Anthony Eaton is a solicitor in our property litigation team and regularly handles property misrepresentation claims. He has written about the grounds and causes for property misrepresentation here.
In this article, he takes a more detailed look at a recent property misrepresentation case where rescission was considered, and what we can learn from it.
What is the best remedy for misrepresentation?
Where fraudulent misrepresentation is proven in a property case, the claimant has the remedies of rescission of contract and/or damages available to them.
Is rescission available for misrepresentation
Often, the claimant may consider rescission. This is when the property is transferred back to the seller for the purchase price. This can be an attractive option, especially where the property has ongoing problems or major works are required.
However, a claim for rescission is not straightforward and importantly is not always the most practical option.
The court considered the principles of rescission in the recent case of Iya Patarkatsishvili and Yehven Hunyak v William Woodward-Fisher which provide a useful reminder of the potential difficulties and pitfalls with this remedy.
What happened: Iya Patarkatsishvili and Yehven Hunyak v William Woodward-Fisher
A basic summary of the facts:
In this case the claimants had purchased the property in question from the defendants for £32,500,000. The usual pre-contract enquiries were made of the seller and amongst their answers, the defendants stated that they were unaware of any vermin infestation in the property, any reports relating to that or any hidden defects.
The buyers discovered after the purchase that there was an infestation of moths in the property’s insulation, which the sellers had instructed professionals to treat. The treatment was unsuccessful, and a costly and disruptive removal of the property’s insulation would be required to solve the issue.
The claimants case was that this constituted fraudulent misrepresentation. The court agreed but the defendants argued that rescission should not be ordered for a variety of reasons.
Is there a time limit on property misrepresentation rescission claim?
The first ground of defence to rescission was that the claimants had taken too long to elect to rescind the contract. The argument here was that the claimants had all the facts in their possession which they needed to make a decision to rescind the contract in October 2020 and they did not inform the seller of their election to rescind until May 2021 a delay of just over 7 months.
The court considered whether the claimants were to blame for the delay or whether they actually gained some benefit from it. If so, this might mean to order rescission would be inequitable. In this case, the court found that the delay was not inequitable but did state that the delay was “somewhat longer than one might have expected”.
Further the court stated that a period of up to 4 months, possibly longer would be would not have been surprising.
“This provides an important reminder that if you feel that you have a claim in fraudulent misrepresentation and are considering electing to rescind the contract, you should act quickly to avoid losing the right to this remedy.”
What constitutes ‘affirming a contract’ in rescission of property contract?
The second ground of defence was that the claimants had affirmed the contract. The Defendants argued that because the claimants had continued to live in the property after they were aware they might have a right to rescission, they had in fact acted in a manner which demonstrated they had elected that the contract should remain in place
As a result, it was argued they had lost the right to rescind the contract. The court found that the decision to elect was relevant to deciding whether the right to rescind had been lost.
However, the court did not agree that the act of living in the house amounted to an election that the contract could not be rescinded. The court noted that unlike with a contract to purchase goods, a home could not simply be handed back. The claimants were not obliged to move out to retain the right to rescind the contract.
“The timescale for rescission is not open ended and therefore, once again claimants are reminded to act quickly if they anticipate a claim for rescission.”
Can a seller refuse rescission if they can't repay the buyer?
The final ground of defense to rescission was that it was not possible to put the parties back in the position they were in prior to the rescission of the contract.
The usual position on rescission would be that the property would be transferred back to the seller, who would then pay the purchase price back to the buyer. However, the defendants argued that this was not possible as the seller no longer had the funds to repay the buyer.
The court found that the right to rescission rested on the ability of the party seeking rescission to return the property. Therefore, it was still open for the purchaser to transfer the property back to the seller, irrespective of whether the seller could pay them back immediately.
This may seem a strange position to take, after all, if the property is transferred back to the seller without the full purchase price being returned immediately, the buyer may be left without a home and the funds to purchase an appropriate new property. In this case, the claimants were extremely wealthy and accepted rescission for part payment of the purchase price in the short term and a charge over the property for the balance when the property was later sold.
“The importance of this point is that when seeking rescission, a claimant should be sure that the seller can afford to repay the purchase price. If not, they may not be able to purchase a suitable new property, leaving them in a difficult position for future accommodation.
A consideration as to whether a defendant can afford to pay is important in any litigation, but the consequences of this in cases of rescission could be extremely difficult. In that case, a claim for damages may be more appropriate”
Specialist Property Misrepresentation Experts
A property misrepresentation claim can seem complex and overwhelming, that’s why our specialist team are here to guide you through the process in plain English.
You can get in touch with a member of our Expert Dispute Resolution Team, on 01202 499255 or by filling in the form. We offer all new clients a free initial chat.
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