Contract Language is Always the Issue. What did the Parties Agree to do or, in this Case, Waive?
The Koncise Drafter Blog has an interesting post concerning the interpretation of certain disclaimer contract language. The aggrieved party - a lessee, claimed fraud when the landlord failed to disclose that there was a bad odor in the premises where the lessee planned to operate a restaurant. Clearly this problem would have defeated the objective of using the space for a restaurant. To make things worse, the property manager knew about the problem, but had naturally failed to disclose this issue to the new lessee. (This sounds a lot like a Seinfeld episode.)
The lease language provided that:
14.18 Representations. Tenant acknowledges that neither Landlord nor Landlord’s agents, employees or contractors have made any representations or promises with respect to the Site, the Shopping Center or this Lease except as expressly set forth herein.
14.21 Entire Agreement. This lease constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and no subsequent amendment or agreement shall be binding upon either party unless it is signed by each party. …
Not surprisingly, the lessee sued the landlord for fraud, among other things. The Landlord took the predictable position that the lessee had waived any claims for fraud.
The trial court found for the lessee, the Texas Court of Appeals reversed, and the Texas Supreme Court reversed the Court of Appeals. The question that the court was grappling with is whether the parties effectively disclaimed reliance on the representations by the lessor, thereby negating any claim of fraud. I am sure that when the lease was drafted that was likely the intent, this is very standard language (or some version of this language). The Blog correctly points out that when a drafter clearly states that the other party waives any claims for fraud, it is unlikely that the parties will sign the contract. So the language by necessity needs to be a little more subtle.
I think it is also the case when reviewing commercial lease contracts, most reviewers will probably skim the standard boilerplate language such as the term at issue in this case. After all, what owner wants to pay a lawyer to analyze and research language that is considered standard boilerplate language that has, in one form or another, been around for a long time.
In my career I've only once been presented with a lease for a client where the other party wanted my client to disclaim any claim for fraud. We did not agree to that language.
Another issue is whether the lessor had a duty to inform the lessee of the problem knowing that it would interfere with the lessee's intended use of the building. The lesson is clear, if you want the other party to waive any an all rights against your client, you had better say so.
