Heinemann v Cooper and another

Misrepresentation — Action in tort by purchaser of leasehold interest in flat — Complaint in regard to representation about amount of service charge — Appeal from decision of Mrs Recorder Puxon QC in county court awarding purchaser damages of £3,000 — The representation complained of was that the service charge was estimated not to exceed £250 for the first year — In fact the correct estimate at the material time would have been £625 and the first account received by the purchaser was for £800 — The price paid for the leasehold interest for a term of some 62 years was £77,500 — At the trial conflicting evidence was given by the parties’ valuers as to the effect of differences in the amount of the service charge on the market value of the leasehold interest — It was submitted on behalf of the vendors that the difference between the service charge as represented and the correct figure would not appreciably affect the market value — The charge, it was suggested, was a payment for services rendered and any contribution reflected value for money — On the other hand the purchaser’s expert evidence was that his client had purchased a more burdensome lease than he had anticipated — The price of £77,500 was a fair figure on the basis of a service charge of £250 but expensive on the basis of the actual charge — The judge at the trial accepted the purchaser’s submission and the suggested difference of £3,000 in the purchase price — Held on appeal that there was no ground for interfering with the judge’s conclusion that she was fully entitled to prefer the evidence put forward on behalf of the purchaser to that of the vendors — The court rejected a criticism that the plaintiff’s claim had not been sufficiently particularised in the pleading — Appeal dismissed The following case is referred to in this report. Ford v White & Co [1964] 1 WLR 885; [1964] 2 All ER 755; [1964] EGD 283; 190 EG 595 This was an appeal by the defendants, Morris Cooper and Carole Lynne Cooper, from the decision of Mrs Recorder Puxon QC at West London County Court in favour of the plaintiff, Mr C C Heinemann, in the plaintiff’s action for alleged misrepresentation as to the service charge on the sale of the leasehold flat at 14 Lower Sloane Street, London SW1. David Ashton (instructed by Julian Holy & Co) appeared on behalf of the appellants; Martin Russell (instructed by Keene Marsland, of Croydon) represented the respondent. Giving judgment, FOX LJ said: This is an appeal from a decision of Mrs Recorder Puxon QC, sitting at the West London County Court, who gave judgment for the plaintiff for the sum of £3,000 for misrepresentation on the sale of a lease. The case turns very much upon its own facts, upon the evidence of expert witnesses, and upon the judge’s assessment of those witnesses and their evidence. The plaintiff had a flat in London. He wanted to move, and one of the reasons for his move was the high level of the service charge for his existing flat. He found a suitable flat in Lower Sloane Street. He thought the service charge for that flat would be much lower than for his existing flat because of the lack of central heating. He made it clear to his solicitors that he was concerned to ascertain the level of the service charge for the new flat. At first the vendor did not seem to know what the level of the service charge was likely to be, but it was agreed that it would be ascertained. A price for the purchase of the flat was agreed, subject to the usual inquiries, and subject also to the level of rates and the service charge. The difficulty was, apparently, that the flat had been refurbished, and no level of service charge had been fixed — although bills had been rendered in respect of the flat. The plaintiff wished to have a figure for the service charge, but initially no one was able to give an estimate for such a figure. So far as the future was concerned, it was understood that a figure could be produced for the first year, which, as the judge said, would serve as a base line from which to calculate what might happen thereafter. On April 9 1984 there was a letter from the plaintiff’s solicitors to the defendants’ solicitors as follows: We still do not appear to have received any information regarding the service charge at the property nor details of the rates, but subject to these outstanding points our clients are in a position to proceed. Then, on April 11 Miss Kent (of the plaintiff’s solicitors) made an attendance note: Tel Julian Holy that is, the solicitor acting for the defendant ready to exchange with completion on May 8. As to service charge estimates are £250/£350 per annum but none charged yet. On the same day Mr Holy wrote back to the plaintiff’s solicitors as follows: Upon the occasion of our own clients’ acquisition herein, we raised enquiries to the likely service charge levels albeit, understandably, our clients vendors were unable to be particularly definitive albeit they did advise that they anticipated the service charge for the first year would not exceed £250 and that appears to be a reasonable estimate in the case of a