Purchasing commercial property – what to do if you rely on a false statement?

You’ve been hoodwinked, snookered, bamboozled and flimflammed. In other words, they lied.

 

The sellers of that fabulous commercial property lied to you and you, poor fool, believed them.  What can you do, once you have dusted off your dignity?

 

The legal term for this in contractual transactions, such as property sales, is fraudulent misrepresentation. If you can demonstrate that you reasonably relied on a material misstatement of fact and were injured because of your reliance, then you may have legal recourse against the seller as well as the seller’s agent and any number of other parties.

 

But a lawsuit is cold comfort in many situations.  If you have not already found yourself in the miserable fraternity of the hoodwinked and bamboozled, there are important steps you can take to protect yourself.

 

But first — reasonable reliance, material facts and economic injury

 

The statement on which you mistakenly relied must, first of all, be a statement of fact – that the building was built in 1990 or that the area of land involved is one hectare.  Reliance on a statement of opinion – the parking area is the most beautiful the world has ever seen — for example, will not support a claim of fraudulent misrepresentation. The fact must also have been material to the transaction. The difference between teal and green external trim may not be material, even though the composition of the building materials is. Finally, reliance on the statement must have been reasonable. It is hard to argue that you were fooled by a patently ridiculous statement unless you had no opportunity to know that it was false because of individual circumstances.

 

All of these factors will be weighed in the light of a demonstrable economic injury, especially since this is a commercial transaction. Insurability or resale value may be key factors in establishing economic injury.

 

An ounce of prevention

 

There is no substitute for due diligence, with regard to both the provisions of the contract and the underlying facts. This is why buyers should employ credible attorneys and inspectors. These professionals are the first line of defence.  

 

As an additional layer of protection, some buyers may negotiate indemnity clauses under which the seller promises to repay a buyer’s expenses caused by false or incomplete disclosure of material facts.  These contractual promises may be secured with an escrow fund or insurance maintained by the seller, but naming the buyer as beneficiary.

 

Finally, a buyer may choose to purchase warranties insurance, also known as representations and warranties insurance. This is a relatively new insurance product for property transactions in Australia and may be pricey. If this layer of protection is important, it may be time to revisit the question of why you want to do business with someone that likely to lie to you.  

 

Legal remedies

 

When all else fails, you can sue, either to rescind the contract of sale or for damages.

 

Rescission is designed to unwind a contract, restoring both buyer and seller to the position they would have occupied had the contract never been signed. The deposit is returned to the buyer and ownership reverts to the seller. Rescission may be the best option when the false statement is discovered in the early infancy of a transaction.

 

Alternatively, a buyer may sue for damages, designed to make him or her whole for the injury caused by the transaction. Under Australian law, lawsuits may also be brought against the seller’s agents and any licensed professional who willfully or negligently participate in the deception.

 

The measure of damages should also be as inclusive as possible. Under appropriate circumstances, they may include not only the difference between the price paid and the actual market value, but expenses incurred to remedy a defect, the cost of lost opportunities, and so on.

 

Buyers must ensure that they seek a solicitor’s advice when purchasing a property so they can be aware of any potentially misleading statement. The attorneys at Owen Hodge Lawyers would be happy to assist you in negotiating and reviewing a contract of sale for a commercial property. Where necessary, we may also be able to help you recover from the consequences of a seller’s false statement. Please call us at 1800 770 780 to schedule a consultation.