UK: Pre-Contract Enquiries: Another Case Of Caveat Empty

Last Updated: 19 October 2018
Article by Adam Corbin

Introduction

When buying a property Sellers are usually required to give replies to written enquiries about the property. The standard response often given is "the Buyers should rely on their own inspection/survey". But is this reply sufficient to relieve the Seller from liability, if the Buyers subsequently discover problems with the property?

This issue has recently been reviewed by Lord Justice Lewison in First Tower Trustees Limited & Intertrust Trustees Limited v CDS (Superstores International) Limited [2018] EWCA Civ 1396. The result was in the tenant's favour, demonstrating that landlords need to take renewed care in their responses to buyer's enquiries, and may not be able to rely on exclusion clauses.

The case

First Tower Trustees Limited & Intertrust Trustees Limited (FT) let premises at Dearne Mill, Darton, Barnsley to CDS (Superstores International) Limited (CDS) on 30 April 2015.

Before contract, CDS was given by FT a copy of an asbestos report said to relate to the premises; in fact, it did not.

CDS, through its solicitors, also raised standard enquiries before contract, which FT's solicitors answered on 16 February 2015.

The enquiries had the usual disclaimers:

"4. The Buyer acknowledges that even though the Seller will be giving replies to the enquiries, the Buyer should still inspect the Property, have the Property surveyed, investigate title and make all appropriate searches and enquiries of third parties.

5. In replying to each of these enquiries and any supplemental enquiries, the Seller acknowledges that it is required to provide the Buyer with copies of all documents and correspondence and to supply all details relevant to the replies, whether ornot specifically requested to do so.

6. The Seller confirms that pending exchange of contracts or, where there is no prior contract, pending completion of the Transaction, it will notify the Buyer on becoming aware of anything which may cause any reply that it has given to these or any supplemental enquiries to be incorrect."

CDS asked for details (so far as the Seller was aware) of the existence of any hazardous substances, including asbestos or asbestos containing materials. The reply was:

"The Buyer must satisfy itself".

CDS asked for details of notices, correspondence relating to real or perceived environmental problems that affected the property, including communications relating to the actual or possible presence of contamination at or near the property. The reply, so far as material, was: "The Seller is not aware of any such notices etc but the Buyer must satisfy itself"

CDS asked for details of any actual, alleged, or potential environmental problems (including actual or suspected contamination) relating to the property. The answer was: "The Seller has not been notified of any such breaches or environmental problems relating to the Property but the Buyer must satisfy itself."

Then on 16 April 2015 FT's agents received a copy of a report, which indicated that there was some asbestos in the premises.

On 20 April 2015 FT's agents received an email from a specialist firm that they had used, which reported a health and safety risk caused by asbestos at the premises. The email also stated:

"Please be advised that we have added a notice onto our system and we are unable to enter this property until we receive the relevant confirmation from yourselves that the site is safe. This would have to be in the form of a clean air certificate or asbestos report."

Readers will recall that the disclaimer at paragraph 6 repeated above required FT to notify CDS on becoming aware of anything which may cause any reply that it has given to these or any supplemental enquiries to be incorrect.

The lease/agreement for lease was completed on 30 April 2015.

Judgment

Mr Michael Brindle QC, sitting as a judge of the Chancery Division, held that FT was liable, and gave judgment against them for £1.4 million plus interest.

His judgment is at [2017] EWHC 891 (Ch), [2017] 4 WLR 73.

The Deputy High Court Judge considered that there was a clear case of misrepresentation, and went on to consider whether FT had any defence. FT did not give evidence but relied on exclusion clauses in both the lease and the agreement for lease as relieving them of potential liability.

Those clauses were:

Clause 5.8 of the lease stating:

"The tenant acknowledges that this lease has not been entered into in reliance wholly or partly on any statement or representation made by or on behalf of the landlord."

Clause 12 of the agreement for lease stating:

"12.1 The Tenant acknowledge and agree [sic] that it has not entered into this Agreement in reliance on any statement or representation made by or on behalf of the Landlord other than those made in writing by the Landlord's solicitors in response to the Tenant's solicitors' written enquiries.

12.2 Nothing in this Agreement shall be read or construed as excluding any liability or remedy resulting from fraudulent misrepresentation."

Clearly clause 12.1 of the agreement for lease did not assist FT given that the misrepresentation had effectively been made in the response to enquiries.

