Developer misrepresented Freehold sale

[Mr Marple]

Hi, thanks for letting me register.

I'm not 100% sure which is the right sub-forum to pop this into so any signposting and/or advice would be much appreciated.

In summary, our predicament is thus:

We approached a developer about buying a new build property. The property was a house but being sold as Leasehold.
We stated that we didn't want to buy a Leasehold property. The sales adviser responded immediately that we could purchase the leasehold for a sum that was calculated using a fixed formula (30 x the annual fee). We baulked at that but were told it was non-negotiable as a fixed multiplier. Based on that we purchased the Freehold. We do not have the method of calculation nor that it was non-negotiable in writing.

We subsequently discovered that other purchasers had been quoted a different formula (12 x the annual fee).

We sent a letter before action for misrepresentation by the sales adviser as we had been clearly told it was a fixed multiplier and we purchased the FH expecting to add a value to the property roughly in the same amount. We requested they refund the difference between what we had paid and what our neighbours had paid as we had been misrepresented regarding the fixed nature of the multiplier..

The developer responded by calling out our version of events. They stated that, once a quote for the Freehold was requested, the sales advisor would contact the regional office to obtain a quote. This quote would be based on open market rates that could be achieved if the Freehold was sold on to investors. They went on to state that we entered into a commercial negotiation at this point and that it was negotiable. They also noted that the price we paid was actually at a 20% discount to the open market rates they could have achieved. When we ask them to explain why they applied a discount to exactly get the price to match the multiple referenced by the sales adviser they did not respond twice.

We responded that they had highlighted the broader element of misrepresentation (variable cost and negotiable) and amended our claim to the cost of the Freehold minus £1 as we could, in theory, have negotiated them down to this nominal amount had we not been misrepresented by the sales adviser. Or we would have been able to make an informed decision as to whether to purchase the FH or not.

The Developer has gone to great lengths to school us on the Leasehold/Freehold issue as well as pointing out we had access to a solicitor and an IFA. We do not believe that is relevant.

In our LBA's we have requested the internal guidance documents that instruct the sales adviser on how to position and sell the FH. They say none exists. We asked for the correspondence between the sales adviser and regional office that generated our "quote". They say none exists. We asked for them to provide all achieved Freehold sale values mapped against dates of completion. They argued GDPR and then confidentiality whilst acknowledging it sat in the public domain. We purchased a sample of Land Registry docs and all show the same fee being paid (e.g. a multiple of 12 x the annual fee with no variance indicating negotiation). All other requests for documentation have been ignored or we are told it doesn't exist.

In our follow up letter we reminded them that they needed to identify which elements of our version of events they disagreed with and explain why they refuted them. The only response to this was to note that any suggestion of misrepresentation was completely rejected. They also advised that, as our positions were apart, that further correspondence would serve no purpose.

We are now going to issue proceedings but, despite my sister being a solicitor, we are novicey. My sister specialises in pension law so this is a bit outside her everyday work.

In particular, I'm not really clear if this would fall under fraudulent or negligent misrepresentation and, indeed, whether we need to decide now which route to take. Or do we just go with misrepresentation and would the court make the decision?

Also, other residents have indicated that they will provide witness statements as to their own experiences in support of ours. When do we indicate that we would be submitting those?

The sum we are claiming (before interest and costs) is just over £10,000.

I'd be really grateful for any advice or signposting on this. I'm sure I'm not the first person to go down this route but I have struggled to find any other examples that I might follow. Which also makes me think that maybe I am missing something blindingly obvious as to why our claim is compromised (over and above the lack of written confirmation).

Sorry that is so long and thank you in advance for any advice.

Best regards,
Mr M

[R0b]

The term "misrepresentation" is an umbrella heading and there are three types: fraudulent (also known as deceit), negligent and innocent. There is nothing wrong with pleading fraudulent misrepresentation and then negligent misrepresentation as an alternative pleading. That way, if the claim for fraudulent misrepresentation fails, a court would decide whether there was a negligent misrepresentation instead.

