Replies to Enquiries – Effectiveness of Excluding Reliance

The recent case of First Tower Trustees Ltd and CDS (Superstores International) Ltd [2017] EWHC B6 (Ch) serves as a useful reminder of the effectiveness of an exclusion clause in the context of a commercial property transaction.

The prospective landlord (‘F’) stated in its replies to enquiries that, while it was not aware of any notice relating to environmental problems or any potential breaches or issues in relation to environmental law, ‘the Buyer must satisfy itself’ in this regard.

F subsequently became aware that asbestos was present in the premises and failed to update the prospective tenant, (‘CDS’), accordingly, notwithstanding a provision in the replies that F would notify CDS prior to completion in the event that any reply was incorrect.

The Lease contained an acknowledgment by CDS that it had not entered into the Lease in reliance on any statement or representation made by F. The High Court found that this amounted to an attempt to exclude or restrict liability.

Under section 3(1) of the Misrepresentation Act 1967, a term purporting to exclude or restrict liability for misrepresentation must satisfy the reasonableness requirement prescribed by section 11(1) of the Unfair Contract Terms Act 1977 (UCTA 1977). In this regard, the court shall consider whether the term was fair and reasonable having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.

The High Court found that the misrepresentations made by F were material in nature and had been relied upon by CDS. The exclusion did not satisfy the reasonableness test and would, if permitted, nullify the important exercise of raising and relying on pre-contractual enquiries in conveyancing transactions.

CDS were awarded costs in respect of the removal of the asbestos and procurement of alternative accommodation.

Landlords should be mindful to update replies to enquiries where appropriate and should be wary when seeking to exclude or limit liability for misrepresentation in this regard.

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