recently refurbished building. Additionally, the premises have yet to be separately rated and in the circumstances your clients will have to take a balanced view. The judge commented that Messrs Julian Holy & Co were solicitors local to the flat, and the manner in which the statement was made entitled the plaintiff’s solicitors to think that they would know the level of a reasonable service charge. On the basis of the information provided by the solicitors, contracts were exchanged on April 12 at a price of £77,500 for a term of some 62 years. The contract was duly completed and in August 1984 the plaintiff received an account for the first year’s service charge, which amounted to £800. It is not in dispute that the contract was induced by misrepresentation as to the amount of the service charge, although in fact the correct estimate in April 1983 was £625 and not £250. There were written reports by two experts which were exchanged between the parties before the hearing. Those experts were a Mr B A Goodman [FRICSFSVA], of Hirshfields, on behalf of the plaintiff, and Mr Francis Brown [BSc ARICS], of Chestertons, on behalf of the defendants. The written report of Mr Goodman is dated July 23 1985 and in its second paragraph it states: 155 After investigating the service charges with the then managing agents, it would appear that the annual service charge is certainly a minimum of £650 per annum as far as Flat 2 is concerned, although your client, Mr C C Heinemann, was misinformed by the vendor’s solicitors when purchasing, that the service charge would be in the region of £250 per annum. It is accepted that the figure of £650 is inaccurate; the figure should be £625. The report then continues: Appreciating the fact that the additional £400 per annum can only be approximate, there must be some diminution in the value of the leasehold interest when the flat was purchased last year and I would estimate that £3,000 would be a fair reduction of the then capital value of the flat with the knowledge of the substantially higher service charge payment. Then Mr Brown, in his report of March 27 1986, says: I am firmly of opinion that the service charges would not, had they been disclosed at either of the higher levels, have affected the mind of a potential purchaser sufficiently to reduce his bid below a level of £77,500. It is my opinion that a service charge represents payment for services rendered and that any contribution reflects money’s worth. Unless a service charge exceeds a level representing a proportionate part of the lessor’s costs (whereby the lessee would, in effect, be paying additional rent) there is no correlation between the level of service charge and the capital value of a leasehold interest. This is borne out by the fact that adjacent and comparable premises, with similar tenure and ‘maintenance contributions’ in the order of £800 per annum, changed hands in 1984 for considerations in excess of £77,500. I anticipate being able to provide evidence of comparables as soon as possible. Then he adds: I am unable to agree with Mr Goodman’s (in Messrs Hirshfield’s letter) contention that there would have been some diminution in the value of the leasehold interest and have found no evidence to support his unqualified assertion that £3,000 would be a fair reduction of the capital value. Both those gentlemen gave evidence before the judge. She accepted Mr Goodman’s view and gave judgment for £3,000. The defendants’ first and principal contention on the appeal is this. It is said, following Mr Brown’s view, that a service charge is not to be compared with a premium. A premium is the price paid for the acquisition of the land; a service charge is a payment in consideration of the receipt of services. The plaintiff, having chosen not to rescind the contract in consequence of the misrepresentation but to retain the lease, he will, it is said, obtain the benefit of the services and will, in consequence, have to pay the charge in respect of that to which he was entitled — and indeed that which he obtained. It is contended, therefore, that the charge does not in general affect the value of the lease in the market. Looking at the matter for a moment without regard to the opinions of valuers, the position seems to me to be this. The service charge is one of the incidents of the lease. The tenant is bound to pay whether he wants the services or not. If the tenant is induced, by misrepresentation, to take the tenancy upon the footing that the service charge is £250 in the first year, when in fact it is £625, it is quite true that he will get the benefit of the services. But the point, in my view, is this: whereas he was led to believe that he would get the services for £250 in the first year, he will in fact in that first year have to pay £625 for those self-same services. He has, as a result, bought a much more onerous lease than he was led to believe when he entered into the contract for this purchase. Prima facie I would therefore suppose that the amount of the service charge would affect the value of the lease when it is offered for sale in the open market. What one pays for a lease depends upon the benefits and burdens of the various terms of the lease. The service charge is one of them. The plaintiff was misled as to the amount of the service charge which was going to be payable. But my own view is not what determines the matter. This is an action in tort for misrepresentation; the measure of damages is the difference between the price actually paid and the market value of the property at the time of the contract (see Ford v White & Co [1964] 1 WLR 885). The real question, therefore, is: what actually happens in the market?  