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01 Oct 2018

Don't rely on me… Are "non-reliance" clauses effective?

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Frugal asset management

You own a secondary industrial estate.  The rents per unit are not very high but overall the estate generates good returns, provided that you keep a tight rein on costs.

The deal

Some of the units on the estate have recently become vacant.  It's a popular estate, so you find a new tenant quite easily, but you need to progress the lease quickly to minimise the void period.

The due diligence

As you'd expect the tenant raises the usual "Commercial Property Standard Enquiries" ("CPSEs") and you assume that they'll carry out the appropriate searches and inspections.  This is intended to be a "sold as seen" deal.

Difficult question

The tenant raises questions about whether there are any environmental problems.  Nothing immediately springs to mind (but you don't have time to stop and think, nor to check your records) so you simply say "None that we're aware of but you should check for yourselves".

A week or so after you gave the replies, but before you'd exchanged, you also get some reports through as part of the wider management of the estate and they show that there are significant amounts of asbestos at the property.

Don't rely on me…

After completion of the lease, the Tenant also finds the asbestos and sues you for misrepresentation – "…you told us that you weren't aware of any problems!"

Does the Tenant have a valid claim?

Non-reliance clauses.

"But hang on…" you say, "…we told the tenant to inspect and, anyway, our lawyers put a non-reliance clause in the lease to say that the tenant can't rely on what we told them.  So how can we be liable?"

Non-reliance clauses are classified as exclusion clauses.  As such, they're subject to section 3 of the Misrepresentation Act 1967.  That means that they have to be reasonable to be effective.

The recent case of First Tower Trustees Ltd and other v CDS (Superstores International) Ltd establishes that a landlord saying that a tenant cannot rely on anything that the landlord says (including replies to CPSEs) is not reasonable.  Notably, however, you are allowed to limit reliance to solicitors' replies to enquires, to carve out general chat and posturing that might arise in the lead up to a deal.

According to the court, the fact that you said that the tenant should rely on their own independent inspection and enquiries won't help you.  You said that you weren't aware of any problems and that was a misrepresentation.  Even if you only found out about the asbestos after you had given the replies, you were obliged to update the tenant if anything changed before exchange.

Moral

When giving replies to enquiries, it pays to take the time to check that the replies are correct.  Remember to update the replies before exchange.  Don't say you're not aware of something if (with a reasonable amount of checking) you clearly are.  Finally don't think that a "non-reliance" clause will save you – they only work if they are reasonable!

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