Case law: Contractual clause saying tenant did not rely on landlord's pre-contractual misrepresentations is subject to reasonableness test

Landlords should be very caution when responding to pre-contractual enquiries, even where a clause in the subsequent contract states that the tenant has not relied on any prior statement or representation, as this will be ineffective except to the extent that the clause is reasonable, the Court of Appeal has ruled.

During negotiations for the grant of a lease, the landlord knowingly made misrepresentations, and did not tell the tenant about asbestos on the site during pre-contract enquiries. These came to light after the lease had been entered into.

Under the Misrepresentation Act 1967, there is only a misrepresentation if someone has relied on the statement or representation when entering into the contract. But the lease in this case contained a non-reliance clause stating that "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".

The tenant relied on the Unfair Contract Terms Act 1977 which say that a contractual clause which attempts to exclude or restrict liability for a statement or representation made before the contract is entered into is of no effect - except to the extent the clause is "a fair and reasonable one to be included 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 tenant argued that the clause was not reasonable, and was therefore of no effect, and the landlord was therefore liable for misrepresentation.

The landlord argued that the clause was not an attempt to exclude liability for its misrepresentations. Rather, its effect was that the tenant was agreeing to act as if any such misrepresentations had never been made (even though in fact they had) and that they had not relied on them in entering into the agreement. It was not, therefore, a clause excluding liability for misrepresentation, but a clause that prevented the issue of misrepresentation from arising in the first place. The question of whether it was reasonable was therefore irrelevant.

The Court of Appeal ruled that even if the landlord's "strained interpretation" of the clause was correct, there was still no good reason to omit such a clause from the law that states that clauses excluding or restricting liability were only valid if they were reasonable.

It said "whenever a contracting party … argue[s] that, by reason of a contract term, the other party to the contract is prevented from asserting a fact which is necessary to establish liability for a pre-contractual misrepresentation, the term … is … of no effect except in so far as it satisfies the requirement of reasonableness…".

In summary, if liability for misrepresentation would arise if the clause did not exist (and such liability would arise in this case), then the 1977 Act is engaged and the clause must satisfy the reasonableness test. It was therefore subject to the reasonableness test.

The Court then ruled that it was not reasonable, observing that if such a clause was found to be reasonable, then replies to enquiries before contract could be made worthless simply by including such a clause in the subsequent contract.

Operative date

• Now

Recommendation

• Landlords should be very cautious when responding to pre-contract enquiries, as they will not be able to rely on a clause to the effect the tenant has not relied on any statement of representation made during negotiations, except to the extent that the clause is reasonable

Case ref: First Tower Trustees Ltd v CDS (Superstores International) Ltd [2018] EWCA Civ 1396