The Judge held that clause 5.8 of the lease was an attempt to exclude liability for misrepresentation and went on to hold that it did not satisfy the test of reasonableness under section 11(1) of the Unfair Contract Terms Act 1977.

FT appealed, not the finding that a misrepresentation had been made, but substantially on the basis that the exclusion clause/s should have bitten to excuse the landlord in this instance.

In the Court of Appeal Lord Justice Lewison pointed out that:

In an ideal world sellers would behave in the way that Farwell J described in Terrene Ltd v Nelson [1937] 3 All ER 739 :

"In the ordinary case, a purchaser has to go for his information to the vendor, but, bearing in mind the principle of caveat emptor, he is bound to make proper inquiries for himself. But he must, in almost every case, in the first instance, at any rate, seek his information from the vendor, who knows the facts, whereas the purchaser probably does not know them. When a purchaser, with a possible view of making an offer for the property, seeks information from the vendor, the vendor, of course, is bound to the best of his ability to supply him with accurate information. " (Emphasis added)

Lord Justice Lewison went on to find that the Judge below had interpreted and applied the law correctly, and dismissed the appeal. He agreed that the exclusion clause here did not exclude liability, not least because it would be pointless having enquiries to commercial property transactions, if the answers to those enquiries were made irrelevant by a provision in the lease.

Lord Justice Lewison pointed out that it is very difficult to overturn a lower Court's decision on reasonableness in an appellate Court because the Court below has had the benefit of the evidence on the topic.

Conclusion

The case is similar to that of The Crown Estate v Wakley [2016] EWHC 3610 (Ch) concerning the grant of a long term FBT over a farm, which had inherent flooding and other problems not revealed to the tenants before they took on the farm. Both cases demonstrate the importance of a landlord being cautious over their replies to inquiries, written or oral and both cases consider the effect of provisions seeking to exclude liability for misrepresentation, and apply the test of reasonableness.

Exclusion of reliance on non written replies (clause 12):

LJ Lewison pointed out that in another case he had held that the same exclusionary wording as found at clause 12 of the agreement for lease was reasonable (see FoodCo LLP v Henry Boot Developments Ltd [2010] EWHC 358 (Ch) at [177]). He noted that in this case clause 12.1 of the agreement for lease expressly incorporated the assurance not to misrepresent up to the point at which the contract was entered into, and that it would be inconsistent to then construe the exclusion as biting on that assurance. Effectively the response to enquiry/assurance in FoodCo was not misleading, whereas that in First Tower was.

Exclusion of reliance on landlord's statements and representations (clause 5.8)

With regard to clause 5.8 of the lease, the comments of the Judge below were endorsed:

"But what of clause 5.8 of the lease? It does not follow from the reasonableness of a clause which does allow reliance on replies to inquiries that a clause which denies such reliance is necessarily unreasonable. But it does seem to me to cast serious doubt on the reasonablenessofclause 5.8. Theverypointwhich was crucial inupholding the reasonablenessoftheprovision in the FoodCo UK LLP case is absent. So the landlord can say what he likes in replies to inquiries (fraud apart), withholding his own knowledge of a serious problem and requiring the tenant to carry out his own due diligence, and then meet the tenant with a contractual estoppel. That seems to me highly unreasonable, particularly in the conveyancing world, where pre- contractual inquiries have a particular and well- recognisedimportance. Withclause 5.8 theybecome a worthless, andindeedpositivelymisleading, exercise. I do not think this is reasonable."[...]

"That was notareasonableclause to put into the lease, because its effect would render the whole exercise of making inquiries andrelying onanswers thereto all but nugatory. I suspect that conveyancing practitioners wouldbeappalledif such clausesgained wide currency and were upheld by thecourts."

In both cases the landlords did not seek to rely on the statutory defence that the representor had an honest belief in the truth of the representation on reasonable grounds.

It might be argued that First Tower advances a tenant's position further by putting a continuing duty on the landlord, however the reality is that the duty of the landlord was incorporated into the bargain by the provisions of the standard enquiries.

In summary the key practice points for the pre-tenancy period are:

  • Good, joined up, communication between agent, solicitor, and client is crucial
  • It is never going to be a good idea to be unhelpful or obtuse in response to enquiries
  • Clauses which seek to limit or exclude liability are not necessarily going to provide a defence

For further discussion on this case see the article of Andrew Baines at: https://www.michelmores.com/news-views/news/vendor-beware-misrepresentations-and-exclusion-clauses-property-transactions

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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