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Actionable Misrepresentation or Permissable "Puffing"
"Extensive market research indicates that this new centre will attract 1 million visitors per day"
"The unique attractions of our centre ensure that shoppers stay longer and spend more" "Africa’s premier shopping destination!" "Double your turnover!" Sound familiar? Landlords and developers invariably extol the virtues of their shopping centres, hoping to beguile tenants with the promise of high returns. All too often the reality does not measure up to the expectations created by this sort of marketing. While the failure of the expected profits to materialise can have any number of other causes, the developer’s glossy promotional material is often at the forefront of the retailer’s mind when sales figures do not meet projections. The landlord is then faced with a tenant who requests either a rental concession or an early termination of his lease. While commercial considerations usually inform or even dictate the landlord’s response to such requests, the legal principles at play bear examination. Misrepresentation
In South African Law, misrepresentations during pre-contractual negotiations have far-reaching consequences. A contracting party who has been induced to enter into a contract by a representation emanating from the other party during negotiations and which later turns out to have been false, has the right at common law to resile from the contract. It is therefore not surprising that most leases contain provisions that exclude reliance upon any representation or warranty not embodied in the written agreement. Both landlords and tenants need to pay particular attention to such clauses. Tenants need to ensure that pre-contractual representations upon which they have placed real reliance are included in the lease, usually by way of special condition. This needs to be raised at any early stage of lease negotiations. Once the tenant has signed a binding letter of intent or proposal, it is too late to introduce the issue.
On the other hand, landlords and their letting agents need to be aware that a "no representations" clause does not and cannot protect the landlord from the legal consequences of a deliberate misrepresentation made with the object of inducing a lease. What then is a misrepresentation? It is A statement of an existing fact,
that is false,
made by a contracting party or its agent
either made with the intention that it be acted upon,
or such that a reason person would rely thereon From the above definition, it can immediately be seen that statements of opinion (however misguided); predictions and forecasts (however persuasive) and patently false claims or boasts do not constitute actionable misrepresentations. Forecasts
The question of forecasts and projections merits some close examination. These kinds of statements, because they appear to be scientific, usually carry weight with potential tenants. Projections and forecasts, especially of footcount, are presented as having been based on thorough market research. The landlord can however not be held liable, nor will the lease be voidable, if forecasts or projections are not met. This is because a projection is simply an opinion of what might occur at a future date. One relies on a prediction as to the future course of events at one’s peril. A note of caution must however be sounded. Where an expressed opinion is not honestly held, or where a forecast is made entirely without foundation, there may well be scope for remedies based on misrepresentation. Thus where the results of market research undertaken do not support the forecasts made, the landlord may run the risk of a tenant having a valid cause for resiling from the lease. Puffing
Some statements, while they may be false, have no legal consequences. The law assumes that it is commonplace that landlords or developers or letting agents are in the habit of exaggerating the positive attributes of a building or particular premises and of either suppressing or downplaying less desirable features. On the other hand, the potential tenant often exaggerates the negative attributes of premises offered to him. There exists a healthy tension between the plausibility of the landlord and the caution of the potential tenant. No doubt morality would require both parties to be absolutely candid and truthful but the law of contract does not. The law of contract does not frown upon and may even secretly smile on what it calls "mere puffing". "It is commonly accepted that an advertiser frequently paints what he has to offer in glowing and exaggerated colours and with extravagantly laudatory phraseology. He should not be considered as saying nothing but what is strictly true. Allowance must be made for some degree of exaggerated praise." [Per Nicholas,J, in Post Newspapers (Pty) Ltd v World Printing and Publishing Co Ltd, 1970(1)SA Law Reports 454 (W) at p 461.] Puffing is usually somewhat vague, usually exaggerated and often comparative. It may be described as a laudatory statement the truth of which would not be relied upon by a reasonable person. Puffing is a somewhat loose concept derived from Roman Law and there are those who argue that it is anachronistic in the light of the increasingly sophisticated advertising and marketing techniques employed nowadays. That debate is best left for another occasion. It suffices to say that the current state of our law of contract allows contracting parties some leeway in this regard. Disappointed tenants need to be aware that the landlord will not be legally bound by statements of eulogistic commendation such as those quoted at the beginning of this piece. Nor will such statements provide grounds for resiling from the lease. Let the hearer beware. Belinda van der Vyver
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