Misrepresentation: Don't be so unreasonable
Author: Angela Mildenhall and Michael Callaghan
Applies to: England and Wales
A landlord was unable to rely on a very wide exclusion of liability clause in a lease where it had made a misrepresentation to the tenant about the presence of asbestos in the property.
In First Tower Trustees Ltd v CDS (Superstores International) Ltd EWHC B6, the tenant took a lease of three units. The landlord had provided the tenant with a copy of a report that indicated that there were no problems with asbestos in the property. In replies to pre-contract enquiries, the landlord indicated that it had not received notice of any environmental problems, but that the buyer must satisfy itself.
Between the answer being given and the tenant completing the leases, the landlord was notified of a potential problem with asbestos, but the reply was not updated. When the tenant completed the leases and began works to the property, substantial amounts of asbestos were found. The costs of remedial works and alternative accommodation while the works were carried out were substantial. These costs formed the subject of a claim against the landlord for, amongst other things, misrepresentation.
The judge agreed with the tenant that there had been misrepresentation. However, the landlord argued that it was not liable for the misrepresentation because the lease contained a clause saying that it had 'not been entered into in reliance wholly or partly on any statement or representation made by or on behalf of the Landlord'. This clause was designed to exclude liability for misrepresentation in pre-contract negotiations. The usual carve-out to retain liability for replies to pre-contract enquiries was absent. Excluding liability for misrepresentation would be valid only if the clause was reasonable: the provisions of section 3 of the Misrepresentation Act 1967 applied.
The judge found that, even though the terms of the lease had been negotiated between commercial parties with the benefit of legal advice, the wide exclusion in the lease was unreasonable and a claim in misrepresentation would therefore succeed in relation to the written replies to enquiries. It would be reasonable for the landlord to exclude liability in relation to the contents of the third party report.
The landlord of the lease held the property on trust and the landlord also sought to place reliance on a clause in the lease that limited liability for breaches of the lease to the value of the assets within the trust. The judge agreed that the wording would protect the trustees in relation to contractual claims. However, nothing in the wording of the limitation clause covered pre-contract or non-contractual liability. The limitation of liability clause would therefore not apply to the damages due in respect of the misrepresentation.
Points to consider
Four points to take into account from the case are:
- A reply along the lines of 'the seller is not aware of any problem, but the buyer must satisfy itself' is a misrepresentation if the seller is aware of a problem or becomes aware of a problem. The words 'but the buyer must satisfy itself' do not reduce the seller's liability.
- If you have provided replies to pre-contract enquiries, you have to keep them up-to-date. If you have represented that you are not aware of something, you must let the other side know if you do become aware of something after the initial reply has been given. Replies are not frozen in time at the point when they are given. Subsequent events have to be taken into account.
- Even in commercial contracts, exclusion of liability clauses can be unreasonable and fail to protect the party for whom they are intended. Careful consideration has to be given to the wording of exclusion clauses.
- Trustees who want to limit their liability to the value of the trust assets need to think about the wording of the limitation of liability clause so that the clause is wide enough to cover pre-contract and non-contractual claims.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.