Honesty is the best policy. Landlord found liable for pre-contract misrepresentation

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Honesty is the best policy. Landlord found liable for pre-contract misrepresentation

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A recent case has highlighted the danger for landlords and sellers of land who fail to fully disclose important information during pre-contractual enquiries.

What happened?


First Tower Trustees Ltd (“the Landlord”) agreed to lease warehouse premises in Barnsley to CDS (Superstores International) Ltd (“the Tenant”). The parties agreed to the inclusion of a clause in favour of the Landlord, whereby the Tenant acknowledged that it had not entered into the lease in reliance on any statement or representation made by or on behalf of the Landlord (“the Non-Reliance Clause”).


In response to the Tenant’s pre-contract enquiries, the Landlord represented to the Tenant that it did not know of any environmental problems affecting the property. However, the Landlord subsequently discovered the existence of asbestos. Instead of notifying the Tenant of this finding, the Landlord kept quiet.


When the Tenant discovered the asbestos for itself, it issued a claim for misrepresentation, seeking compensation for the remedial work required and its alternate warehouse arrangements.


What does the law say?


A contract term that attempts to exclude or restrict liability for misrepresentation must be “fair and reasonable”, having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.


What did the Court say?


The Non-Reliance Clause attempted to exclude liability for misrepresentation, and therefore it had to “fair and reasonable”. Pre-contractual enquires are an integral part of conveyancing and to preclude a buyer from relying on the seller’s representations would render the whole exercise worthless and misleading, even if the buyer is a sophisticated party with access to good legal advice.


Why is this decision important?


The decision emphasises that a seller of land can’t necessarily use non-reliance language in a contract to protect itself from misleading statements made during pre-contractual enquiries. The Court of Appeal stressed that pre-contractual enquires are important in conveyancing and that it would be hard to imagine a reasonable clause which prevents a buyer or tenant from relying on pre-contractual enquiries.


Sellers and lessors should therefore be careful to ensure that pre-contractual enquiries are dealt with thoroughly and that, where required by the terms of the enquiries, responses to them are updated before a sale contract or lease is entered into.


First Tower Trustees Ltd and another v CDS (Superstores International) Ltd [2018]

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