There are subtle differences between the three types of misrepresentation, though I won't delve into innocent misrepresentation which is something you could possibly plead if appropriate. Fraudulent misrep is a civil tort and requires four ingredients:

(1) Person A makes a representation to person B
(2) Person A knows the representation is false or that he is at least reckless as to whether it is true or not
(3) Person A's intention is that Person B should rely on the representation
(4) Person B does indeed rely on it, enters into a contract and subsequently realises the representation was false causing loss

The burden of proof for fraudulent misrep is on you to show that those above elements are satisfied.

Negligent misrepresentation on the other hand, falls under the Misrepresentation Act 1967 and, similar to fraudulent misrep, requires there to be a false representation either carelessly or without any reasonable belief in it being true, and the standard to be judged is an objective one. An advantage to pleading negligent misrep is that once you are able to establish that the statement is false, the burden of proof then shifts to the statement maker to show that it believed the statement to be true.

Careful consideration should be given if pleading fraudulent misrepresentation because the courts take any claim of fraud seriously and would expect you to fully plead out in your particulars of claim the basis on which fraudulent misrepresentation took place.

Obviously if your claim is slightly over £10,000 then you might want to consider limiting your claim to £10,000 which means it should fall onto the small claims track and to avoid potential legal costs if you lose. Be aware, however, the Civil Procedure Rules have stated that claims for deceit should not generally be allocated to the small claims track. the CPR does not say it absolutely, but this is probably because it is a serious allegation and the normal rules such as disclosure and what not do not apply on the small claims track. Something for you to think about and consider. Then again, unless you have a knowledgeable opponent lawyer and/or judge, that provision might not actually get picked up.

So to summarise, you can't simply plead misrepresentation because you need to plead a cause of action and each of the misrepresentation types have slightly different criteria.

As for how you plead it in your particulars of claim, that's relatively straight forward. A basic example might be something like the following for fraudulent misrep:

1. The Claimants were interested in purchasing a property that is now known as [address].

2. The Defendant's sales agent stated that the house is to be sold under a lease but, for an additional sum, could be purchased on a freehold basis. The sales agent orally represented to the Claimants that the said sum was calculated by way of a multiplier formula which is non-negotiable due to the multiplier being fixed. The sales agent confirmed that the fixed multiplier was thirty times the annual service charge fee.

3. In reliance upon the sales agent's representation, believing that the said representations were true, the Claimants entered into a contract to purchase the property on a freehold basis. The amount paid to purchase the freehold was [amount].

4. Following the purchase of the property, the Claimants made inquiries regarding the fixed multiplier formula and it turned out that the multiplier was in fact twelve times the annual service charge fee and not, thirty times as represented by the sales agent. The sales agent wrongly represented the multiplier formula to the Claimants.

5. The representation was made fraudulently, in that the Defendant knew it was false or was reckless as to whether it was true or false. [Insert details why the defendant knew it was false or reckless].

6. As a result of the misrpresentation, the Claimants have suffered loss and damage.[list the loss or damage].

7. If, which is denied, the representation was not fraudulent, the Claimants plead, for the reasons mentioned above, that the representation was negligent.

as mentioned, the above is a basic example but you would need to flesh it out in your claim with the extra information. Note point 7 where I have set out the alternative pleading of negligent misrepresentation. The facts and evidence is likely to remain the same, just the causes of action and burden of proof is different.

P.s. I can't say you would be successful for certain as it would hinge on the fact that the developer was free to set the multiplier as it saw fit. There may be merit in what you said in your post but that would be up to a judge to decide.

[Mr Marple]

Hi ROB,

Thank you very much for that. That explains things about as clearly as I suspect is possible to a lay person and is very much appreciated.

I had read about the different tracks and how things look to be a little more onerous if they fall into the "fast track" rather than the "small claims" track. For the sake of a few hundred pounds I would prefer to keep it below £10,000 to try and steer it to the small claims track. However, I wasn't sure if I could "contrive" the amount claimed to do so, especially having made the greater claim in the LBA. I guess from your response that it is possible and permissible to do so.

Thanks again for your kind assistance.

Mr M

[R0b]

If you want to claim a lower amount than you originally stated in your LBA, that is entirely up to you. What you cant do is issue a separate claim for the rest of the amount nor can you pay a lower fee then amend your claim to see a higher amount of compensation. That would be an abuse of process.

