Sometimes sellers or landlords seek to contractually exclude liability for misrepresentation (i.e. providing incorrect information to a buyer or a tenant) in property transactions by including a ‘non reliance’ statement in the contract or lease.

In the recent case of First Tower Trustees Ltd v CDS (Superstores International) Ltd [2018] the Court of Appeal has unanimously upheld the High Court's decision that a non-reliance statement in a commercial lease had the effect of excluding liability for misrepresentation, but was ineffective because it failed the test of reasonableness under the Unfair Contract Terms Act 1977 (UCTA).

The non-reliance clause stated that "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".  Without this non-reliance statement, the landlord would have been liable for misrepresentation.

The Court found that a non-reliance statement can create a ‘contractual estoppel’ (meaning that the parties can bind themselves by contract to accept a particular state of affairs, even if they know that state of affairs to be untrue) but this does not prevent consideration of whether the term excluding liability for misrepresentation is subject to section 3 of UCTA.  After finding that section 3 did apply to the non-reliance statement, the Court went on to confirm that the exclusion was unreasonable under UCTA.

While the Court considered that there was some force to the landlord's arguments that the non-reliance statement was subject to negotiation and that the parties were both legally represented, it was particularly relevant in this case that the non-reliance statement precluded reliance on pre-contract enquiries, given their importance in the field of conveyancing.

Points arising

In all property transactions proper care must taken over any representations made by sellers or landlords (or their agents), particularly ones that are likely to persuade or encourage a tenant or buyer to proceed with the transaction on the basis of the information provided. This also includes taking care when using the expression ‘not to the landlord’s (or seller’s) knowledge’ where the landlord or seller does have knowledge of a particular issue, or responding ‘Not applicable’ when the issue raised is applicable.

Based on an article published by Practical Law Company on 23 June 2018

This article is published for guidance only and does not constitute specific legal advice. For further advice on any lease or property transaction terms please contact commprop@prettys.co.uk.