Identifying who is liable if that dream property purchase turns into a nightmare can be difficult

Laurence Cobb

Both in our professional and private lives there are a series of critical moments before you commit to something where objective analysis is mixed with the combined emotions of fear and hope. Most, if not all of you, will have experienced that scenario at some stage and perhaps the most stressful decision of that nature is the purchase of your house or flat. Is it a good investment and is that the main reason for your purchase or do other emotions hold sway such as the relevance of a school catchment area, your DIY skills, or a walk-in-wardrobe to die for?

However, identifying who is liable if that dream home, or indeed any property purchase, turns into a nightmare can be extremely difficult. You must look at the terms of the agreement as a key and first point of reference but in some cases you may also have to look at what was said and relied upon at the time of the purchase.

This was brought into clear focus in the case of Hunt and Others vs Optima (Cambridge) Limited and Others, where the Court of Appeal considered an architect’s duty of care owed to third party purchasers.

The facts of the case were complicated due to a number of claimants who had arrived at the position of being long leaseholders through different routes.

It is important to bear in mind that depending on the wording of the certificate and the nature of any warranty given to a third party there may still be circumstances where either a contractual or a tortious liability may arise

In summary, what was common to all was that the architect had been required to provide certificates on a periodic basis during the construction of the block to certify that the works were being constructed to a satisfactory standard. It transpired that the building works were carried out badly and the inspections were carried out negligently. The contractor had gone into administration and therefore the claims by the leaseholders focused on the architect, in this case, Strutt & Parker.

Of the eight leaseholders involved in the litigation it was found that one had left it too late to make its claim concerning the negligent misstatement. Two of the other leaseholders who had been successful at first instance did not have that decision challenged in the Court of Appeal as they had relied upon a certificate showing satisfactory construction of the flat before the sale agreement. However, in relation to the balance of the leaseholders, the certificate was not provided to the relevant claimants until after, and indeed in some cases long after, the exchange of contracts and the execution of the lease of the flats concerned. All the relevant claimants had been represented by solicitors at the time of the purchase.

The Court of Appeal, contrary to the finding at first instance, dismissed the action for negligent misstatement as the statements contained in the architect’s certificates had not actually come into existence until after the sales had been entered into and completed. It was thus not possible to show that there had been reliance on a statement and that such reliance had caused loss. In some cases it might be said that the purchaser had an understanding that there was a certificate in place or that they would receive a certificate on or after completion. The architect had no contractual relationship with the purchasers and no direct contact with them and the certificates had not been relied upon to enter into the contract.

Whilst architects and certifiers may breathe a sigh of relief as a result of this outcome it is important to bear in mind that depending on the wording of the certificate and the nature of any warranty given to a third party there may still be circumstances where either a contractual or a tortious liability may arise.

A lesson to be learnt for all from this unfortunate set of circumstances is that whether it be in a commercial or a personal scenario, try to view such romantic notions as “your dream home” or “opportunity of a lifetime” with an element of cold objectivity. Make sure you are clear as to what the terms of any relevant agreements establishing liabilities are. If you do consider something to be a critical issue or a potential deal breaker, if you still go ahead and seal the deal without that key issue being resolved in advance of signing the agreement, repent at leisure.

Laurence Cobb is head of construction at law firm Taylor Wessing