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Asbestos misrepresentation costs landlord dear

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Summary: The recent case of First Tower Trustees v CDS (Superstores International) Limited [2017] EWHC B6 (Ch) has underlined how a lack of clarity in relation to asbestos matters can give rise to misrepresentation claim and significant liability.

Background

On 30 April 2015, a tenant entered into a lease of warehouse premises at an industrial estate. 

Prior to entering into the lease, the landlord had disclosed a report to the tenant which indicated that there were no problems with asbestos at the property. 

The landlord had also, on 16 February 2015, stated in replies to pre-contractual enquiries that:

  • (in response to inquiry 15.5) it was not aware of any notices relating to environmental problems but that the buyer had to satisfy itself; and
  • (in response to inquiry 15.7) it had not been notified of any actual, alleged or potential breaches of environmental law or environmental problems relating to the property, but that the buyer had satisfy itself. 

The replies to enquiries provided that the landlord would notify the tenant before completion if it became aware of anything which might cause any reply previously given to be incorrect.

The tenant commenced fit out works required under the lease shortly after taking possession of the property.  The presence of significant amount of asbestos requiring remedial works was discovered.  As a result, the tenant spent almost half a million pounds on asbestos remedial works and also had to arrange for alternative accommodation as the property was unavailable during the works. 

The tenant claimed those costs against the landlord on the basis of misrepresentation.  Two issues were raised:

  • First, after making the representations, but before the lease was entered into, the landlord obtained a further report which identified the presence of asbestos at the property, although not to a significant extent.  Neither the report nor its findings were disclosed to the tenant until after it had entered into the lease.  The replies to enquiries were not updated.
  • Second, again after making the representations, but before the lease was entered into, the landlord also received an email from a contractor reporting both the presence of asbestos at the property and that it caused a health and safety risk.  Despite this newly available environmental information, the landlord did not update its replies to enquiries before completion of the lease.

Misrepresentation

In essence, the High Court found that the reply given to inquiry 15.7 was made untrue by virtue of the contractor’s subsequent email.  By not correcting its reply before the lease was entered into, the landlord misrepresented the position to the tenant.  That the landlord’s factual reply also indicated that the tenant had to satisfy itself did not assist the landlord.

This was not the end of the matter.  The lease contained a non-reliance clause, providing that the tenant had not entered into the lease in reliance on any statement or representation made by or on behalf of the landlord.  The landlord argued that it was not liable for misrepresentation on the basis of this clause. 

The Court held that, in order to be valid, an exclusion of liability for misrepresentation had to satisfy the requirement of “reasonableness” in the circumstances prevailing when the contract was entered into, in accordance with section 3 of the Misrepresentation Act 1967.  In this case, the Court found unreasonable the lack of retention of liability for replies to pre-contractual enquiries, “particularly in the conveyancing world, where pre-contractual enquiries have a particular and well-recognised importance”. 

The landlord was required to pay the tenant’s costs of the remedial works together with the tenant’s costs of finding alternative accommodation while the property could not be used.  However, the Court allowed a reduction in the amount claimed for the latter due to the time wasted by the tenant in commencing the remedial works.

Key implications

In relation to environmental matters (like asbestos) where surveys are often carried out, or new information comes to light, after the original replies have been drafted, sellers and landlords must give thought to the need to update replies.  This is especially so where a factual representation has been given in the original reply.  Failure to update replies could lead to a claim for misrepresentation.

Landlords and sellers should remember that:

  • A statement accompanying a factual representation that a buyer must rely on its own investigations does not absolve the seller from its duty to ensure its replies remain up-to-date. 
  • Non-reliance clauses that attempt to diminish the importance of pre-contractual replies to enquiries are unlikely to be upheld. 

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