What is disclosure and how does it work?
When selling or letting commercial property, there is a legal process which you must follow to ensure both parties are protected. This includes, amongst other things, disclosing or revealing any matters that might negatively affect the property.
You are often expected to provide replies to specific enquiries, the most commonly used set of which is called the Commercial Property Standard Enquiries. These are lengthy questionnaires that require you as seller/landlord to disclose any potentially relevant information about the property to the buyer/potential tenant.
When answering these questions, the information that you give must be true and accurate to the best of your knowledge and may even imply that you have properly investigated the position. The buyer/tenant will usually be able to legally rely on the responses that you have given.
What if the information I have disclosed changes?
If the information you have given changes prior to completion, you have an ongoing duty as seller/landlord to update the buyer/tenant as to those changes, despite the fact that revealing any changes may impact on the success of the sale/letting.
What if I don’t tell the buyer/tenant about the changes?
Let’s look at an example…
In First Tower Trustees Ltd and another v CDS (Superstores International) Ltd (2017), the landlord of a warehouse, First Tower, provided replies to enquiries as requested by a proposed tenant, CDS.
One enquiry in particular queried if First Tower knew of any adverse environmental matters affecting the warehouse or of any breach of environmental laws. As a potential tenant would hope to see, First Tower confirmed that it was not aware of any.
At the time these replies were given, this information was accurate; however First Tower then received an email from its asbestos advisor that asbestos was present at the warehouse, but did not advise CDS of this. CDS then began its works to the warehouse and discovered the asbestos.
As a result CDS had to begin remedial works which delayed its progress and prevented it from occupying the property until the works were completed. CDS then made a claim for damages against First Tower. Amongst other things, CDS argued that First Tower had falsely represented the condition of the property.
The Court agreed with CDS on the basis that First Tower did have knowledge of the presence of the asbestos but failed to tell CDS that the information provided in the replies to enquiries had changed and they were no longer accurate. The court ordered First Tower to pay damages to CDS for the cost of the remedial works and the cost of the alternative accommodation.
What does this tell us about the importance of truthful disclosure?
This case highlights the need to ensure that when selling/leasing commercial property, the exercise of disclosure and addressing replies to enquiries should be given the utmost care and diligence so as to avoid inadvertently getting into a similar situation as First Tower.
It is important to remember that the duty to disclose in an ongoing one, and does not end when you have answered the questionnaires/queries raised by the buyer/tenant. When in doubt, speak to your legal advisor! Having the right legal team guiding you through the process will help to minimise any uncertainty.
Read more about owning commercial properties including a breakdown of Energy Performance Certificates which you must have in place before letting and selling.