The representations and warranties are an integral part of all contracts. When the representations are made to the “best knowledge” of the maker, is there any duty for the maker to make a factual investigation to ascertain whether the representations are true? That question was the subject matter of a Delaware case involving the representations made in a lease.
Landlord executed a lease which stated: “Landlord represents and warrants to the best of its knowledge and belief . . . [the premises] are in compliance with all applicable federal, state, and local laws and rules.” The lease also stated the landlord was not aware of any defect, problem, law, regulation, order, rule, or other matter that, if known to tenant, might adversely affect tenant’s decision to enter into the lease. The tenant discovered there were numerous building code violations within the building and sued landlord for tenant’s damages, alleging that landlord breached its representations.
Because there were no material facts in dispute, landlord and tenant both filed motions for summary judgment. Landlord contended that statements made as being to its best knowledge were just that – its actual knowledge. Tenant’s position was that “best knowledge” meant that landlord must make an investigation of the facts. The court decided in favor of the landlord, holding that statements made to the “best knowledge” did not impose on the party making the representation a duty to make any inquiry as to the facts set forth in the representation. Thus, the maker of the representations does not bear the risk of defects that may in fact exist but which are not known to the maker.
The representations and warranties in a lease or any other contract are not to be made lightly. Such provisions must be carefully reviewed and negotiated, and the party making the representation must understand the nature of the representations and the possible consequences. If you have any questions regarding the representations or warranties or any other aspect of a lease or contract, please do not hesitate to call us.