The line between truth and lies

A recent case has highlighted the importance of updating a buyer or tenant with information received in between issuing replies to enquiries and entering into contracts.

The case

In First Tower Trustees Ltd and another v CDS (Superstores International) Ltd [2017] EWHC B6 (Ch), the High Court considered a misrepresentation claim brought by a commercial tenant. The prospective landlord had stated in its replies to enquiries that it had not been notified of any actual, potential or alleged breaches of environmental law or any other environmental problems relating to the property but that “the Buyer must satisfy itself”. The prospective landlord then failed to update the replies when it subsequently became aware of asbestos. The tenant successfully claimed damages for negligent misrepresentation, representing the cost of remedial works and alternative accommodation whilst these were being carried out.

Background to misrepresentation

A misrepresentation is a statement about a property which is not true, made before the contract for sale comes into existence and which induces the other party to enter into the contract. There are three types of misrepresentation:

• fraudulent – where a false representation has been knowingly made, or without belief in its truth, or recklessly as to its truth;
• negligent – a representation made carelessly and in breach of duty owed between the parties to take reasonable care that the representation is accurate; and
• innocent – a representation that is neither fraudulent nor negligent.

The remedies for misrepresentation are rescission (setting aside) of the contract and/or damages. In order to claim misrepresentation, the wronged party will need to show that the false statement played a real and substantial part in them entering into the contract.

Points to note

Most importantly, this case highlights the need to keep the replies to enquiries under review until completion and to notify the other side of any changes. It also shows the importance of how the responses are phrased. If the prospective landlord had just written “The Buyer must satisfy itself” without the preceding confirmation, that would have been better. In general, a landlord does not warrant the state or condition of property and the prospective tenant should make its own enquiries. However, if the landlord does represent, as it did in this case, then the law would always assist the tenant.

We would always recommend that you seek assistance in drafting replies to enquiries and statements to be sent to the buyer/tenant when selling or granting a lease of a property. This case flags the need to provide full disclosure where possible but also to consider how helpful responses to enquiries are.