Purchasing a Commercial Property: What happens if you rely on a statement which isn’t true?
During the negotiation stage of any contract, statements which aim to encourage a party to enter into a contract may be made. However, if one party makes a false statement in hopes of inducing the other to enter into the contract, legal action may be brought against them. The formal legal term of this scenario is called ‘misrepresentation’ and it can apply to any contract however, for the purposes of this blog, I’ll be referring to the sale of commercial property. A recent Supreme Court case considers what happens in such circumstances.
5 Ridge Pty Limited v Tryname Pty Limited  NSWSC 371
- The misrepresentation: The vendor made a number of representations to the prospective purchaser that the property’s current tenants were going to exercise their option to extend their lease. The vendor further stated that the contract was in fact ‘subject’ to the tenants exercising their option to extend their lease. The purchaser relied on this statement and decided to purchase the property.
- What happened? One of the tenants decided not to exercise their option to extend their lease after the purchaser signed the contract.
- Was it a false statement? Yes. However, the vendor asserted that they refused to make the contract subject to the specific tenant who didn’t exercise their option and that attaching that particular tenant’s Lease was a mistake.
What the court decided
The court decided that the vendor wasn’t entitled to keep the deposit and that the sale was terminated due to the representation which occurred.
What you need to be aware of
Vendors selling property
Vendors and their solicitors need to ensure that they don’t make any false statements to prospective purchasers as it could lead to a termination of the contract.
Purchasers need to ensure that they seek a solicitor or conveyancer’s advice when purchasing a property so they can be aware of any potentially misleading statements.
If you'd like to discuss any concerns that you have regarding misrepresentation in a commercial property contract, please contact: