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How reliable is a “non-reliance” clause?

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Summary: The recent case of First Towers Trustees v CDS (Superstores International) Limited emphasises the importance of giving accurate replies to enquiries when selling or leasing property and updating those replies if new information arises. It also highlights the fact that landlords should be cautious about relying on “non-reliance” clauses that purport to limit the effect of a misrepresentation in pre-contract enquiries.

Facts

On 30 April 2015, a tenant entered into leases of 3 loading bays at an industrial site.  It also entered into an Agreement for Lease for a 4th loading bay. Shortly after completion of the leases, the tenant commenced fit out works and, almost immediately, discovered that the premises contained significant asbestos contamination. The tenant spent almost half a million pounds on remedial works and had to pay for the costs of alternative premises during the works.The tenant claimed these costs from the landlord. It also exercised its right to terminate the Agreement for Lease for the 4th loading bay.

Prior to completion of the leases, in Replies to Enquiries, the landlord had stated that it was not aware of any enforcement notices in relation to environmental matters relating to the property, and that it was not aware of any circumstances which might give rise to a breach of environmental law. It was obliged, however, under the Standard Conditions of Sale, to notify the tenant on becoming aware of anything which might cause any reply that had been given to be incorrect, prior to contract completion.

In fact, before completion, the landlord was notified that the premises contained asbestos, and it failed to pass on this information to the tenant. 

The tenant sought damages on the basis of misrepresentation by the landlord in its Replies to Enquiries. The landlord sought to avoid liability on the basis of a “non-reliance” clause in the lease, which provided that, in entering into the lease, the tenant had not relied on any statement or representations made by or on behalf of the landlord.

Outcome

The court agreed with the tenant that the non-reliance provision could not save the landlord as it was not “reasonable” within the meaning of section 3 of the Misrepresentation Act 1967. The court acknowledged the particular and well-recognised importance of pre-contractual enquiries in the conveyancing world and held that to permit a seller or landlord to exclude reliance by a tenant on pre-contract enquiries from a property contract would be to render the regime of pre-contract enquiries “a worthless, and indeed positively misleading exercise”.  The non-reliance clause was not reasonable and could not operate.

The landlord was required to pay the tenant’s costs of the asbestos remedial work of just over £350,000 plus VAT. The tenant’s costs of finding alternative warehouse accommodation were also allowed, though the amount was subject to further argument as there was to be some reduction due to delay by the tenant in starting remedial works.

Implications

It is to state the obvious that replies to enquiries must be accurate and that a seller is under a duty under the Standard Conditions of Sale to update those replies if matters change before completion.  The fact that the landlord had positively asserted that it was not aware of any environmental issues, when in fact by the date of completion it was, was enough to amount to a misrepresentation.

Most property transactions will include an exclusion clause limiting reliance on representations, but allowing replies to enquiries to be relied upon.  The landlord’s attempt to exclude reliance on replies to enquiries failed, and this was surely right.

Landlords and sellers should ensure that a tenant or purchaser is notified of any changes in circumstances after Replies to Enquires, and should think twice about attempting to rely on “non-reliance” clauses that might be deemed unreasonable if placed under the court’s close scrutiny.

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