Rescission and Real Estate: Lessons in Misrepresentation Claims

The high-profile case of Patarkatsishvili and Hunyak v Woodward-Fisher [2025] has garnered widespread media attention as Mr Justice Fancourt's 73-page judgment provides a stark reminder of the potential far-reaching remedies available in misrepresentation claims.

A £32.5m Moth-Infested Mansion

In 2012/13, the seller extended their property in Notting Hill, London by over 200%, using wool-based insulation to enhance environmental credentials. This led to a moth infestation. Despite pest control efforts, the issue persisted.

In 2019, the seller made three representations to the buyers in response to standard pre-contract enquiries:

1. He was not aware of any vermin infestation affecting the property.
2. There were no reports concerning vermin infestation or the fabric of the property.
3. He was not aware of any defects not apparent on inspection of the property.

After moving in, the buyers discovered the infestation and obtained pest control reports from (unbeknown to them) the same company used by the seller. These reports revealed the seller's false statements about the property's condition and were key to establishing grounds for a misrepresentation claim.

The seller admitted in cross-examination that disclosure of the infestation would likely have made the sale fall through, and he would be left needing to conduct expensive works of removing all the infested insulation. Mr Justice Fancourt found that the seller was not consciously trying to deceive the buyers but simply wanted to sell the house and move on.

Buyer Beware v Misrepresentation

The "caveat emptor/buyer beware" rule still exists, meaning there is no general duty of disclosure on a seller of property. However, this case highlights the importance for sellers to provide honest responses to pre-contract enquiries and, particularly if asked specific questions about the property, not to give answers or information that might mislead a buyer.

What is rescission?

A knowingly or recklessly false statement, without belief in its truth, that induces another to enter into a contract amounts to fraudulent misrepresentation, for which the usual and appropriate remedy is rescission (the cancellation of a contract as if it never existed and putting the parties back into the position they were in before the contract was made).

The established bars/defences to rescission are:

• The parties cannot be restored to their pre-contractual positions
• Prejudice to rights of a bona fide third party acquired under the contract
• Affirmation of the contract by the counterparty
• Undue delay
• Estoppel
• Damages in lieu of rescission for an innocent or negligent misrepresentation

Headline-Grabbing Consequences

The seller advanced various arguments about why rescission should not be granted in this case, but the court did not agree. As well as granting rescission, the buyers were awarded damages for their legal fees and SDLT on the purchase (over £3.75m), costs of pest control measures and remediation works (approx. £360,000), damage to clothes (£15,000), and compensation for loss of enjoyment.

This case emphasizes that a seller who knows or suspects there is an issue with their property but conceals the existence or extent of it cannot feel relieved when the sale completes. These sellers must understand that completion is not always the end of the story but can be the start of an extremely expensive one! The type and extent of the moth infestation and the value of the property at £32.5 million in this case make for headline grabbing points, but these are well-known principles within the property world and misrepresentation claims can arise in relation to even the most mundane, e.g. damp, or invasive, e.g. Japanese Knotweed, types of pre-contractual enquiries.

For claims in the tort of deceit (which is the basis for a claim of fraudulent misrepresentation), as well as being able to choose to rescind the contract, a buyer is also entitled to recover all losses that flow directly from the transaction, and which relate to it. This includes consequential losses, without any requirement that those losses were foreseeable. The consequential losses of the buyers in this case were relatively minor compared to the value of the property. However, if the property had been a commercial one, those losses could have been much higher, particularly if the buyer had lost a lucrative contract (e.g., the grant of a commercial lease with a high rent) due to the closure of the premises to fix the problem.

This blog post is an abridged version of an article titled "The Moth House Prophecies" published by EG on 25 February 2025.