Introduction
In property transactions, purchasers often come across information about the properties either supplied by the vendors and/or the estate agents. Such information is usually given orally or contained in sales brochures or leaflets. In most cases, the key features or points of attraction of a particular property will be highlighted for marketing purposes, and purchasers are often induced into buying the property by these information.

At times, information about the property may be false or misleading, and purchasers did not get in the end what they were told they would get. This newsletter discusses the potential remedy available to the unlucky purchasers under the law of misrepresentation.

The law of misrepresentation
As a general statement of law, misrepresentation occurs where a person makes a false statement of fact to another person, and that false statement of fact induced the latter to enter into a contract with the former.

In the context of a property transaction, where the vendor and/or his agent makes a false statement of fact about the property to the purchaser, and the purchaser was induced to enter into a sale and purchase agreement for the property, it is possible that there is actionable misrepresentation. The false statement does not have to be the sole reason the purchaser contracts, so long as it is one of the factors that has influenced the purchaser.

If a claim of misrepresentation can be established, the purchaser can seek to set aside the sale and purchase agreement and demand the return of the deposit and/or the purchase price, or seek damages if rescission is not possible.

Case illustration
In Santini Limited v Shum Shuk Fong, the purchaser (through a company wholly owned by her) purchased a flat (the “Property”) from the vendor. Adjacent to the Property was a garden of approximately 4,500 square feet in size (the “Garden”). While the Garden did not form part of the Property, it was leased by the Government to the vendor at HK$10,000 per quarter. The vendor had over the years made the Garden attractive by building a fish pond and erecting two brick habitable structures, together with plenty of plantation in the vicinity. With a view to enjoy the Garden in the same way as the vendor did, the purchaser bought the Property at a price some HK$2 million above the market value of the Property.

During the negotiation between the purchaser and the vendor, the parties and the estate agents met in the Garden. The purchaser inquired whether she could continue to enjoy the Garden and the structures thereon in the same way as the vendor had done, to which the vendor replied so long as the purchaser left everything as it was there would be “no problem”.

Subsequent to the completion of the transaction, the vendor (while still being the tenant of the Garden) received a notice to quit the Garden and a “superceding order” from the Building Authority ordering her to remove the structures (being illegal structures) in the Garden. The vendor requested an extension of her tenancy of the Garden to carry out the demolition work, but the demolition was never completed.

It was further revealed that, prior to the completion, the vendor had various correspondences with the District Lands Office regarding some unauthorised extension of the Garden and construction therein. The vendor had received written warning from the District Lands Office of the termination of the tenancy of the Garden if there were any breaches of the terms and conditions of the lease. None of the above was disclosed to the purchaser before the completion of the sale and purchase of the Property.

As a result, the purchaser sought against the vendor for damages of about HK$2 million, being the difference between the agreed price and the market value of the Property. The purchaser relied particularly on fraudulent misrepresentation on the part of the vendor. The court, in ruling in favour of the purchaser, found the following:

1.         the reply from the vendor saying that there would be “no problem” was a representation;

2.         that representation was in fact false;

3.         the vendor did know that the representation was false; and

4.         the false representation induced the purchaser to enter into the sale and purchase agreement to her detriment.

Accordingly, the purchaser was awarded a sum of HK$2,163,750 as damages, being the difference between the purchase price and the market value of the Property at the time of the transaction, plus stamp duty paid.

A message to the parties in a property transaction
Vendors should always be aware of what information of the property is provided to the purchasers, especially those given by the estate agents. Vendors may be held liable for misrepresentations made by the estate agents acting for and on behalf of the vendors.

For purchasers, as illustrated in the case above, the law of misrepresentation may provide them with relief against false statements of fact that have induced them into purchasing a property. Depending on the circumstances, purchasers may obtain damages or even rescission of the contract.

For enquiries, please contact our Property Department:

E: property@onc.hk

T: (852) 2810 1212

W: www.onc.hk

F: (852) 2804 6311

19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong

Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.