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Non-reliance clause: a lucky escape?

27 February 2014

The Court of Appeal recently held [1] that a non-reliance clause in a property sale contract could enable sellers to avoid liability. The buyers had argued that the sellers had orally misrepresented the extent of the planning permission benefiting the property being sold.

Be careful what you say!

The defendant sellers owned a disused barn and sought planning permission to convert it into a residential unit. Their original plans were for an extension so that the L-shaped barn became a U-shape, but it emerged that this was contrary to the council's local planning policy, and the plans were amended to exclude the extension.

The property sales particulars only referred to the original, unamended plans. The claimant buyers were particularly interested in the property as a U-shaped development; they were all family members, keen to find a property where they could live together, but in separate residential units.

The parties met several times at the property, and discussed the unamended plans showing the extension, leading the buyers to believe that the unamended plans were part of the planning permission, and had been approved. Copies were also sent to the buyers.

Unfortunately, the updated plans were not on the public file, so the buyers could not have obtained the correct, amended plans elsewhere.

The sellers argued that the buyers knew that the unamended plans were not the approved plans, but in the High Court, the judge found for the buyers, and held that the sellers' misrepresentations when the parties had met, had induced the making of the contract.

The buyers had suffered damages of £55,000 based on diminution of value, but the judge held that the sellers were not liable due to a non-reliance clause in the sales contract. The buyers appealed.  

The effect of the non-reliance clause

The parties' conveyancers had included the following special condition in the contract:

"The buyer hereby admits that he has inspected the property and he enters into this contract solely as a result of such inspection and upon the basis of the terms of this contract, and that in making this contract no statement by the seller or his agent has induced him to enter except written statements, if any, made by the seller's conveyancers in replies to enquiries or in correspondence between the parties conveyancers".

The non-reliance clause excluded liability for misrepresentation and therefore would only be enforceable to the extent that the party relying on the clause could show that it was a fair and reasonable one to have included in the contract (having regard to the circumstances which were in contemplation of the parties when the contract was made).

The Court of Appeal found that the clause was fair and reasonable because:

  • It was a transaction conducted with both parties having equal bargaining power, each represented by solicitors.
  • Contracts for land are understood to be formal documents containing agreed terms in writing.
  • The clause was in a contract negotiated by the parties' solicitors, not a standard term in a consumer document. It was also in a form recommended by the local branch of the Law Society, therefore was not biased towards either party and was in wide use. 

The judge commented that it was reasonable and legitimate for parties to include non-reliance clauses in sales contracts to achieve certainty in a transaction. If the claimants had wished to rely on the statements made orally by the defendants, they had only to write to defendants' solicitors to confirm the position.  

[1] Lloyd and others v Browning and another [2013] EWCA Civ 1637

This article was written by Lauren Fraser. For more information, please contact Lauren on +44 (0)20 7427 6418 or lauren.fraser@crsblaw.com