Before any contract is signed, there are usually discussions about the arrangement or agreement being made between two parties.
READ: The value of a good lease agreement
According to attorney Simon David Dippenaar, founder and managing partner at Simon Dippenaar & Associates Inc, the purpose of the contract is to capture the details and formalise them, so everyone understands their responsibilities and expectations. Signing the contract is often seen as a formality, especially if the negotiations have been amicable and the two parties seem to have a good rapport. For that reason, it may not be scrutinised as carefully as it should be. What happens if you have an understanding about the conditions of a contract, for example a lease, and you later discover the terms you thought applied are not actually included in the contract?
For example, perhaps you enter into a lease agreement believing the furniture is included in the rental amount. After six months, the landlord demands the furniture back. You assume you are covered by the lease agreement but, when you review it, you realise there is no explicit clause confirming the inclusion of the furniture. What can you do?
False or misleading statements
The lease is not the watertight "get out of jail card" the landlord may think it is. A landlord may not rely on a lease clause limiting their liability for representations if they have made false or misleading statements to a prospective tenant before entering into a lease. This is known as misrepresentation. Whether fraudulent, negligent or innocent, misrepresentation arises when a party has been tempted or lured into entering into a contract by the other party’s misrepresentation of facts. If your initial discussions led you to believe the furniture was included in the rental, the landlord is guilty of misrepresenting the reality. However, it's equally possible that you misunderstood the landlord, who was in fact acting in good faith.
The primary issue is the disparity between the written lease agreement and the actual intentions of the parties. Determining the true intentions can be murky and requires looking beyond the written agreement to the actions of the parties.
Material misrepresentation
To pursue a claim for damages, you must establish that misrepresentations were made when you entered into the lease agreement. In contract law, honesty and transparency are critical principles. A key concept in contractual agreements is "material misrepresentation". Misrepresentation is defined in law as "an untrue statement of representation concerning an existing fact or state of affairs which is made by one party to the contract with the aim, and result, of inducing the other party into concluding the contract." The misrepresentation may be about the qualities or characteristics of the subject of the contract.
Misrepresentation may render a contract voidable if:
- A misrepresentation has been made
- The misrepresentation was made by one contracting party to another
- The misrepresentation was unlawful
- The misrepresentation induced the parties to enter into the contract
- Types of misrepresentation
There are three types of misrepresentation:
- Intentional misrepresentation – a person makes a statement, which is known to be false and without regard for whether it is true or not, with the intent to deceive. The deceived party may claim damages and decide whether or not to uphold or rescind the contract
- Negligent misrepresentation – a person makes a statement they believe to be true but they fail to exercise reasonable care or competence to communicate information that is true or correct. The party aggrieved party may have a claim for damages or may choose to rescind the contract
- Innocent misrepresentation – a person makes a statement neither fraudulently or negligently. In these circumstances the aggrieved party will not have a claim for damages but may have the choice to uphold or rescind the contract
Remedial action
- Someone who has been misled into contracting by the misrepresentation of the other party, as in the example of the lease and the furniture, has a number of options to remedy the situation:
- They may seek to have the contract rescinded or set aside, essentially undoing the agreement and returning the parties to the position they were in before the contract was entered into. In the case of a lease agreement where the tenant has taken occupancy of the property and it is their home, this could be tricky.
- Where the innocent party suffered financial loss due to the misrepresentation, they may seek monetary compensation from the party responsible for the misrepresentation. In our example, there may not be a literal financial loss, but it could be argued that returning the furniture would place the tenant in the position of having to make a financial outlay to replace it, and monetary compensation may be helpful.
- In cases where damages are inadequate, the court may order specific actions, compelling the party responsible for the misrepresentation to fulfill their contractual obligations as originally agreed upon. In our example, this would mean leaving the furniture in the property for use by the tenant (which would probably be the simplest and most effective solution).
Burden of proof
For a misrepresentation claim to succeed, the following elements must be proven:
- The statement or conduct of the one party was false and was made either intentionally or negligently
- The misrepresentation induced the other party into entering into the agreement
- The misrepresented fact was significant enough that it influenced the innocent party's decision to enter the contract
- The innocent party reasonably relied on the misrepresentation when entering into the contract
In our example, it would be necessary to establish the true intentions of the parties upon entering into the lease agreement. If it could be established that the true intention was to provide the furniture and the landlord is now refusing to do so, there could be a possible claim of misrepresentation.
Dippenaar says they used this simple example to illustrate the concept of misrepresentation and what to do about it. In our experience, misrepresentation can happen by either landlord or tenant. It is also a salient reminder to scrutinise a lease agreement or any contract before signing it!
* Disclaimer: The articles on these web pages are provided for general information purposes only. Whilst care has been taken to ensure accuracy, the content provided is not intended to stand alone as legal advice. Always consult a suitably qualified attorney on any specific legal problem or matter.
Readers may submit questions to Property24’s Guest Expert panel. We may not be able to answer all questions received, but all will be considered.
Want all the latest property news and curated hot property listings sent directly to your inbox? Register for Property24’s Hot Properties, Lifestyle and Weekly Property Trends newsletters or follow us on Twitter, Instagram or Facebook.
Print
