Purchasing a commercial property: What happens if you rely on a statement which is not true?

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If one party makes a false statement to induce the signing of a contract, then legal action may be brought against him.

Australia Real Estate and Construction

During the negotiation stage of any contract, statements which aim to encourage a party to enter into a contract may be made. However, if one party makes a false statement in hopes of inducing the other to enter into the contract, legal action may be brought against them. The formal legal term of this scenario is called 'misrepresentation' and it can apply to any contract however, for the purposes of this blog, I'll be referring to the sale of commercial property. A recent Supreme Court case considers what happens in such circumstances.

The case: 5 Ridge Pty Limited v Tryname Pty Limited [2017] NSWSC 371

Facts

The misrepresentation: The vendor made a number of representations to the prospective purchaser that the property's current tenants were going to exercise their option to extend their lease. The vendor further stated that the contract was in fact 'subject' to the tenants exercising their option to extend their lease. The purchaser relied on this statement and decided to purchase the property.
What happened? One of the tenants decided not to exercise their option to extend their lease after the purchaser signed the contract.
Was it a false statement? Yes. However, the vendor asserted that they refused to make the contract subject to the specific tenant who didn't exercise their option and that attaching that particular tenant's Lease was a mistake.

What the court decided

The court decided that the vendor wasn't entitled to keep the deposit and that the sale was terminated due to the representation which occurred.

What you need to be aware of

Vendors selling property

Vendors and their solicitors need to ensure that they don't make any false statements to prospective purchasers as it could lead to a termination of the contract.

Purchasers

Purchasers need to ensure that they seek a solicitor or conveyancer's advice when purchasing a property so they can be aware of any potentially misleading statements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.