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Unreliability of Non-Reliance Clauses for Landlords

ILLUSTRATION: The unreliability of non-reliance clauses by Landlords in leases

ILLUSTRATION: The unreliability of non-reliance clauses by Landlords in leasesThe High Court has recently handed down its decision in First Tower Trustees Limited and Intertrust Trustees Limited v CDS (Superstores International) Limited [2017] EWHC B6 (Ch). This case is a valuable reminder to commercial landlords of the importance of using common sense as a guide when dealing with potential tenants.

Facts of case
First Tower leased commercial property to CDS. In answer to CDS’ enquiries relating to breaches of environmental law, First Tower answered that it “has not been notified of any such breaches … but the Buyer must satisfy itself.” After sending answers, but before the execution of the lease, First Tower discovered that the property in question posed a health and safety risk due to asbestos. First Tower did nothing.

As soon as CDS occupied the property, it discovered the asbestos problem.  CDS spent a significant amount of time and money making the property safe. CDS claimed that it had incurred losses as a result of First Tower’s misrepresentation as to the state of the property.

On this issue, the main point of contention was whether First Tower had an obligation to notify CDS of the asbestos problem that subsequently came to light or whether it could rely on the phrase “the Buyer must satisfy itself”.

PHOTO: Elizabeth Deyong, Head of Commerical Property at Barr Ellison

Elizabeth Deyong is Head of Commercial Property at Barr Ellison Solicitors

Obligation to update Replies to Enquiries
The Court found that there is an obligation to update replies to commercial property standard enquiries.  First Tower could not rely on the phrase “the Buyer must satisfy itself” in its answer to exonerate it from failing to update its reply.  This was because the phrase must be read in the context of the rest of First Tower’s answer, that is, that First Tower, “has not been notified of any … breaches”.

First Tower then argued that it did not have to pay damages because of the non-reliance clause in the lease, which stated that the lease “has not been entered into in reliance wholly or partly on any statement or representation made by or on behalf of the landlord”.

Unreliability of non-reliance clauses in leases
The non-reliance clause came within the ambit of section 3 of the Misrepresentation Act 1967, which requires it to be reasonable. The judge stated that the clause was not reasonable because it did not allow CDS to rely on replies to enquiries, rendering the whole exercise of making enquiries pointless. CDS was awarded damages for misrepresentation in excess of £1 million.

This case is a useful reminder to landlords that common sense is the best guide when dealing with potential tenants. If a property has a serious problem, then deliberately hiding the problem is likely to lead to far more expense and inconvenience for both parties than openly admitting the problem and negotiating through it.  Even more importantly, non-reliance clauses that try to preclude any reliance on replies to enquiries are unlikely to be upheld.  In replying to enquiries, landlords would do best to say exactly what they mean.

For more information please contact Elizabeth Deyong (email: e.deyong@barrellison.co.uk) (telephone: 01223 417 267).

Disclaimer: While we do all that is possible in terms of ensuring its accuracy, this blog contains general information only. Nothing in these pages constitutes legal advice. You need to consult a suitably qualified lawyer from the firm on any specific legal problem or matter.

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