A recent High Court decision, First Tower Trustees v CDS (Superstores International) Ltd, has provided a helpful reminder of the importance of updating your replies to pre-contract enquiries. The decision also provides some useful guidance on the effectiveness of clauses excluding liability for reliance on representations.

The facts of the case

Pre-contract enquiries

The landlord, First Tower Trustees, agreed to grant a lease to CDS, the tenant. In February 2015, it gave its replies to pre-contract enquiries, stating that it was not aware of any notices relating to environmental problems, and that it had not been notified of any breaches of environmental law or any environmental problems. Both these statements were qualified by the words “but the Buyer must satisfy itself”. As is normal, the replies also stated that the landlord would notify the tenant if it became aware before completion that any reply was incorrect.

In April 2015, the landlord received an email from their asbestos specialist notifying them of the presence of asbestos at the premises. The landlord failed to pass this information on and, ten days later, entered into a lease and a separate agreement for lease with the tenant.

Terms of the lease and agreement for lease

Under the terms of the agreement for lease the tenant acknowledged that it had not entered into the agreement in reliance on any statement or representation made by the landlord, other than those representations made in writing by its solicitors in response to pre-contract enquiries. This is a very normal clause to see in agreements for lease, leases and sale contracts.

However, under the terms of the lease, the tenant simply acknowledged that it had not entered into the lease in reliance on any statement or representation made by the landlord, without the usual qualification.

Finding the asbestos

The tenant took possession under the lease on 6 May 2015 and began various required works. A week later it discovered the asbestos. The agreement for lease was ended in accordance with the termination provisions. Remedial works to the leased property started in November 2015 and the property was ready for occupation in January 2016.

The claim

The tenant claimed damages for the losses it suffered in connection both with carrying out the remedial work and with finding alternative accommodation. The tenant argued that it entered into the lease and the agreement for lease in reliance on a misrepresentation made by the landlord (that it was not aware of any environmental problems); the tenant would not have done so if it had known of the problem.

The decision

The court found in favour of the tenant and awarded damages. It was held that the landlord had made a misrepresentation. The words “the Buyer must satisfy itself” did not assist the landlord: as these words were preceded by statements that the landlord was not aware of any environmental issues, they were held to relate only to issues that the landlord didn’t know about.

The misrepresentation was material and had been relied upon, meaning that it fell within the scope of the Misrepresentation Act 1967. Where a clause excludes or restricts liability for misrepresentation, that clause is of no effect save insofar as it satisfies the reasonableness test contained in the Unfair Contract Terms Act 1977. Whether a clause is reasonable depends on all the circumstances and is for the court to determine.

The (normal) clause in the agreement for lease was reasonable as it allowed reliance on replies to enquiries. However, the clause in the lease did not allow reliance on these replies and was found to be unreasonable: allowing a clause of this kind entirely negates the value of pre-contract enquiries which are an essential part of the conveyancing process.

Practical advice

This case provides a useful reminder that:

  • As a landlord or seller, if you make a representation in your replies to enquiries and you subsequently (pre-contract) become aware that the representation has become untrue, you need to ensure that your replies are updated. Where a contract is entered into in reliance on this statement, a failure to update your reply will amount to a misrepresentation for which you will be liable.
  • An attempt to exclude liability for misrepresentations contained in written pre-contract replies to enquiries is very unlikely to be effective, even as between two legally advised, commercial parties with an understanding of the effect of the clause. The significance of these replies is such that an attempt to render them irrelevant will be considered unfair.