Mr Goodman, who is a FRICS and an experienced valuer in relation to properties within 2 miles or so of the West End, gave evidence before the judge, and that evidence was that service charges do affect the capital value of leases — and, indeed, that they are sometimes minimised in order to tempt a buyer. Mr Goodman’s view was that £77,500 (which was the premium paid by the plaintiff) was a fair figure on the basis of a service charge of £250 but expensive on the basis of the charge actually payable. On that basis, he thought that it would make a difference of £3,000 to the purchase price of the lease in question. Mr Brown, the defendants’ expert, took a quite different view, as I have already indicated. He is a surveyor with the very well-known firm of Chestertons and, as the judge said, his chief job had been as an Inland Revenue valuer. In general, he did not think that service charges had any effect on the capital value of leases, but he said in cross-examination that a low service charge would facilitate the sale of a property and that he knew of persons going back to the vendor to renegotiate a price on the basis of the service charges. He agreed that if the service charge for the property was, say, £2,000 per annum, it would affect the capital value. Having reviewed the evidence, the recorder accepted the evidence of Mr Goodman; she found (which is not challenged) that the plaintiff was induced to enter into the contract by the misrepresentation as to the service charge and, following Mr Goodman’s opinion, she assessed the damages at £3,000 — that being the difference between the price paid and the market value. Thus far, I can see no ground for interfering with the recorder’s conclusion. It was based upon the expert evidence of Mr Goodman which, after oral evidence and cross-examination of him and Mr Brown, she preferred to that of Mr Brown. In my opinion she was fully entitled to do so and I can see no ground upon which this court would be entitled to interfere with her decision, which was one of fact upon the evidence of experts. There is, however, a further point raised, which is a pleading point. It is said that the material representation related to the first year only, and it is said that if some kind of implied representation was being relied upon as to the nature and extent of the charge in the second and later years, it should have been specifically pleaded. The plaintiff’s counsel declined to amend the particulars at the trial, and the judge took the view that he was not required to. The particulars pleaded are these: in the statement of claim, para 3, it is pleaded: In order to induce the Plaintiff to make and complete the said Agreement and pay the said money the Defendants, through their Solicitor, represented to the Plaintiff and in consideration of so doing warranted that the level of service charges for the first year of occupation would not exceed £250. Then there is a further pleading that the amount which was actually charged for the first year was £800. Then, in further and better particulars it is pleaded: In addition to the matters already particularised in Paragraph 9, it will be averred that by reason of the misrepresentation complained of the capital value of the said leasehold property has been diminished by approximately £3,000 at the date of purchase in May 1984. For myself, I can see no substance in the contention that the case was not adequately pleaded. The representation pleaded is that the plaintiff was induced to complete by the representation that the service charge for the first year would be £250. It was pleaded in particulars that, by reason of that representation, the value of the property had been diminished, at completion, by approximately £3,000. That was, and remains, the plaintiff’s case. Nobody could suppose that £250 was a fixed amount. Obviously it could go up, or, conceivably, down, year by year. Nobody could particularise with precision what the charges might be in future years — although one might well feel that, in present conditions, they would not alter much for the first few years. But the practical importance of the pleading of the misrepresentation as to the figure of £250 is this: that the £250, which was represented as the amount of the service charge in the first year, is a practical guide. It is, so to speak, a base figure which gives a practical indication to the prospective purchaser of the kind of liability which he was undertaking. But a base figure of £250 is one thing; a base figure of £625 is another. That, to my mind, is obvious, and the defendants cannot have been taken by surprise by the plaintiff’s case at the trial. In my view a purchaser would inevitably look at the transaction again if he had been told that the figure of £250 was incorrect, and that the real figure was £625 — that is only commonsense. The result, in my view, is that the plaintiff’s claim was not inadequately particularised. He said what the misrepresentation was and how much capital loss he was claiming. He did not need to say more than that he had been led to purchase the property upon the basis of a service charge in the first year of £250, when in fact that figure was much too low. 156 It is then a matter for argument as to what are the consequences of that — that is to say, what are the consequences in relation to market value, between a case where one is informed that the service charge for the next year will be £250 and a case where one is informed that the service charge for that next year will be £625?  What effect will that have upon the market value of the property which the parties will be buying at any time up to exchange of contracts? The defendants, having been faced with the assertion that there was a misrepresentation on the basis of a first-year estimate of £250, are entitled to say that the figure was not £250 but was £625. It is then a question of what, in the market, is the capital loss in consequence. Mr Goodman estimated that at £3,000 and the judge accepted that figure. The judge also considered the question as to whether there should be an amendment, no doubt taking into consideration whether there was any prejudice to the defendants — and decided there was not. Both the experts were in court and both were available for cross-examination. The parties had exchanged their reports before trial; it was known what the assertion was as to the plaintiff’s expert’s opinion as to the reduction in the value of the property by reason of the misrepresentation. Mr Goodman, in the course of his examination-in-chief, set out his views and he was then available to be cross-examined upon them in the presence of the defendants’ own expert witness. It seems to me that it must have been obvious to all concerned what the issue was. The issue was: what was the impact upon the price of a purchaser being told, prior to exchange of contracts, that the estimated service charge for the first year was £250, when in fact it was £625?  Those are figures which give a practical indication of the sort of liability that the prospective purchaser is going to incur. Mr Goodman was of the firm view that it would have a decisive impact on the purchase price and would reduce it by £3,000. Mr Brown held to his view that it would not do so. The judge was faced with that sharp conflict of evidence and she had to make up her mind as to whose evidence she accepted on the point. In the event she accepted the evidence of Mr Goodman — and her finding upon that matter, in my judgment, is a finding of fact upon which this court cannot interfere. I am of course conscious of the need for proper pleadings, but I can see no doubt here as to the clarification of the issues between the parties when the matter was heard before the recorder, and looking at the whole case I can see no reason for interfering with her judgment. I would therefore dismiss the appeal. Agreeing, SHELDON J said: I would only add this, with regard to the basis upon which the case was decided by the learned judge, that there can be no doubt whatever from the correspondence which passed between the parties that all concerned knew, without any doubt, the basis on which the plaintiff’s claim was being made. By letter of October 10 1984 the defendants’ solicitors had properly acknowledged their responsibility for the misrepresentation. On October 24 of that year the plaintiff’s solicitors wrote a letter which contains this passage (having notified the solicitors that a claim for damages would be made): The loss to our client lies not only in the actual cash required over a period of years to meet the service charge at a much higher level but also in the price paid by our client for the property and which failed to reflect the higher level of service charge. Then again by a letter of October 30 in answer to a letter from the defendants’ solicitors, the plaintiff’s solicitors wrote: Our client was insistent that we obtain some indication of the level of service charges as this particular aspect was of concern and formed an important part of our client’s calculations as to what type property he would be able to afford. An increase in the level of service charges to the extent that has occurred in this case must in our view have an effect upon the price obtainable for a particular property and with great respect the point you make about the value of the asset acquired compared with the price paid is not relevant. Our client had indeed looked at other properties and found that the level of service charges varied considerably. Those are the only comments I wish to make. I agree that the appeal should be dismissed. The appeal was dismissed with costs.