By Des Taylor
An interesting case found its way to the Court of Appeal earlier this summer which perhaps contains a few lessons for the unwary.
The Appellant was an entrepreneur involved in property development who bought a building and converted it into 13 self contained flats. The building had an existing central oil-fired boiler but the Appellant did not think that was feasible in the context of 13 individually owned flats and he wanted a boiler in each flat. He rejected 13 separate oil tanks for each flat, rejected coal as a non-runner which left gas and electricity. In the end having contacted a well known firm of builders merchants locally he selected 12 electric boilers.
He complained that the boilers were not satisfactory. The literature he was given emphasised the ability of the boilers to provide “affordable warmth” although no specific claims were made as to the cost of the electricity other than a comment that the boilers could supply heating and hot water for a fully insulated three bed house from a little as £6.23 a week on conventional seven hour cycle. A number of the flats were sold but then the Appellant ran into a problem because potential purchasers were put off from proceeding in at least two cases because they were advised by their surveyors that they would not be able to obtain mortgages on the flats because of the low SAP ratings. A SAP rating refers to the Standard Assessment Procedure which is the Government’s recommended method for energy rating the rating obtained depends on a range of factors including thermal insulation efficiency and control of the heating system and the price of fuels. It does not require much imagination, it was said, to appreciate that a property which has a high-cost source of power for heating purposes is likely to score badly in calculations designed to give an overall energy efficiency rating unless very small amounts of power are required. One Chartered Surveyor expressed the view that the flats were not marketable unless something was done about the heating system.
The Judge that heard the original case came to the conclusion that an unsatisfactory SAP rating would be likely to have an impact on the mind of a prospective purchaser and/or his professional advisers. An unacceptable rating would increase the risk that a proposed sale could be delayed or abandoned. The object of SAP ratings is to provide some kind of comparison between different properties in terms of energy rating.
The upshot of all this was that the poor property developer said he had lost over £200,000 being the difference between the value of the flats with the right boilers and the value with the wrong system.
It is important to realise that this is not a case where anything unsatisfactory was alleged about the intrinsic quality of the boilers just about their impact on the SAP ratings for the flats.
What was the end result when the builders merchants were sued? Well, they escaped liability because the appellant did not give them enough information about SAP and how the rating were worked out to put them on risk. The Appellant did not persuade the Court he had relied on the skill and judgement of the builders merchants except as to their intrinsic qualities.
That does not mean that the purpose for which the Appellant wanted the boilers could never be relevant. Ordinarily he will want to use the boilers for a purpose for which they are commonly supplied. But, to establish liability he needed to prove that he had put the builders merchants on notice that he would rely on their skill in selecting boilers that would give him the best SAP ratings.
The Court was fairly blunt about things. The Appellant got exactly what he had bargained for: 12 boilers which worked perfectly well. With the benefit of hindsight a reasonable person would have known that the boilers were of satisfactory quality but would have realised it was a mistake to have put them into the flats because their dependence on peak rate electricity made them expensive to run and assuming the reasonable person knew about SAP rating depressed them. It would have been better if the Appellant had paid the higher price for bring gas into the 12 flats which lacked gas supply.
The moral of this sad tale is that you cannot make other people pay the cost of a business misjudgement largely the product of hindsight.
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