Ten-minute topic: using boilerplate clauses in property contracts

Elizabeth Thomson explores the purpose of key boilerplate clauses in property documents and highlights the potential pitfalls of failing to consider their effect when drafting. Boilerplate is the term used to describe generic clauses, which are relevant to most transactions. Boilerplate clauses, depending on the circumstances, can be unlikely heroes or an unforeseen sting in the tail: they might salvage a party’s position or unexpectedly undermine it. That is why boilerplate clauses are frequently the subject of litigation. But how often do practitioners pause at the initial drafting stage to consider the applicability of each boilerplate provision to an individual transaction? And is the full effect of boilerplate provisions widely understood? This article looks at two of the more problematic boilerplate clauses. 1. Exclusion of section 62 of the Law of Property Act 1925 Relevance Section 62 is an oldie but a goodie. It applies to all conveyances made after 31 December 1881 and is a word-saving device. Section 62 provides that a conveyance of land (which includes a lease) is deemed to include, among other things, all privileges, easements and rights which were enjoyed at the time of the conveyance (see legislative context). It can therefore operate to upgrade permissive rights enjoyed with land into irrevocable legal easements for the benefit of that land. One such example might be where a tenant under a short-term lease is given casual permission to park vehicles on the landlord’s retained land. If the tenant were to negotiate to buy the freehold reversion at the expiry of its lease, section 62 (unless negated) would operate to include a permanent parking easement. This might be quite an unintended outcome. Unless a document shows a contrary intention, section 62 will be imported into every “conveyance”. Most sales of part and leases include a statement that section 62 of the 1925 Act does not apply, as it is considered preferable to expressly deal with the grant of necessary rights. It is not necessary to expressly refer to section 62 in order to exclude it, provided that clear words are used to show a contrary intention. It should be noted that section 62 only operates to grant rights, it does not reserve them in favour of a seller. So, if a seller has been enjoying a right over a piece of land which he conveys, section 62 will not reserve a like right in the seller’s favour in the conveyance. It will be essential to reserve such rights. Legislative context Section 62(1) of the 1925 Act provides that a conveyance of land shall be deemed to include and shall… operate to convey, with the land, all… liberties, privileges, easements, rights, and advantages whatsoever, appertaining or reputed to appertain to the land, or any part thereof, or, at the time of conveyance, demised, occupied, or enjoyed with or reputed or known as part or parcel of or appurtenant to the land or any part thereof. Section 205 of the 1925 Act provides that “conveyance” includes a mortgage, charge, lease, assent, vesting declaration, vesting instrument, disclaimer, release and every other assurance of property or of an interest therein by any instrument, except a will. Potential pitfalls ■ If section 62 is overlooked and not disapplied, it may produce unintended and undesirable results. Mere permissions could be transformed into permanent legal easements and obstacles to future development of the burdened land might be created. It is particularly easy to overlook section 62 where a landowner is renewing a lease or selling the freehold to an existing tenant. ■ Section 62 will most commonly operate where there has been diversity of occupation of: 1) the land to be conveyed; and 2) the land which is subject to the right or easement. However, at common law, it has been confirmed that there is no absolute bar to the operation of section 62 even where the land was previously in common ownership and occupation. Thus it may theoretically apply on sale(s) of part and multiple simultaneous disposals where the land in question was formerly in single ownership. In these circumstances, the application of section 62 could be extremely difficult to detect and this is one particularly good reason to exclude the operation of section 62. ■ From a purchaser’s perspective, if section 62 is to be excluded, it will be essential to carry out thorough due diligence to discover any other permissions, rights or easements which are in existence and which (but for the exclusion of section 62) would have been converted into indefeasible rights. Without the protection of section 62, a purchaser needs to ensure that all necessary rights are expressly dealt with in the transfer or lease. ■ Practitioners should remember also the common law position with regard to the creation of easements (whether by implication, necessity or the rule in Wheeldon v Burrows (1879) LR 12 Ch D 31). It is usual for boilerplate provisions to also exclude the operation of these common law provisions. 