"No Representations" Clause Doesn't Bar All Fraud Claims
It’s a clause that almost every commercial lease contains, yet rarely gets even 10 seconds of attention. The clause says something to the effect that “Landlord has made no representations to Tenant other than those contained in the terms expressly stated in this Lease.” The idea of the “no representations” clause is to bar tenants from claiming that the landlord made false representations about the premises before the deal was signed.
Unfortunately, the “no representations” clause may not provide effective protection against all fraud claims. The biggest blind spot involves alleged fraud made to induce the tenant to sign the lease in the first place. If a court concludes that the tenant signed the lease in reliance on a landlord’s false representations, it may ignore the “no representations” clause and find the landlord liable for fraud. Result: The tenant may be able to collect damages, avoid crucial lease obligations, and even get out of the lease entirely.
“No Representations” Doesn’t Bar Oral Misrepresentations Claims
A suburban New York landlord learned firsthand how ineffective a “no representations” clause can be. The tenant claimed that during lease negotiations the landlord stated that major companies were interested in leasing the property. The ploy worked, and the tenant signed the lease. The tenant would come to regret the decision. When it learned that the landlord was lying about the interest of other companies, it sued the landlord for fraud. The landlord denied making such a representation. And since the lease contained a “no representations” clause, it asked the New York court to dismiss the case without a trial.
The court refused. A no representations clause won’t generally bar a claim that the landlord fraudulently induced the tenant to sign a lease, the court reasoned. A trial would be necessary to determine if that’s what happened in this case. If so, the landlord would be on the hook for fraud, regardless of the no representations clause [Zwerding v. Zack, Surr. Ct., Nassau County].
Although the landlord could still mount a defense at trial, losing on summary judgment significantly increased its costs and risks. The overwhelming majority of defendants facing these circumstances decide that discretion is the better part of valor and shell out money to settle the case.
Takeaway: Be Careful What You Say to Tenants
A no representations clause can help you defend yourself against claims of making bogus side deals and oral agreements with tenants. But it may not do you much good if the tenant contends that the false representations were the reason it signed the lease. This is called “fraudulent inducement,” and you need to understand—and just as importantly, ensure that your leasing agents and representatives understand—that making inaccurate statements about the property during lease negotiations exposes you to liability for fraud, regardless of whether your lease contains a no representations clause.