It may be a reflection of the current economic pressures that are being faced in the UK, but an area of contention that seems to be on the rise is when land/property is being purchased from a bank, who are often selling repossessed properties. A lot of new property owners are discovering that what they believe they have purchased from the bank does not reflect the position on the ground and often face claims of adverse possession and boundary disputes from neighbouring properties.
The choice that the new property owner is left with is rather an unpalatable one. They either accept that the scope of the land that they thought they purchased is far less than in reality, or they challenge their new neighbours as to the scope and scale of the ownership claimed.
A question that then naturally arises is: can the bank/repossessing lender be held liable for misrepresentation on the sale of a repossessed property?
In principle, a bank can be liable for misrepresentation when selling a repossessed property if, in the course of the sale, it (or someone acting on its behalf) makes a false statement of fact that induces the buyer to contract and the buyer suffers loss as a result.
As is common to a more generic misrepresentation claim, it would have to be shown that there was a false statement of fact made before the contract (which is not itself a contractual term) and that materially induced the other party to enter into the contract.
Do the usual misrepresentation rules apply to a repossessing lender?
A repossessing bank is still a seller for the purposes of misrepresentation. There is nothing in principle preventing a claim against the bank merely because the seller acquired the property through repossession rather than the usual course of acquiring directly from the current owner.
Liability may arise for the repossessing lender where, for example, the bank or its agents state that there are no disputes in existence or they may make a representation that a boundary lies in a particular position. Furthermore, other third parties instructed to act in the transaction may communicate the misrepresentation, such as an estate agent instructed by the lender. If an estate agent or other third party instructed by the lender makes a false statement of fact, the bank may still face exposure for a claim in misrepresentation under the principles of agency and authority.
However, given the comments above, it can be easily understood that a claim in misrepresentation as against a repossessing lender can be much more difficult in practice.
There are four key considerations that must be taken into account.
- No duty for a bank to volunteer information.
A failure to answer completely or providing a limited response such as “not known” or “buyer to rely on own enquiries,” will usually not of itself amount to misrepresentation. It can be anticipated in a repossession scenario that a bank will have limited knowledge of the properties with which they are dealing.
- Repossessing lenders often disclaim knowledge and they commonly sell with very limited factual representations, simply because they have not occupied the property.
This does not necessarily apply if they offer a proactive, false statement, but the disclaimer does operate as a general protection for the bank. In repossession sales, lenders often minimise risk by giving little or no factual information, so claims commonly turn on a specific written reply, sale particulars, or agent statement rather than on an act of non-disclosure alone.
- Contractual protections may be used and are designed to protect the bank from a misrepresentation claim.
Under English law, the enforceability and scope of such provisions would be scrutinised for substance and reasonableness under the Misrepresentation Act 1967 and the Unfair Contract Terms Act 1977.
- It is also key to consider WHO made the misrepresentation.
Was it the Bank, the LPA receiver, an estate agent… the list could go on. The viability of a claim would be determined by WHO made the statement and in what capacity/on what authority.
A claim against a repossessing lender will be weaker in circumstances where a bank has:
- Declined to answer
- Stated that it did not know
- Told the buyer to rely on their own inspections, survey and searches
- The statement was opinion rather than fact
- The buyer cannot prove reliance and causative loss
The decision as to how to proceed can be made even more nuanced for a new property owner, depending on the suggestion that has been made by the other side. In appraising how to address the position in which they find themselves, they may have to consider the law relating to boundary disputes, adverse possession, prescription and fit that all into the factual matrix that exists.
Our specialist team can support you with your legal rights and responsibilities so that you do not get caught out. Contact Catherine Gregson today for help.