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Landmark commercial property leasing ruling has far reaching implications for landlords

A landmark case involving Intertrust, a global leader in the corporate and fund services industry,  has far reaching implications for investment models where Trustees lease commercial property as Landlord, warns the lawyer who litigated in the case.

In the case of First Tower Trustees Ltd and Intertrust Trustees Ltd v CDS Superstores International Ltd,  the Court of Appeal found unanimously that the Landlord – two trustee companies set up by Intertrust – could not recover damages for misrepresentation of almost £1.5m that had already been awarded and paid to the Tenant following a High Court trial in 2017.

The case centred around the discovery of asbestos in a warehouse in Barnsley that had been let to CDS Superstores  – who trade as The Range -  in 2015.   In its replies to pre-contract enquiries, the Landlord stated that it was unaware of any environmental problems relating to the property. However, evidence was later secured that proved the Landlord was indeed aware of asbestos contamination in the warehouse. Extensive remedial works were necessary to deal with the contamination, which created significant cost and business disruption for the tenant. 

Having lost the High Court trial in 2017 the Landlord took its case to the Court of Appeal. Following a 2 and a half day appeal hearing in May 2018 the Court of Appeal found that the Landlord was unable to exclude liability for misrepresentation because section 3 of the Misrepresentation Act 1967 applied and where the clause in question, which sought to preclude reliance upon replies to pre-contract enquiries, would not satisfy the reasonableness test set out in Section 3 of the 1967 Act.

The Court of Appeal also found that if the Landlord had wanted to limit the Trustees liability for misrepresentation to the assets of the trust fund itself then clear words were needed but that this was not the case in this instance.  That means the Trustees have found themselves liable for the £1,459,650.60 damages.

The Landlord sought permission to appeal to the Supreme Court in relation to the Trustee liability point but that application has been refused by the Court of Appeal. The Landlord is now appealing directly to the Supreme Court in relation to the same point.

Rob Nicholson, lead partner in the property litigation team for lawyers Ashfords LLP, who represented CDS Superstores International, says this finding sets a significant precedent for the corporate and fund services industry who set up trusts to lease commercial property. 

He says: "The case has provided Landlords and Trustees with a number of hard lessons. The first is that any attempt to avoid liability for pre-contract misrepresentation will normally fail. The second is that a trustee cannot limit any personal liabilities outside of the contract unless this is very clearly set out in the contract itself. As a result of these two points the Landlord has been forced to pay substantial damages and costs from their own pockets." 

Edwin Johnson QC represented the client in the Court of Appeal, and also before the High Court in 2017.

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