Entire Agreement Clauses and Misrepresentation

20/07/2018

On 20 March 2017, Michael Brindle QC gave a judgement in the High Court Chancery Division in the case First Tower Trustees Ltd and another v CDS (Superstores International) Ltd concerning entire agreement clauses, common in both commercial property contracts and commercial leases.

It related to a failure by the landlord to update tenant on the position at the property regarding asbestos, and its replies to Commercial Property Standard Enquiries (CPSEs), after it received information from its expert about the location of the contaminant before the parties entered into contract.

Such clauses seek to establish a position whereby pre-contractual representations made by one party to another, in this instance by a landlord to its tenant, do not form part of the contract and thus cannot be relied upon should, later on, those representations turn out not to be true.

As Senior Associate Keeley Miller wrote in her article for Pinney Talfourd in May 2018, it is the landlord who receives CPSEs, who is to provide responses to those enquiries and who must, as the explanatory notes thereof set out, ‘notify the Buyer on becoming aware of anything which may cause any reply that is to be given to these or any supplemental enquiries to be incorrect.’

Since then, in light of the judgement given, the landlord has taken its case to the Court of Appeal, judgement having been given on 19 June 2018. Lord Justice Lewison, Lord Justice Leggatt and Sir Colin Rimer upheld Michael Brindle QC’s findings in the High Court that a contractual term which attempts to exclude liability for misrepresentation is subject to a reasonableness test by virtue of section 3 of the Misrepresentation Act 1967, otherwise a landlord could be left without liability for its replies and a tenant without an avenue to pursue its losses.

On the other hand, an entire agreement clause which expressly preserved the landlord’s liability for misrepresentations contained in CPSEs (or other replies to enquiries) was found to be reasonable, and thus highlights the importance of its inclusion in entire agreement clauses.

A helpful update was also given as to a trustee’s liability under a clause which attempts to limit liability to the value of the trust’s assets. Such a clause would only go so far as to exclude contractual liability, as opposed to liability for claims for damages payable in statute or tort.

If you are a landlord, it is therefore important that you provide updates in regards to information received regarding your property prior to contract, especially where previous representations have been made or assurances are given to a tenant regarding a certain state of affairs, such as, in this instance, contamination.

It also serves as a reminder to solicitors of the importance of ensuring that a clause which intends to exclude liability or misrepresentation, whether in a contract or a lease, is reasonable in the circumstances.

MORE INFORMATION 

For further information and assistance on commercial property matters, please contact our Commercial Property Department for more information – call us or email by using the form to the right. This article was written by Ben Hersom, Solicitor at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of July 2018.

20/07/2018

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