Residential property update

Free advice

The recent case of Padden v Bevan Ashford Solicitors [2011] EWCA Civ 1616 is a salutary reminder from the Court of Appeal that advice given briefly and for no charge to a client who walks in off the street does not diminish the firm's duties and liabilities in giving that advice. This case concerned a not uncommon scenario of a wife, among other things, charging the family home to raise funds for her husband's use '“ in this case, to be used to reimburse monies taken fraudulently. The wife's motivation was to keep her husband out of prison 'for the sake of the children'.

The Court of Appeal's guidance on how the Etridge guidelines apply in this case is helpful, yet concerning. At first instance the judge had distinguished this case from Etridge on the basis that the meetings were free of charge and very short. The Court of Appeal pointed out, however, that the purpose of the wife consulting a solicitor was to ensure that she understood the nature, effect and potential consequences of her proposed course of action and was free from any undue influence. Simply telling her not to do it fell well short of satisfying that duty. Although the wife was a 'highly intelligent and well-educated woman', who understood the effect of the documents she was being asked to sign, the Court of Appeal's view was that the solicitor should have emphasised to her the desirability of exploring why she was prepared to risk her home for a husband who had committed fraud and to test her reasoning as to why she wanted to protect the children from her husband being sent to prison. The Court of Appeal also emphasised the importance of finding out the full facts from the husband's solicitor either by meeting him or telephoning him, and that a short meeting to advise was 'simply inappropriate'.

Another solicitor in the same firm, a few days later, witnessed the husband and wife's signatures and gave the usual certificate in the mortgage that the wife had been independently advised. The Court of Appeal found that before he witnessed their signatures and signed the certificate he also should have seen the wife on her own and given similar advice to that which the first solicitor should have given.

There are two points of particular concern here. The Court of Appeal held that the solicitors should have emphasised to the wife the importance of finding out the full facts from her husband's solicitor and that the firm should also have understood the nature of the transaction before witnessing the documents and giving the certificate, which would necessitate reading and considering all the documents involved. Firms should reconsider the circumstances under which they give Etridge-type advice and the level of practitioner giving that advice. Even for the briefest of meetings of this kind, a full attendance note should be made of the advice given and the client's decision and this should be confirmed to the client in writing.

Updating replies to enquiries

Replies to enquiries can be a time-consuming, tedious job that the average practitioner is pleased to get out of the way. Often little consideration is given to updating the information or even highlighting to clients that this is expected. The recent case of Cleaver v Schyde Investments Ltd [2011] EWCA Civ 929 saw the Court of Appeal allowing a buyer to rescind a contract to buy a property intended for residential development, because the seller failed to update the replies to enquiries after receiving notice of a planning application affecting the property. The contract in question incorporated the standard conditions of sale (fourth edition) including condition 7.1.3 (condition 7.1.1 in the fifth edition) unamended, which provides that 'an error or omission only entitles the buyer to rescind the contract where it results from fraud or recklessness, or where he would be obliged, to his prejudice, to accept property differing substantially (in quantity, quality or tenure) from what the error or omission had led him to expect'.

By not updating the replies to enquiries in this regard the seller was guilty of an innocent misrepresentation, which under condition 7.1.3 did not allow rescission. Under section 11(1) of the Unfair Contract Terms Act 1977, however, exclusion of liability for misrepresentation is only allowed where it is fair and reasonable in all the circumstances. Here the judge at first instance considered that condition 7.1.3 was not fair and reasonable. On appeal the seller argued that the county court judge had not given sufficient weight to the separate representation of the parties and that a number of variations had been made to the standard conditions in the contract, but no amendment had been proposed to condition 7.1.3.

The Court of Appeal felt hamstrung in its ability to disturb the first instance decision on the question of what was fair and reasonable in the circumstances, but it considered that, although the planning application did not affect the 'quantity, quality or tenure' of the property, the seller knew how important planning was to the buyer and had the buyer known of the planning application before the exchange of contracts they would not have proceeded.

This case is a useful prompt that sellers should be reminded of their duty to update their replies and the information given in property information forms before contracts are exchanged, if matters have changed.

Email contracts

Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, in part designed to help prevent parties from unintentionally entering into contracts for the sale of land, is now being utilised in an attempt to show that a binding contract has been entered into when a string of emails contain all the agreed terms and are 'signed' by the parties' names being inserted at the end of the emails.

The recent case of Green (Liquidator of Stealth Construction Ltd) v Ireland [2011] EWHC 1305 (CH) did not deal with a contract for the sale and purchase of land, but a claim that a binding contract had been entered into to charge a property to show that a charge given later was not a preference that could be set aside under the Insolvency Act 1986.

The defendant failed in this case because the court found that not all the terms of what had been orally agreed between the parties was contained in the string of emails, not because the 'contract' had not been signed. The judge went on to look at the section 2 requirements for signature by both parties. In the emails in question, the parties had simply inserted their forenames, but the parties accepted that the emails had been signed and the court did not disagree. The judge said that an email and reply taken together could constitute a single document for the purposes of section 2, where the email sent in reply is part of a string of emails rather than creating a new email for the reply. The court concluded that a string of emails was the electronic equivalent of a hard copy letter signed by both the sender and the recipient.

Although the existence of an enforceable contract was not found in this case, this decision is not alone in suggesting that the courts are giving increasing recognition to the possibility of electronic contracts, which is hardly surprising given the extensive use of email. The safest course if an email string is created is to mark the emails 'subject to contract', as one would in hard copy correspondence setting out the terms of a deal.

General boundaries guidance

When conveyancers show their clients a copy of the filed plan and ask them to satisfy themselves that it includes all the property they expect to purchase, how often does one remember to mention that the boundaries shown are simply general rather than defined boundaries, so that the land shown as being within the registered title is not necessarily a precise indication of the land to be transferred to the buyer?

Drake and another v Fripp [2011] EWCA Civ 1279 has again brought general boundaries into the spotlight. In this case there was a dispute as to whether the boundary line followed a hedge or a post and wire fence that were 45 metres apart and so the disputed land in total amounted to about 1.5 acres. The Court of Appeal agreed with the High Court and the Land Registry adjudicator that the boundary was the fence and not the hedge. The party who had 'lost' 1.5 acres of land that he believed to be his argued that he had been prejudicially affected and therefore this constituted a rectification. The Court of Appeal did not agree as the buyer had never acquired the title to the disputed land. The boundary was not precisely identified on the filed plan as it was a general boundary. Consequently, when the boundary was precisely identified it showed that he had never had title to the disputed land transferred to him, so removing that land from the filed plan did not prejudice him nor constitute a rectification.

The Court of Appeal's judgment in this case gives useful confirmation of the Land Registry's guidance on general boundaries and it is hoped might encourage some boundary disputes to be settled before reaching the court.