08 May 2018 #Real Estate
The importance of Sellers and Landlords ensuring the replies they give to pre-contract enquiries are kept up to date throughout a transaction and that the Buyer or Tenant is notified of any changes was recently highlighted in the case of First Tower Trustees Limited and another v CDS (Superstores International)  EWHC B6 (Ch).
A misrepresentation claim was made by the Tenant when their prospective Landlord failed to update replies to enquiries.
The interpretation section of the replies to enquiries provided that prior to completion the Landlord would notify the Tenant on becoming aware of anything which might cause any reply that had been given to be incorrect. During the transaction the Landlord received specialist information which revealed the presence of asbestos at the property. The Landlord failed to update the replies to enquiries before the Tenant entered into a lease of the property.
The Tenant claimed misrepresentations were made in replies to enquiries given by the Landlord as the Landlord had stated it had not been notified of any actual, alleged or potential breaches of environmental law or other environmental problem relating to the property when it had in its possession information to the contrary.
The High Court found that the wording "the Buyer must satisfy itself" used in the replies given did not assist the Landlord in this case. The High Court were of the opinion the misrepresentation was material and had been relied upon by the Tenant.
The High Court also considered the effectiveness of a clause in the lease that purported to exclude liability for any misrepresentations made by the Landlord. Section 3(1) of the Misrepresentation Act 1967 provides that, where a term excludes or restricts liability for misrepresentation, it shall be of no effect except in so far as it satisfies the requirement of reasonableness as stated in section 11(1) of the Unfair Contract Terms Act 1977 (UCTA 1977). By section 11 of the UCTA 1977 a term is reasonable if it is fair and reasonable having regard to the circumstances which were, or ought reasonably to have been, known or contemplated by the parties when the contract was made.
The High Court found the lease clause to be unreasonable. It did not allow reliance on replies to enquiries which are of importance and in turn this would render meaningless the exercise of raising enquiries and relying on the answers.
The High Court held the Landlord liable for misrepresentation and that the clause in the lease purporting to exclude liability was ineffective. The Landlord was ordered to pay to the Tenant damages in respect of the remedial works and also the cost of alternative accommodation.
The Appeal is due to be heard on 22 May 2018.
How can Sellers and Landlords attempt to prevent finding themselves in a similar situation?