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In a property transaction, Sellers may be tempted to keep their cards close to their chest in responding to the Buyer’s pre-contract enquiries, wary of any potential issues which could lead the Buyer to withdraw. Although, of course, they are obliged to respond, they may seek to rely on exclusions of liability which ostensibly endorse that well-known conveyancing principle – “let the Buyer beware”.
The recent case of First Tower Trustees v CDS Superstores emphasises the fine balance between a Seller relying on this principle and misleading the Buyer in their desperation to complete the sale.
The case serves as a reminder to Sellers that evasive responses seeking to rely on clauses excluding liability are likely to be viewed unfavourably by the Court.
First Tower entered talks to let premises in Darton, Barnsley to CDS in early 2015, with CDS’s solicitors raising the usual pre-contract enquiries with First Tower’s solicitors, who responded in February of that year.
The enquiries contained the usual disclaimers, namely that the Seller acknowledged its obligation to provide the Buyer with as much information as possible and, pending exchange of contracts, would notify the Buyer immediately if they were notified of anything which may contradict their previous replies.
CDS asked for details (so far as the Seller was aware) of the existence of any hazardous substances, including asbestos, and were flatly notified that "the Buyer must satisfy itself". They then asked for details of notices and correspondence relating to real or perceived environmental problems that affected the property, only for First Tower to respond that they were not aware of such documents, but the Buyer must satisfy itself.
The Buyer then asked for details of any actual, alleged, or potential environmental problems, only to receive the same response. On 16 April 2015 First Tower's agents received a copy of a report, which indicated that there was some asbestos in the premises.
On 20 April 2015 First Tower's agents received an email from a specialist firm that they had used, which reported a health and safety risk caused by asbestos at the premises. The aforementioned disclaimer conferred an obligation on First Tower to notify CDS on becoming aware of such information, yet the lease and agreement were completed on 30 April 2015 with the Buyer none the wiser.
CDS commenced High Court proceedings, with the Chancery Division finding First Tower liable, giving judgment against them for £1.4 million plus interest for their part in a “clear case of misrepresentation”.
First Tower sought to rely on exclusion clauses in the lease, namely Clause 5.8 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 landlord."
Both the Chancery Division and Court of Appeal agreed that this exclusion was unreasonable, principally because it would be futile to raise pre-contract enquiries if the responses were immune from scrutiny due to a provision in the lease.
The substantial cost to First Tower affirms the importance of healthy, open communication between agents, solicitors and their clients, and the perils of obscure responses to any enquiries raised. Misleading the Buyer will negate any disclaimer, as it would be dangerous for the Courts to give primacy to such clauses if the effect was to exonerate the Seller for binding the Buyer to an agreement that they would not have entered into had they been aware of all the facts.
Myerson’s experienced and highly skilled commercial property team can be relied upon to ensure you provide the Buyer with proper responses to enquiries. Furthermore, our property litigation team can assist with any contentious matters stemming from pre-contract enquiries.