What are the buyer's remedies against misrepresentation by the seller of real estate?
In the event of misrepresentation by the seller, the buyer can, depending on the circumstances, terminate the agreement or file a legal action for the annulment of the agreement, and claim reimbursement of the amounts paid with an indemnification.
A buyer has a right to terminate a contract and/or to claim damages where there is a material or substantial misdescription of the property or the seller's title to the property. The test is essentially whether the buyer is getting substantially what it had bargained for.
In addition to this fundamental principle, there is a range of Commonwealth and state legislation which can give rise to termination rights for a buyer in circumstances where there has been some misrepresentation or misleading or deceptive conduct by or on behalf of the seller in relation to the subject matter of the contract. Courts have extremely wide powers in relation to misleading or deceptive conduct by the seller, or the seller's agent if acting within the agent's actual or ostensible authority.
In the case of an asset purchase, the buyer is protected by statutory legal warranties.
The seller must guarantee the buyer free and unlimited use of the real estate, including protection against any disturbance by the seller, or against the seller claiming any rights to the property.
If the warranties are breached, then the buyer can claim compensation or dissolve the transaction (by obtaining a court order).
The seller must also indemnify the buyer against legal action by third parties where the cause of action existed before the contract was concluded (although this can be limited in certain circumstances). If a claim by a third party is successful in these circumstances, then the buyer can claim retrospective annulment (ontbinding / résolution) of the transaction.
In the case of an asset deal, the seller must also guarantee that the property is free from any existing invisible defects which prevent it from being used for the purpose for which it was bought.
The buyer can choose either to dissolve the transaction and receive full reimbursement, or to keep the property and receive a partial reimbursement of the purchase price.
Alternative remedies can be agreed upon by the buyer and seller in the private sale and purchase agreement.
In the case of a share purchase, however, remedies for misrepresentation will greatly depend on the contract. If the misrepresentation has taken the form of fraud, it is possible to apply to court to ask the nullity of the contract. The sale will be null and void. However, proving fraud will be difficult.
A buyer must notify the seller of any defects within eight days of the date it becomes aware of them. In such cases the buyer has the following rights:
If the seller is found not to own the property in question, the contract is automatically terminated and the buyer has a right to claim damages and compensation.
A misrepresentation by the seller will typically entitle the buyer to claim damages. Where a representation goes to the very heart of the contract, its breach will also entitle a buyer to terminate the contract. Typically, the buyer’s remedies will be limited to termination of the SPA, refunding of the deposit and/or a damages claim if the misrepresentation is discovered prior to closing and, if discovered after closing, to monetary damages which may be limited in amount by the terms of the SPA.
Purchasers of commodity houses may bring claims under the warranties and guarantees provided for by statute (see Seller's warranties). The purchaser may claim damages (subject to contractual provisions) if the property fails to meet the standard which is specified in the contract by the seller's representation.
Specifically, under Article 35 of the Administrative Measures for the Sale of Commodity Houses (2001), where a purchaser claims that the main structure of the commodity house is in poor quality after its delivery, it may have the property re-inspected (commodity housing is all real estate that is available on the open market). If the house is indeed in a poor state of repair, the purchaser may return the house, and the real estate development company will be liable for the buyer's resulting losses.
In cases of misrepresentation by the seller a number of remedies are available. These depend on the kind of warranty and include:
The buyer is entitled to receive a discount on the purchase price or, in some circumstances, to withdraw from the agreement.
In addition, the buyer has a right to withdraw from the agreement if the seller assures him that the real estate in question has certain qualities, in particular those required by the buyer, or that it is free from defects, and this subsequently proves to be untrue.
In the event of a significant defect, a buyer can claim compensation, obtain a proportionate reduction in the purchase price or terminate the contract of sale with immediate effect.
The buyer’s remedies in relation to misrepresentations by the seller in either the promise to sell or in the deed of sale are limited to a claim for financial compensation or, in some cases, the annulment of the sale.
However, an annulment of the sale does not allow the buyer (or the seller) to obtain a refund of the transfer taxes (transfer taxes amount to 5.09%-6.41% of the price paid for the property, depending on the type and location of the property, and are payable upon the execution of the notarial deed of transfer).
If there is a mutual promise to sell and to buy and the seller refuses to complete the sale, a buyer can petition the court to compel the seller to complete.
These include withdrawal from the sale and purchase agreement, a claim for damages, or a claim for a reduction in the purchase price. Where appropriate, the buyer also has a right to take action to oblige the seller to rectify a specific defect.
If the transaction has been induced by fraud, or misrepresentation amounting to fraud, or by mutual mistake of a fundamental character, the contract will become void upon the innocent party taking action in court, or defending his failure to act. The court will order a retransfer back to the vendor of the land sold, and repayment to the purchaser of the purchase money with interest from the date of payment. The purchaser may also be entitled to the costs, charges and expenses incidental to the purchase and transfer, including the costs of due diligence, and the costs of the action to set aside the transfer.
Where the misrepresentation is innocent, the execution of the transfer is not a bar to it being reversed, but the court may in its discretion award damages instead of reversing the transfer.
If the acquisition of ownership or other relevant right is adversely affected by a right of a third party, the purchaser will ask the seller to eliminate adverse matter within a specified time, or to provide adequate guarantees. If the seller fails to comply with this time limit the purchaser is entitled to withdraw from the contract and to claim damages. If the seller has acted in good faith, it is only liable for the losses incurred by the purchaser in the conclusion of the contract.
