggest that the buyers had even read the replies.  If not, they could not have relied on them and reliance is an essential part of any claim in misrepresentation.

The final decision was in favour of the sellers: the contract had been rescinded, the deposit of £150,000 forfeited and payment of the £210,000 deposit balance had to be made.  The buyers had argued that the balance was not payable because the contract no longer existed.  The court disagreed, finding that the right to recover the balance survived rescission.  Although the buyers argued that this would bring a “windfall” to the seller, the case is a salutary warning to buyers who do not complete a purchase on time and fail to fully investigate the physical condition of the property.

Case: Hardy v Griffiths [2014] EWHC 3947 (Ch)