Make all reasonable enquiries

It is all too easy, when replying to standard enquiries before contract raised by a prospective buyer or tenant, to use words along the lines of “not as far as we are aware” without further thought.

The Court of Appeal decision in First Tower Trustees Ltd, Intertrust Trustees Ltd v CDS (Superstores International) Ltd [2018] EWCA Civ 1396 is a cautionary tale in this context.

In commercial property transactions it is usual for the prospective buyer or tenant’s solicitors to raise Commercial Property Standard Enquiries (CPSEs) of the seller or landlord. The CPSEs provide that the seller/landlord will notify the buyer/tenant on becoming aware of anything which may cause any reply that it has given to be incorrect.

In this case, in reply to CPSEs asking for details of any environmental problems at a site to be leased, the landlords stated that they had not been notified of any but that the prospective tenant must satisfy itself. The landlords’ agents subsequently received a report indicating that there was extensive asbestos at the property but this was not passed on to the tenant and the lease was granted.

The presence of the asbestos meant that the tenant was unable to occupy without extensive clean-up and they claimed damages for misrepresentation. The landlords argued that even if there had been a misrepresentation, they were let off the hook by a non-reliance clause in the lease which stated: “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 landlords”.

The Court of Appeal found that there had been a misrepresentation and that the tenant had relied on it in entering into the lease. As to the non-reliance clause, this was subject to the Misrepresentation Act 1967, which meant that it was only enforceable if it was reasonable. In this case it was not – the standard practice of raising CPSEs would be pointless if replies could be rendered worthless by such a non-reliance clause. The landlords were found liable to pay damages of £1.4 million plus interest.

The lessons? Sellers and landlords should make reasonable enquiries and check with agents and employees who may be “in the know” before replying “Not as far as we are aware” to standard pre-contract enquiries. They should also ensure that they update their replies if the position changes. A non-reliance clause is unlikely to be a get-out in these circumstances.