2. Non-reliance statement Relevance Non-reliance clauses are designed to exclude a seller or landlord’s liability for misrepresentation. They might provide as follows: “the buyer/tenant enters into this agreement/lease on the basis of the terms of this agreement and…not in reliance upon any representation or warranty whether written, oral or implied made by or on behalf of the seller/landlord (save for any written replies given by the seller’s/landlord’s solicitors to any written pre-contract enquiries raised by the buyer’s/tenant’s solicitors)”. It should be noted that such an exclusion clause will be ineffective, in so far as any misrepresentation in respect of which it purports to exclude liability is fraudulent. It is also the case that exclusion clauses will be construed against those who seek to rely on them. Any non-reliance clause will have to be reasonable within the meaning of section 11 of the Unfair Contract Terms Act 1977 (1977 Act). Legislative context Section 3 of the Misrepresentation Act 1967 provides that any term which excludes or restricts either liability for misrepresentation or the remedies available by reason of such a misrepresentation shall be of no effect except in so far as it satisfies the requirement of reasonableness as stated in section 11(1) of the 1977 Act. Section 11(1) of the Unfair Contract Terms Act 1977 provides that a term must be 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. Potential pitfalls ■ There are instances where a non-reliance clause has been found to be reasonable. If acting for a buyer or a tenant where an agreement contains a non-reliance clause, ensure you incorporate any significant pre-contract statements into the contract. ■ Equally, when acting for a seller or a landlord, be aware of the real possibility that the purported exclusion may be ineffective because it fails the test of reasonableness. This was the case in First Tower Trustees Ltd v CDS (Superstores International) Ltd [2018] EWCA Civ 1396; [2018] PLSCS 110. A non-reliance clause was unreasonable notwithstanding that it was subject to negotiation and that both the parties were legally represented. However, that case did concern a particularly immoderate form of exclusion, which even precluded reliance on pre-contract enquiries. Other boilerplate provisions to consider ■ Entire Agreement – the aim of such a clause is to confirm that all the terms of the agreement are contained in the final written agreement and to therefore exclude prior correspondence, earlier drafts and oral statements from having any legal effect. These clauses (which can often overlap with non-reliance clauses) are restrictively construed by the court and will not necessarily prevent the court from implying a term where necessary to give business efficacy to an agreement. In JN Hipwell & Son v Szurek [2018] EWCA Civ 674; [2018] PLSCS 63, the Court of Appeal implied a term into a lease (which contained an entire agreement clause) that the landlord had safely installed the electrics and service media at the property. The court will only imply a term, however, where there is a gap; it will not improve sub-optimal drafting. ■ Severance – these clauses ensure that the remainder of an agreement continues to be valid in the event that any provision is found to be illegal, invalid or unenforceable. A court will seek to apply the doctrine of severance even if an agreement does not contain a severance clause. Practitioners should consider whether an individual provision is so fundamental that the entire agreement ought to fail if that provision is invalid. In other words, severance might not be desirable in respect of the key terms of an agreement. If that is the case, careful drafting will assist and, depending on the circumstances, key provisions should be drafted as conditions or as part of the consideration. ■ Clauses intending to deal with the registration gap – a spate of recent case law has brought these provisions to the fore. These types of clauses are intended to mitigate the effects of the registration gap (being the period of time from the date of a transfer/lease until completion of the registration at the HM Land Registry and the vesting of the legal estate in the purchaser/tenant). It will generally be in both parties’ interests to include provisions for timely registration and to deal with the service and receipt of notices on behalf of the purchaser/tenant during the registration gap. Elizabeth Thomson is a senior associate and professional support lawyer in Irwin Mitchell’s real estate division. A version of this article appeared in the 10 August 2018 print edition of EG with the headline “Potentially tricky customers”