Multi-million pound property misrepresentation: moth-infested mansion returned to seller

Misrepresentations made in replies to pre-contract enquiries recently resulted in a buyer being able to rescind (terminate) a contract to purchase a £32.5 million house in London. The seller had confirmed in its replies that it was not aware of any vermin infestation when there was, in fact, a known moth infestation in the house. 

The decision highlights the importance of giving full, honest, disclosure when replying to pre-contract enquiries and is particularly relevant for sellers and buyers involved in property transactions in England and Wales. The case serves as a cautionary tale that the concept of ‘buyer beware’ does not provide a seller the ability to conceal issues and/or mislead a buyer.  

The purchase

Iya Patarkatsishvili and Yevhen Hunyak (the “Buyers”) purchased a house in Notting Hill, West London (the “House”) from William Woodward-Fisher (“the Seller”) in May 2019 for £32.5 million.  

The moths

Within days of the Buyers moving into the House they noticed the presence of a significant number of moths. The problem persisted despite treatments plans and extensive and expensive works being carried out. 

In September 2020, following further investigations with local pest control agents, it came to light that the Seller had been aware of the issue. The question was; had the Seller been untruthful in his replies to pre-contract enquiries?

Pre-contract enquiries

In response to specific pre-contract enquiries, the Seller had confirmed that he was not aware that the House had ever been affected by vermin infestation, that there were no reports to disclose and there were no defects which were not apparent on inspection (“the Replies”).  

The Seller’s wife had, however, found clothes moths in early 2018. A pest control agent implemented a £10,000 treatment plan at the time which did not resolve the issue. Two further reports secured in 2018 recommended further treatment plans but confirmed that, ultimately, the problem would not go away unless all of the House’s natural wool insulation was removed and replaced. The Seller chose not to remove the insulation. None of this information or reports were shared with the Buyers.

The claim

The Buyers issued a claim for rescission of the sale contract on the basis of fraudulent misrepresentations made by the Seller (having failed to disclose the previous moth issues and associated reports), the return of the £32.5 million purchase price, interest and damages. They claimed that they would not have purchased the house if the misrepresentations had not been made by Seller.

Court's decision

The Seller’s Replies were found to be false and a misrepresentation.  The Seller had been reckless in his reply as to whether there had been a vermin infestation (a ‘moth infestation’ was found to be a ‘vermin infestation’), and he did not honestly believe his other replies were true in relation to the reports and defects.

The Judge was satisfied that the Buyers relied on the Seller’s Replies when contracting to buy the house, and  were induced by those misrepresentations making the purchase.

The Judge was not persuaded by any of the defences raised by the Seller as regards the appropriate remedy. This included arguments of delay on the part of the Buyer for taking several months from discovery of the 2018 reports in September 2020 to issuing this claim in May 2021.

Although the parties could not be restored to their precise positions prior to the contract, the Judge sought to achieve restitution "in a practically just way by making adjustments and allowances”. 

The Buyers were therefore awarded:

• the right to rescind the contract and the ability to return the House
• the amount of the purchase price less financial adjustments to reflect their use of the House since 2019
• approximately £4 million in damages which included the £3.7 million SDLT paid and £15,000 for ruined clothes

Takeaways: 

• a seller should take care to provide full and honest responses to pre-contract enquiries. This judgment serves as a warning of the potential outcome if responses are found to be false
• the finding of misrepresentation in this case does not mean that all sellers will need to disclose any moth issues to a buyer - each case will be fact-specific and this was an “extreme case”
• there remains no duty of disclosure on a seller of real property (the principle of caveat emptor “buyer beware”) unless to the extent that a failure to disclosure would make information otherwise given to a buyer misleading or incomplete
• a buyer looking to rescind a contract must do so without delay or risk losing their right to do so. This will be determined on the facts of each case, but in this case a 7.5 month delay in electing to rescind was not a sufficient delay to make it unfair to terminate the contract for fraudulent misrepresentation
• we understand that the Seller may appeal this decision