If you wanted to limit your claim you could state in your particulars at the end or the beginning that the claim is limited to £10,000.

Are you intending to issue a claim via the money claims online website?

[Mr Marple]

Thanks again, ROB, that's very useful to know. If I limit the claim to £10,000 is that an "all inclusive" figure e.g. I wouldn't be able to add court costs and/or interest on to that amount.

Yes, I was planning to use the money claims online website although wasn't 100% certain whether it would be suitable for the claim.

If I may, just to refer to your PS comment in the previous response. You mention about it hinging the developer being free to set the multiplier as they see fit. I actually don't dispute that they can do that. Indeed, they have stated that there is no multiplier formula and that all "quotes" are derived from the prevailing open market valuations at the time. What I think our contention is, is that the sale advisor (according to the process laid out by the developer) concocted the notion of the multiplier, falsely claimed that it was fixed and non-variable and, in direct contradiction of what the developer has since revealed to be the process, made it very clear that no negotiations were permissible (beyond the binary decision to buy the Freehold or not). We seem to be in the slightly odd situation where the evidence for the sales advisers misrepresentation is the process that the developer is erroneously asserting occurred.

Anyway, apologies, hope that doesn't seem pedantic. I'm just trying to get my head around the whole thing and it's very useful to just test my ability to explain my viewpoint and have it scrutinised by minds more tuned to the legal process than mine.

Thanks again. Genuinely very much appreciated.

[R0b]

It would be suitable but I suspect you will need to tick the box that says you will deliver detailed particulars of claim within 14 days from service of the claim form. Otherwise the claim box has a limited character amount. You are better off drafting the detailed particulars of claim before issuing it and ticking the box because then you are on a time watch and if you fail to do so, your claim could be struck out.

As for the value of the claim, it might help to read CPR 26.8 paragraph's 1 and 2 (see below).

CPR 26.8 - Matters relevant to allocation to a track.png

I complete understand your point and there seems to be a number of gaps missing in the developer's story. You are never likely going to get the developer to capitulate but you just need to sow enough doubt in the judge's mind so as to tip the balance of scales 51% in your favour. Based on what you've said the developer might struggle to prove their case, particularly as they have explained the real process and since their sales person would have received training and know-how in the way the process works for buying the freehold, it appears there's a clear misrepresentation. That's before you get on to the fact that they seem to have offered a 20% without negotiation (presumably you never asked for this?) and yet that fits the 30 x annual fee amount. So why would they discount something right off the bat when that isn't their normal process?

So long as you get your facts straight and provide sufficient evidence, I would expect the developer to defend the claim since it's not a small amount, but they may decide to settle close to time.

[Mr Marple]

Thank you again, this is all very helpful. I will certainly draft the full particulars so that our ducks are neatly in a row.

Yes, the point about the c20% deduction being applied to bring the "proposed" price down to exactly the same value as the stated fixed multiple is strange. I think, on many levels.

Primarily, had they not stated in their response to our LBA "I can confirm that at the time of your purchase that the price being obtained from pension companies for a freehold such as yours was circa 20% higher than the price you paid [the developer]" we would have been absolutely none the wiser. Instead they have tied themselves in a knot and now will not respond when we ask them to comment or refute this.

Further to your point, we requested no such discount as we were told that it a non-negotiable price based on the fixed multiplier. But they gave it to us anyway, And in doing so matched the quoted price arrived at by a multiplier that didn't exist. The curious case of the benevolent developer and the mysterious multiplier.

Thank you again. It's very kind of you to take the time.

[Mr Marple]

I wanted to ask a quick follow up question, please?

We issued the claim via the money claims online website. As an aside, I'm pretty sure that half of all claims must end up abandoned due to the infuriating nature of how the text entry box has been set up.

We ticked the box to indicate that we would be sending a detailed POC. I understand that we have two weeks to do so from the claim being issued. I assume that this document just goes to the address we used for issuing the claim. Does it need to have any "For the attention of..." on it or can it just have the company name? I also assume I should get a proof of postage.

What I wanted to double check was if I also needed to send the detailed POC to the court. I couldn't see anywhere on the website asking me to but then how does the court get sight of it? I suspect that's probably a rookie question so apologies and thanks in advance and in equal measures.