Commercial Property Standard Enquiries: Legal Considerations and Best Practices
If ever there were a case highlighting the importance of accurate Commercial Property Standard Enquiries (‘CPSE’) replies, it is the 2016 case of Greenridge Luton One Ltd and another v Kempton Investments Ltd (2016).. Not only did the seller miss out on a £16 million transaction, the Court also ordered them to pay £395,948 worth of damages for misrepresentations made in responses to CPSEs.
This case serves as a stark reminder that sellers must understand their responsibilities when answering these enquiries, and the potentially significant consequences of getting it wrong.
What are CPSEs?
CPSEs are a set of detailed pre-contract enquiries, commonly used in commercial property transactions in England and Wales. They are designed to provide practical information about the property that is the subject of the transaction to the buyer or tenant. CPSEs cover a wide range of matters, including title, use, environmental issues, disputes, and VAT.
Are you under an obligation to provide replies to CPSEs?
The answer to this question is no. It is ultimately the responsibility of the buyer to raise enquiries of the seller in order to form their own assessment of the property, as the principle of caveat emptor (let the buyer beware) applies. However, it is standard practice to provide CPSE replies, and it is usually in the seller’s interest to do so.
If you don’t know the answer, should you take an educated guess?
The seller should avoid making assumptions or guesses when responding to CPSE inquiries. There are several important legal and practical reasons for this:
- Risk of misrepresentation:
A buyer may be able to rely on a claim for misrepresentation where a statement has been made negligently or innocently. In determining whether a misrepresentation has occurred, the court will consider whether the statement materially induced the other party to enter into the contract. This is a question of fact. The relevant test is whether the buyer would have entered into the contract, but for the representation, rather than what they would have done had they known the truth – commonly referred to as the ‘but for’ test.
If the test is made out the buyer may have grounds to:
- Rescind the contract/lease
- Claim damages for the loss suffered
- Bring a claim for negligent or fraudulent misrepresentation
- Potential professional liability
If agents, employees, or professional advisers assist in preparing responses to CPSEs, and the answers are misleading, then they may also be exposed to liability, particularly if the responses are relied upon by the buyer.
- Damage to reputation
Being perceived as uncooperative or deceptive in a transaction can damage a seller’s reputation in the market as well as their relationships with developers, investors, and solicitors.
It is therefore vital that replies are truthful to the best of the seller’s knowledge.
Can you avoid liability with evasive answers?
There may be a temptation to overuse ambiguous answers to the effect ‘Not so far as the seller is aware’. Whilst this is an acceptable response, such qualifications should be approached with caution. Making such a statement implies that the seller has taken reasonable steps to ascertain whether this is the case.
Before making use of the phrase, the seller should ensure they have consulted all records and employees/agents who may know the answer to the question. If this is not possible due to a loss of records/employees, a seller should explain and qualify the reply. If such steps are not taken, the seller bears the risk of making a misrepresentation.
If circumstances change, do you need to inform the buyer?
A reply to a CPSE question is a continuing representation and if, before completion, an accurate reply later becomes inaccurate as a result of a change of circumstance, it will become an actionable misrepresentation. The preamble to the CPSEs contains an acknowledgement by the seller that they will notify the buyer if they become aware of anything which may cause any of the replies they have given to be incorrect.
Final thoughts
CPSEs are a key part of the due diligence process in commercial property transactions in England and Wales. While there is no legal obligation for a seller to respond to CPSEs, doing so is standard practice and often in the seller’s best interest.
This article highlights the legal risks associated with inaccurate or evasive responses, including potential claims for misrepresentation and professional liability. Sellers are advised to approach CPSEs with acute caution.
If you require assistance in a commercial property transaction, our leading team of experts here at Redkite Solicitors are here to help and support you every step of the way. Please contact our Commercial Property Department at compropenqs@redkitelaw.co.uk
This article was written by Redkite Solicitors, Mya Saunders. To find out more about Mya and the support she and her team can offer you, please visit her website profile here.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.
