Failure to Reveal All Proves Costly for Developer

The standard pre-contract enquiries made by a solicitor when a client is intending to purchase a property include querying whether there are any disputes which may affect the value of the property being purchased.

When a woman bought a flat in a block of flats for £240,000 from the developer in 2012, the replies to the relevant questions were anodyne. However, a number of issues were already extant relating to the inadequacy of a biomass boiler used for hot water and heating in the block, the excessive levels of service charges imposed on the flat owners and the refusal by the developer to establish an independent management company.

She sued the developer for misrepresentation and claimed damages based on the difference between the market value of the flat based on a full knowledge of the circumstances and what she had in fact paid.

The developer denied that there had been any misrepresentation.

The court found that as a matter of fact the boiler issues were ones about which the developer had made a misrepresentation and ruled that it should pay her £25,000 in compensation.

The developer appealed and pointed out that when the woman sold the flat and moved on, she made a profit of £35,000. By that time, the heating issue was being rectified under the guarantee, so, argued the developer, while she had disclosed the issue to her purchaser, it did not affect the selling price. She had therefore made no loss.

Lord Justice Floyd of the Court of Appeal commented in his judgment, “The contention that a wrongdoer should be able to take advantage of a rise in the market value of an apartment when he had induced the purchase by a misrepresentation is, at first sight, rather surprising.”

Although in some cases the profit from a later event could be brought into account, this was not one of them. The existence of an insurance policy (an NHBC guarantee) relating to the boiler was the reason why the woman had not suffered a loss and there is an established principle that where a claimant has been able to use an insurance policy to reduce or extinguish her loss, this is not to be brought into account.

Accordingly, the developer’s appeal was dismissed.