CPSE standard enquiries not fit for purpose ?

by evolvedlegal on April 30, 2012

  • Sumo

Pre contract enquiries are part of the method of investigation of commercial property transactions. These enquiries can be acquired in various ways including purchasing the freehold, leasehold or mortgage supplier. Usually, buyers of property raise pre contractual investigations as sellers rely on these investigations.

Currently, the Commercial Property Standard Enquiries (CPSE) is the standard in the industry for acquisition of commercial properties. These are documents created by the British Property Foundation. More specifically, within this organisation the documents are created by the London Property Lawyers Support Group.

These investigations comprise of general questions which can be asked about any property and specific questions about the property in the transaction. Due to the large amount of questions, replying to CPSEs can take long periods of times and cause quick, useless responses. To limit these responses, it has been suggested that the questions asked should be limited to ones which are specific to the property and questions which would be impossible to answer in any other way.

CPSEs more often than not cause a severe delay as they are too detailed and unnecessary. This puts pressure on solicitors as they can be liable for a variety of claims if mistakes do arise and of course often have duties to lenders, so if the buyer/tenant solicitors do not press for full answers to enquiries (which the seller/landlord soften simply do not know the answers to) they may be in breach of contract or negligent.

However, expressing an opinion by the seller instead of fact or law is not misrepresentation unless it amounts to a statement of fact. After the statement is made and it becomes untrue, the seller has a duty to correct the statement.

Although highly unlikely, another possible claim is fraud. Under the Fraud Act, if the preliminary criteria are satisfied, the seller can be held guilty for the criminal offence which is fraud as well as misrepresentation which is a civil offence. An individual can commit fraud either by way of an abuse of position, a failure to disclose information or a false representation.

However, sellers are able to protect themselves by excluding liability for misrepresentation with a brief statement. For this statement to be of use, it must be reasonable taking into account the circumstances at the time (Unfair Contract Terms Act 1977, section 11 and Schedule 2). It is never known how the court would construe an exclusion clause in any circumstances, thus is it difficult to rely on these clauses.

Another option is to reply to the buyer stating “not so far as the seller is aware”.  However, this is more complex if the seller is a business with property owned for an extended amount of time as records may have been discarded, and sometimes property sale may be confidential thus finding the employees needed is difficult.

CPSEs cause great delays in the transaction of commercial properties as they comprise excessive investigation and friction, and a more streamlined process such as is used for residential conveyancing would be better perhaps. Being so complex, they can give rise to a number of claims if done incorrectly such as fraud and misrepresentation. Although misrepresentation may be able to be excluded by an exclusion clause, it is never known how they will be construed by the courts and held valid or not. A balance needs to be struck between seller and buyer’s solicitors in order to limit the excessive investigation to reduce the delay in response and the potential claims it could give rise to.



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