Although the Home Information Pack Regulations 2007 are substantially different from what the Labour administration had contemplated when the concept of Home Information Packs was originally promulgated, they retain dangers for Buyers and Sellers alike. Professional indemnity insurers should be fully appraised of the potential problems for HIP providers. This article examines some areas of potential liability and follows an earlier article by Tim Goodger published in June 2001.
Much has been written about the criminal sanctions of not complying with the Regulations, including the imposition of a potential fine of £200 if a party fails to produce an accurate HIP, but both mandatory and non-mandatory elements of HIPs could result in liability claims against professionals. HIPs give rise to wider legal issues including the extent of the liability to the recipients of those who commission or provide reports if a HIP is inaccurate and/or includes a misrepresentation about the state of the subject property.
The primary objective of the Regulations is to improve the efficiency of the sale of residential properties. The duty to provide a HIP is on whoever is responsible for marketing the residential property. The content of the HIP must now include an Index (listing its content), an Energy Performance Certificate ("EPC"), evidence of title (Land Registry documentation or other documentation if the property is unregistered) and a sale statement with standard searches (LLC1, CON.29 Part 1 and CON.29 D&W). Additional information may be required, where appropriate, for leasehold/commonhold sales (e.g. copy of lease, details of service charges). Controversially, HIPs may also include a Home Condition Report, a legal summary, home use/contents forms, guarantees and warranties. This Pack therefore will be provided either by the estate agent or the Seller, if the Seller decides to market the property.
Arising out of this is the issue of liability for professionals involved in the preparation and/or publication of HIPs. Do the Regulations eliminate the caveat emptor principle for buyers? Does the fact that the Regulations do not expressly hold other parties liable alleviate their responsibilities in tort?
Consequences Of Inaccuracy
In English law, individuals may be found liable in negligence if they owe a duty to others, and that duty is subsequently breached, whereby the innocent party suffers some form of damage/loss as a consequence. Inaccuracy in the Pack documents may potentially result in loss to any party that relies upon them, and a subsequent claim of negligence may arise against the commissioner of the HIP. The HIP providers themselves may be exposed to potential liability to a Buyer (or indeed a Seller if there is a claim against them) for any misrepresentations contained within a HIP.
On a simple analysis, both the Buyer and the Seller potentially will rely on the documents within the HIP report. In the case of those preparing a report, the primary potential liability arises by virtue of breach of the contract with the party instructing that professional/provider. It is more likely that there is a contract between the HIP provider and the person marketing the property, rather than with the Seller. Indeed, the Seller's reliance upon poor HIPs to market the property may result in loss because the Pack is inaccurate and as a result the property cannot be sold. A surveyor or a provider potentially may be liable for resultant loss from any negligence in carrying out the survey or provision of a Pack because of a duty (in tort) owed to the Seller. That duty arises despite there being no contractual nexus between the two parties.
Poor reports may result in a Buyer making a claim against the Seller, who in turn may claim against the party commissioning the report (if different from the HIP provider), depending upon the care and attention they used to commission the report. This is because of the interaction of the contractual relationships between the various parties.
However, the Regulations are drafted in a manner that is intended to waive the responsibility of the Seller or estate agent where the inaccurate document was not provided by them. So long as the Seller or estate agent has reasonable cause to believe that the document does comply with the Regulations, they will not be penalised. Essentially therefore, under the Regulation, HIP providers are only expected to make sure that the right documents are included in the Pack but are not to be held liable for the accuracy of the information contained in the documents that have been provided by others. In an apparent attempt to deal with potential claims, however, the provider of the information must, under the Regulations, be backed by adequate indemnity insurance.
Notwithstanding that, it is established in English Law (following the reasoning in Hedley Byrne v Heller) that there may be circumstances in which a tortuous duty of care in the tort of negligence may be owed to a third party and therefore a HIP provider or a surveyor may be liable to the third party recipient in any event. There is a potential for claims to extend to the economic loss suffered following the negligent actions of another.
