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Be careful what you say - words can be costly

31 January 2018

It was critical to the Masons they did not buy a leaky home. They asked the seller, Mrs Magee, whether the house they were negotiating to buy from her and her husband was a leaky home. Mrs Magee replied “absolutely not. We have never had any issues with this house” – or words to that effect. This was the second occasion Mrs Magee had stated in the Masons’ presence that the home was not a leaky home.

The Masons signed up to buy the house. They obtained a building report which also confirmed the house did not leak. Unfortunately for them the house did leak. In the High Court the Masons successfully sued the Magees under s 6 of the Contractual Remedies Act 1979 (now s 3 of the Contract and Commercial Law Act 2017). They convinced the High Court judge that Mrs Magee twice misrepresented the home was not a leaky home and that these misrepresentations induced them to buy the house. They were awarded $468,000 in damages (being the balance of the loss in value of the house of $537,000 less the amount of $68,000 paid to them by the building inspector for his incorrect report).

The Magees successfully appealed to the Court of Appeal. The judges who allowed the appeal did so because, in their view, the words “absolutely not. We have never had any issues with this house” did not reasonably mean that the design and construction of the house were such that it did not leak. Nor did they mean the house was prone to leaking. Those words meant only that the Magees had not experienced weather-tightness problems and they had no reason to believe the house suffered defects that would cause such problems. The judges noted Mrs Magee had not held herself out has having particular knowledge or expertise regarding leaky homes. If she had done the result might have been different.

Lessons to be learned

Although the sellers were ultimately successful in this case, even if at the considerable cost and stress of litigation, there are lessons to be learned. Sellers should be very careful not to make claims about their property unless they are prepared to be held to them. Buyers should not underestimate the importance of undertaking thorough due diligence on a property and, if a feature of a property is particularly important, the buyer should include a promise by the seller about the desired feature in the agreement for sale and purchase.

 

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.


Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.

 

Barbara McDermott