“But I don’t want to put them off” - full disclosure in property sales

At some point during the seller’s ownership there has been a disagreement with the neighbours over the position of the boundary, or the property has flooded, or a neighbour has an informal arrangement which allows them to walk across the property for access. The seller knows it is a potential issue but is worried that the deal may fall through, or the buyer may ask for a price reduction, if it is disclosed so decides to not mention it.

The recent case of Iya Patarkatsishvili and Yevhen Hunyak v William Woodward-Fisher highlights the pitfalls for sellers of non-disclosure.

In this case, as part of the pre purchase due diligence for a high-end London Property (£32.5 million), the buyer’s lawyer raised a pre-sale enquiry asking whether the property had ever been affected by a vermin infestation. The seller replied that he was ‘not aware’ that the house had ever been affected by a vermin infestation; there were no reports which needed to be disclosed and there were no defects which were apparent on inspection.

However, the seller had, the year before, sought specialist advice from Environ to help deal with a moth problem at the property. In 2018, the seller implemented a treatment plan at an estimated cost of £10,000 but the moth problem persisted. Further treatment plans suggested removal and replacement of all of the house’s natural wool insulation, however, the seller chose not to do so and decided to market the property.

The buyers completed their purchase in May 2019 and, shortly afterwards, noticed a significant number of moths present in the house – they would fly into their faces, fall into wine glasses, land on toothbrushes and destroy their clothes.

The buyers went about contacting local pest control companies and, in March 2020, spent £270,000 to have the woollen insulation removed and replaced with synthetic insulation. The moth problem persisted and further quotes were sought from pest control companies. By chance, one of the companies they contacted was Environ, who had undertaken the work on the house in 2018. In September 2020, the buyers discovered the works which had been undertaken in 2018 and realised that the replies given by the seller were untrue.

The buyer issued proceedings for misrepresentation and sought rescission of the contract, repayment of the full purchase price plus interest and damages for the loss caused by the seller’s misrepresentation. If the contract could not be rescinded then, as an alternative, the buyer sought damages reflecting the difference between the cost of the house with the moth infestation and the price which they paid for it.

The seller’s defence that moths are not vermin was rejected by the court. Mr Justice Fancourt acknowledged that the seller was not consciously trying to deceive the buyers, “He simply wanted to sell the house and move on. As he admitted in cross-examination, disclosure of the infestation would likely have caused the sale to go off”.

The court found that the seller’s failure to disclose the moth infestation was a fraudulent misrepresentation and found in favour of the buyers. The buyers were entitled to the rescission of the contract as well as substantial damages of approximately £4 million to reimburse the buyers for the losses arising from their purchase, including their legal fees, stamp duty land tax, damaged possessions and other costs. An allowance of approximately £6 million was made to account for the use of the property by the buyers since their purchase.

Why full disclosure in property sales is important

This is why we always advise full disclosure of any issues. It is not for a seller to decide what may or not be material to a buyer. Whilst a seller may worry that disclosure will lead to a price reduction or the sale falling through, the consequences of non-disclosure are far reaching and expensive. Our view is that it is always best to be upfront and be able to negotiate, rather than be on the receiving end of potential court proceedings afterwards.

If you need assistance with buying or selling your property, contact one of our residential conveyancing solicitors by email, or call +44(0) 3333 231 580.