It is trite, but solicitors acting for a Seller or a Buyer owe a duty of care to their clients. When providing an HIP, therefore, a solicitor is under an obligation to make sure that it complies with the relevant provisions of the Regulations. Indeed, because there is a continuing obligation under the Regulations to keep the information in the HIP up-to-date, there are ongoing risks because the information contained in the HIP may change over the period during which the property is being marketed.
When acting for a Buyer, a solicitor must make a judgment as to whether, to fulfil his/her duties, a search carried out by the HIP provider is sufficiently compliant both to satisfy the Regulations and to provide the necessary and accurate information upon which the Buyer may be advised to proceed safely. Solicitors may well err on the side of caution and be careful not to advise their clients to buy on the basis of incomplete or unreliable searches and reports. A second, (more) reliable search might be commissioned by them, out of an abundance of caution – rather than be criticised for not having done so. That, however, simply adds to the overall cost of the purchase.
The legal summary (a non-mandatory element of the HIP), can be drafted by either a solicitor or a HIP provider. Although a mistake or misstatement in that document arguably is actionable against the Seller, the HIP provider feasibly may be joined in any proceedings. The expectation of a HIP provider to draft a legal summary, even if it is described as a simple summary of all the legal documents, is arguably as high as the expectation (and standard) that a solicitor is expected to meet.
The Standard Of The Provider
The standard of the provider has a direct bearing on the potential for claims. In this regard, the Law Society has warned that there are some providers with no qualifications. Further, a Trading Standards investigation has highlighted serious flaws in the content of HIPs provided by some estate agents, including the omission of information and inaccurate dates for planning proposals. Notwithstanding the highlighting by the investigation of the hazards involved, unqualified and unregulated HIP service providers can be commissioned by Sellers and estate agents, usually in an attempt to keep the overall cost of the HIP as low as possible. There are unsubstantiated reports that some estate agents are being paid undisclosed commissions by search companies for poor quality searches. There are also apocryphal tales of the problems encountered by providers, including the denial of access to buildings or long delays experienced by personal search companies when requesting searches from local government. These issues can result in potential claims.
A little considered area is the potential liability that may arise in respect of the report by energy surveyors and Home Energy Report. Members of an Accredited Scheme should undertake the survey and they are obliged to operate within a code of conduct and procedures. Where a surveyor gives an energy rating that is wrongly assessed to be too low, it could result in Sellers being forced to reduce the sale price of their home or waste money on unnecessary improvements. Conversely, if the energy survey mistakenly reports that the energy rating of a property is higher than it actually is, the Buyer would be paying an inflated price for the property. Both circumstances have potential liabilities and for the possibility of proceedings being brought against a surveyor. The measure of damages in a falling market may be difficult to gauge, and the consequential loss arising from a non-sale may be great but evidentially difficult to prove.
Statutory redress is insufficient where the HIP is inaccurate and a party, either a Buyer or Seller, suffers significant loss as a result. Buyers and Sellers inevitably therefore will seek redress, particularly if it can be shown that the HIP provider or even the energy surveyors were erroneous and that a duty of care owed to them has been breached.
In the case of the energy surveyor, the primary potential liability arises by virtue of breach of the contract with the party instructing him/her. This is more likely be a contract with the HIP provider rather than with the Seller, but the surveyor may owe the Seller a duty (in tort), despite there being no contractual nexus between the two, and the surveyor may be liable for resultant loss from any negligence in carrying out the survey.
The range of third parties to which the surveyor could potentially be found liable is quite broad and may include not only the Seller and Buyer, but also the mortgagee, mortgagor and subsequent purchasers. In the absence of any express term in the contract, the standard expected of a surveyor is that of an ordinary skilled man exercising the same skill as him. The level of damages awarded to the innocent party will be subject to the usual tests of reliance and remoteness. There is a raft of established case law dealing with reliance of parties on reports. For example, where a Buyer was unable to occupy a house purchased in reliance on a negligent survey, the Buyer was entitled to recover damages for diminution of value.
Little has been litigated to date, but in view of the volatile property market and reported falls in prices, these matters may warrant greater consideration. It may be a matter of time however before the level of claims becomes clear and whether they simply fall within the deductible of HIP providers' and professionals' errors and omissions insurance.
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.