Ending A Fixed-Term Tenancy Early – Part I: Misrepresentation

What is rescission of a tenancy agreement?

This blog post is the first of a three-part series discussing when a tenant of a fixed tenancy may terminate or otherwise set aside a tenancy agreement. This post discusses when a tenant of a fixed-term tenancy may rescind a tenancy agreement due to the misrepresentation of a Landlord or his agent prior to the contract’s formation.

Certain flaws in the formation of a tenancy agreement may give the tenant the option to choose to rescind (unravel) the tenancy agreement. This process is known as rescission. Different flaws in the formation of a tenancy agreement give rise to a right to rescind at common law or equity. For the present purpose, the important distinction between common law and equitable recission is that the former can be exercised through communication to the Landlord whereas the latter requires a court order to be exercised.

When can a tenancy agreement be rescinded?

The recission of a tenancy agreement arises from a number of different flaws in the formation of a tenancy agreement. This blog post will discuss the ability of a tenant to rescind a tenancy agreement following a misrepresentation by a Landlord or his agent.

What is misrepresentation?

A tenancy agreement may be rescinded where a Landlord or his agent has made a misrepresentation prior to the formation of a tenancy agreement. A misrepresentation is an untrue statement of fact or law which causes the tenant to enter the tenancy agreement. For example, if an estate agent stated that white goods would be supplied by the Landlord where this was not true this would be an untrue statement of fact and so constitute a misrepresentation. A mere statement of opinion will not usually be treated as a misrepresentation unless the opinion amounted to a statement of fact. Silence by a Landlord or his agent will not usually amount to a misrepresentation.

For a misrepresentation to give rise to recission it must have caused the tenant to enter into the tenancy agreement. The misrepresentation does not need to be the only reason the tenant entered into the tenancy agreement, but the tenant must be ‘materially’ influenced (except in the case of fraudulent misrepresentation) by the misrepresentation. This means that misrepresentation had to be “relevant”[1] (as determined in Morris v Jones [2002] EWCA Civ 1790) or have played a “real and substantial” part in the decision of the tenant to enter into the tenancy agreement.

There are three types of misrepresentation: fraudulent misrepresentation, negligent misrepresentation, and innocent misrepresentation.

A) Fraudulent misrepresentation

Fraudulent misrepresentation is where a Landlord or his agent makes a representation knowing it to be false or without belief in its truth or recklessly as to its truth intending the tenant to rely on the representation.[2]Unlike negligent and innocent misrepresentation, fraudulent misrepresentation gives rise to common law recission allowing the tenant to set aside the contract through communicating his intention to do so to the Landlord. A tenant can alternatively sue for damages under the tort of deceit, but the tenancy agreement would remain in place.

B) Negligent misrepresentation

Negligent misrepresentation is where a Landlord makes a false representation to a tenant carelessly or without reasonable grounds for believing the truth of the statement. Negligent misrepresentation will give the tenant an equitable right to recission and so requires a court order to be exercised. Alternatively, a tenant may sue for damages for negligent misrepresentation, but the tenancy agreement would remain in place.

C) Innocent misrepresentation

Innocent misrepresentation is where a misrepresentation has been made entirely without fault. This requires the Landlord or agent who made the misrepresentation to have reasonable grounds to believe the statement was true. Innocent misrepresentation will give the tenant an equitable right to recission and so requires a court order to be exercised. Innocent misrepresentation does not give the tenant an alternative claim in damages.

What is the effect of recission?

If a Landlord has made a negligent or innocent misrepresentation the tenant will require a court order to rescind the tenancy agreement. The court has a discretion under s 2(2) Misrepresentation Act 1967 to order the Landlord to pay the tenant damages for the misrepresentation in the place of rescinding the tenancy agreement. In exercising this discretion, the court considers the nature of the misrepresentation and the loss it would cause the tenant if the tenancy agreement were upheld. The court also considers the loss the recission would cause to the Landlord.  The consequence of this is that the less serious a misrepresentation and the less loss a tenant would suffer if the tenancy agreement were rescinded, the more likely the court is to exercise its discretion to award damages.

Provided the court does not exercise this discretion, the effect of the recission will depend on whether the tenant has exercised a common law recission (where there has been a fraudulent misrepresentation) or an equitable recission (where there has been a negligent or innocent misrepresentation).

Under common law recission for fraudulent misrepresentation, any contractual obligations on either the Landlord or tenant are set-aside and any property transferred under the contract must be returned. This includes requiring repayment of rent[3] and the return of the tenancy deposit.

Under equitable recission for negligent or innocent misrepresentation, any contractual obligations on either the Landlord or tenant are set-aside and any property transferred under the contract must be substantially returned. This includes requiring the repayment of rent and the return of the tenancy deposit.

Bars to recission

There are several bars to a tenant’s right to recission. For present purposes, the most important are affirmation and lapse of time. Affirmation is where the tenant is treated as having decided to continue with the tenancy agreement rather than rescind the agreement. At this stage, a tenant will lose their right to rescind. An affirmation occurs when a tenant clearly manifests an intention not to rescind the contract but instead chooses to continue to be bound by it. An affirmation can occur through words or conduct (such as the continued payment of rent). To avoid affirming the tenancy agreement after becoming aware of a representation, tenants are advised to communicate their intention to rescind the contract to their Landlord. In the case of equitable recission tenants will still need to seek a court order to set aside the contract but such communication will prevent affirmation of the contract.

A lapse of time may also bar a tenant’s right to recission. An extended delay in seeking recission of a tenancy agreement may be treated as evidence of a tenant’s decision to affirm the contract.[4] As such, tenants are advised to seek to rescind the tenancy agreement as soon as they become aware of a misrepresentation and wish to set-aside the contract.

[1] Morris v Jones [2002] EWCA Civ 1790

[2] Eco 3 Capital Ltd and others v Ludsin Overseas Ltd [2013] EWCA Civ 413

[3] Whittington v Seale-Hayne (1900) 82 LT 49

[4] Clough v London and Northern Western Railway Co (1871) LR 7 Ex 26, 34-35