Exclusion of liability in a lease was unreasonable

Section 3 of the Misrepresentation Act 1967 provides that, where a clause in a contract seeks to limit or exclude liability for misrepresentation, the clause must be reasonable. In First Tower Trustees Ltd v CDS (Superstores International) Ltd [2018] EWCA Civ 1396; [2018] PLSCS 110, tenants of warehouse premises sought to hold their landlord to account for statements made in replies to enquiries confirming that the landlord was unaware of any environmental problems relating to the property. Several weeks after replying to the enquiries, the landlord had been advised that there was a problem with asbestos, but it did not pass this information on to the tenant before completing the lease. The tenant discovered asbestos in the premises soon afterwards and was unable to take up occupation until the asbestos was removed. Was the landlord liable for the losses suffered by the tenant as a result? Or was it entitled to rely on a provision in the lease stating 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 landlord argued that the clause confirmed the basis upon which the parties had contracted. Therefore, it was not an exclusion clause. The Court of Appeal noted that, as a matter of contract, parties can bind themselves at common law to a fictional state of affairs in which no representations have been made or, if made, have not been relied on. But that does not prevent the court from considering whether the contractual estoppel that arises as a result has the effect of excluding liability for misrepresentation. Lord Justice Leggatt explained that the landlord was under a duty imposed by law and it could not be said that the contract term merely created and defined the parties’ obligations.  The term sought to exclude a liability that would otherwise be there. Therefore, the clause in the parties’ lease did have the effect of excluding liability for misrepresentation – and must be tested for reasonableness in accordance with section 11(1) of the Unfair Contract Terms Act 1977. Was the term a fair and reasonable one, having regard to the circumstances that were or ought reasonably to have been known to, or in the contemplation of, the parties when the contract was made? Both parties had been legally represented and had bargained on equal terms. But the Court of Appeal refused to interfere with the trial judge’s decision that the clause was unreasonable because it sought to exclude all liability for replies to preliminary enquiries, thereby depriving the landlord’s answers of any worth. The Court of Appeal had to consider one further point, in respect of which there was no previous authority. The landlord had contracted in its capacity as the trustee of a specified trust and the tenant accepted that the words used in the lease limited its liability in contract to the value of the trust fund. But did the form of words used limit the landlord’s liability for damages payable under the 1967 Act as well? The Court of Appeal ruled that the lease limited the landlord’s forward-looking liability in contract, but that liability for damages for misrepresentation is backward-looking – and quite different. The claim might have resulted from a contract, but the words used to limit the landlord’s contractual liability did not extend to its pre-contractual liability as well. Allyson Colby, Property Law Consultant