Commercial Property Standard Enquiries (CPSE): why is it important to get them right?

Commercial Property Standard Enquiries (CPSE) have been a part of a commercial property transaction for over two decades now. Nonetheless, it would be safe to say they can be tricky to deal with. They are detailed and technical and preparing the replies can be time consuming for sellers and landlords. As for buyers and tenants, the replies given are usually evasive and advise the recipient to rely on one’s own inspection, searches and enquiries. So why does getting the CPSE replies right matter?

What do the CPSEs cover and does a seller or landlord have to provide the replies?

The CPSEs cover a wide range of topics from boundaries and rights benefitting the property, through to more straightforward matters such as physical condition or neighbourly disputes, to tax matters such as VAT and capital allowances. The aim of the enquiries is to provide any information that cannot be gained through other means such as investigation of title deeds, property searches or physical inspection.

There is no legal obligation to supply the replies. As mentioned, the seller may also be tempted to give evasive answers throughout. There are, however, some points to consider in respect of such an approach. The buyer or tenant may get cautious as to why the replies are not being provided, and the transaction may become protracted or even fall through altogether. A lender is also unlikely to accept no replies being provided. Further, although generally, a seller is not obliged to disclose any issues with the property under the principle of caveat emptor (let the buyer beware), they are under a common law duty to disclose latent defects in title. A latent defect is one that would not be apparent to an individual when inspecting a property such as a right of way or a restrictive covenant; whilst a patent defect would be something that could be determined from means visible to a person. The tricky part is that it is not always easy to differentiate whether a defect would be classed as latent or patent as in the case of rights of occupiers, for example. Depending on the substantiality of the non-disclosure, the buyer may be entitled to reduction in price or even refuse to complete altogether and claim damages.

Sellers also need to be aware that their failure to comply with a duty to disclose latent defects may amount to a misrepresentation which may give rise to a breach of contract. Evasive answers or answers along the lines ‘Not so far as the seller is aware’ should be approached with caution as such a reply would imply that the seller has taken reasonable steps to investigate the position in respect of the matter in question. When providing the replies, a seller also acknowledges that it is required to provide copies of all relevant details, documents and correspondence ‘whether or not specifically requested to do so’ as well as to notify the recipient if anything came to light that would affect or change the replies already given.

Further important aspects to consider are as follows. Under the Standard Commercial Property Conditions (Third Edition – 2018 Revision), which are commonly incorporated into a contract for sale, a seller is under duty to inform the buyer about any incumbrances affecting the property.  The conditions also state that the property is being sold with full title guarantee free from incumbrances other than those that the seller could not reasonably know about. The buyer’s safest approach would be to have this condition excluded, so any unknown incumbrances would be the seller’s responsibility.

Why should the buyer insist that CPSE replies are provided?

Although, the CPSE replies can be evasive and the sellers or landlords will often attempt to exclude or limit their liability for the buyer’s or tenant’s reliance on the replies, they are an important part of a property transaction. As generally silence would not amount to misrepresentation, the buyer would need to show that it relied on a statement of fact made in entering into a contract. Sellers often attempt to limit their liability for making incorrect statements. However, extensive case law on this issue suggests that whether any such exclusions work is very much dependent on the circumstances of the case. Indeed, this aspect has been considered in First Tower Trustees Ltd v CDS (Superstores International) Ltd [2018] EWCA 1396 concerning a non-reliance clause in the lease (clause 5.8) where the judge held:

“…withholding his own knowledge of a serious problem and requiring the tenant to carry out his own due diligence, and then meet the tenant with a contractual estoppel. That seems to me highly unreasonable, particularly in the conveyancing world, where pre-contractual enquiries have a particular and well-recognised importance. With clause 5.8 they become a worthless, and indeed positively misleading exercise. I do not think this is reasonable.”

If you need assistance,  get in touch with our Commercial Real Estate team here.