If the property being acquired is encumbered by a third party right (such as a mortgage right), or its value is reduced by this adverse matter, the purchaser may ask the seller to eliminate the encumbrance within a specified time. If the seller fails to comply within the deadline prescribed, the purchaser may eliminate the encumbrance at the seller’s expense.
If the encumbrance cannot be eliminated or if it would require unreasonable expense to do so, the purchaser is entitled to withdraw from the contract and receive compensation or to have the consideration reduced commensurately in exchange for the assumption of the encumbrance by the purchaser.
The buyer can sue the seller for any misrepresentation in relation to the terms of the contract and the responses to the formal Objections and Requisitions on title.
The buyer’s remedies against misrepresentation by the seller include the termination of the sale and purchase agreement, the payment of damages, a reduction in the purchase price or, where appropriate, the right to require the seller to rectify any specific defects.
Buyer's remedies against misrepresentation are:
Buyer's remedies include:
The buyer is at liberty to treat the agreement as terminated and thereby claim damages. The parties may by their agreement specify the amount of the damages payable by inserting a limitation of liability clause in the agreement.
Generally, the buyer will be entitled to recover damages to cover any losses suffered as a result of the seller’s misrepresentation.
The nature of the misrepresentation will determine the action that the buyer may pursue against the seller. Where upon investigations, the seller is shown to have been deliberately fraudulent in the misrepresentation to the buyer, the Police and other agencies of state may prosecute the seller under the relevant extant criminal laws in the country.
In the case of a material breach of contract, the buyer is, in some cases, entitled to terminate the contract (with an associated right to a refund of the purchase price and receipt of damages). In other cases, the buyer may ask the seller to repair any defects, or to reduce the purchase price accordingly.
Depending on the circumstances, the buyer may be entitled to:
In the event that the seller turns out not to be the owner of the real estate and is not registered as the owner in the land and mortgage register, then the agreement transferring ownership rights is invalid.
In case of misrepresentation by the seller, the buyer can, depending on the circumstances, terminate the agreement or file a legal action for the annulment of the agreement, and claim reimbursement of the amounts paid with a indemnification.
In the event of a material breach by the seller in fulfilling its contractual obligations, the buyer is entitled to apply to the competent courts for termination of the agreement, reimbursement of the amounts paid or advanced as purchase price and payment of damages for the losses incurred. In addition, the buyer may ask the seller to repair the defects, to replace the asset, or to reduce the purchase price.
However, the parties may agree that, if certain provisions of the contract specifically indicated by them are breached the agreement is terminated by sending a written notice to the party in default, without any intervention from the court or other formalities. The courts can however decide whether the termination was an abuse of process or occurred without complying with legal requirements.
The buyer has the right to withdraw from the agreement or claim damages if the seller has made false representation regarding the condition or characteristics of the real estate. Other remedies (for example, a contractual penalty) must be stipulated in the agreement.
If warranties are breached, buyers are entitled to request the cancellation of the sale and purchase agreement (following a refund of the purchase price and the payment of damages), or for a reduction in the purchase price.
These include a reduction of the purchase price, the payment of damages and/or the annulment of the sale and purchase agreement. However, in the case of commercial transactions it is common for the parties to agree to limit the buyer's remedies.
The buyer will have the right to terminate a sale and purchase agreement and seek recovery from the seller for all actual damages incurred, and have the right to seek specific performance of the seller's obligations under the sale and purchase agreement.
If a misrepresentation occurs, a party can cancel the contract. This ground can be established if:
In the Abu Dhabi Global Market free zone, a buyer may seek damages whether the misrepresentation was made fraudulently or innocently, and where the buyer has suffered loss. Where the misrepresentation was innocent, the misrepresentation must form part of the contract, or the contract must have been performed, for the buyer to be eligible to seek damages or rescind the contract.
Misrepresentation is dealt with under the Civil Code of the United Arab Emirates (Law No. (5) of 1985). This defines misrepresentation as being:
If there has been misrepresentation, the person misled may cancel the contract. In practical terms, this may require a court ruling which can take some time to obtain.
The buyer has the right to terminate the contract and/or to claim damages reflecting any losses suffered. Contracts will often modify this legal right so that the buyer can only terminate a contract if the error resulted from fraud or recklessness, or where an asset differs substantially from the buyer's expectations.
Specific buyer remedies are not usually provided for.
At common law the buyer would be required to establish that they had suffered, or will suffer, losses as a result of the seller's misrepresentation. The buyer is obliged to take all reasonable steps to mitigate such losses.
The SPA will provide for the extent of remedies available to the buyer if the seller makes a misrepresentation. Typically, the buyer’s remedy will be limited to termination of the SPA and refunding of the deposit if the misrepresentation is discovered prior to closing and, if discovered after closing, to monetary damages which may be limited in amount by the terms of the SPA.
In Zimbabwe, contract law is governed by the common law, and as such, the principles of common law will be applicable with respect to a misrepresentation. Where there is negligent misrepresentation, the remedy at common law would be a damages claim.
The remedies available for a misrepresentation are rescission of the contract or a claim for damages
The fundamental rule with regard to award of damages for breach of contract is that the sufferer should be placed in the position he would have occupied had the contract been properly performed, so far as it can be satisfied by payment of money and without causing any hardships to the defaulting party.
Where the parties have entered into a contract and the contract contains a penalty clause for default or breach of contract, the Contractual Penalties Act [Chapter 8:04] states that a creditor shall not be entitled, under a penalty stipulation, to both the penalty and damages or, except where the contract expressly so provides, to damages in lieu of the penalty. Therefore, should the contract make provision for a penalty where a misrepresentation has taken place, the aggrieved party may only claim either the penalty or the damage suffered.