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Protection from Misrepresentation Claims with Merger Causes in Leases

Matthew Welnicki published the following article in the New England Real Estate Journal:

Landlords or tenants often become dissatisfied with the terms of their tenancy. Things happen and one side might believe that the relationship is not living up to their pre-lease expectations. This could be due to something the other side allegedly said or did during lease negotiations. If so, can an aggrieved party bring a successful lawsuit for misrepresentation? The answer is: look to the lease.

Important in any lease is the existence of merger, waiver or integration clauses. Such clauses typically include language to the effect that all prior negotiations and agreements have been merged into the final lease and that no other representations or warranties previously made or discussed are included. A merger or integration clause can protect a landlord or tenant from claims by the other that they were induced to enter into the lease by a negligent misrepresentation about an extra-contractual promise or statement. See Sound Techniques, Inc. v. Hoffman, 50 Mass. App. Ct. 425, 426 (2000). But it does not typically protect the landlord or tenant from their fraudulently made misrepresentations. See Bates v. Southgate, 308 Mass. 170 (1941). True, proving fraud is a higher burden for a plaintiff at trial than proving negligence. Yet that may be little comfort for the defendant seeking to have a case dismissed at an earlier stage of the proceedings, as courts will allow cases to go to trial if there are any material facts in dispute about the alleged fraudulent misrepresentation.

There are other legal issues to keep in mind as well. For a residential tenancy, the courts may consider whether the facts of a particular case limit the effect of a merger or integration clause on a negligent misrepresentation claim. See, e.g., Grossman v. Pouy, 23 Mass. L. Rptr. 623 (Mass. Super. Ct. 2008). Also, there is always the possibility that a plaintiff brings a claim under the Massachusetts Consumer Protection Act, Chapter 93A. As a distinct, statutory cause of action, a claim under Chapter 93A can survive even where a judge or jury rejects a misrepresentation or breach of contract claim. See Specialized Tech. Resources, Inc. v. JPS Elastomerics Corp., 80 Mass. App. 841 (2001). And, a plaintiff may try to claim that a lease was voidable because of mutual mistake. See Dover Pool & Racquet Club, Inc. v. Brooking, 366 Mass. 629 (1975) and Restatement (Second) of Contracts § 152 (1981).

So how does a landlord or tenant protect themselves from future misrepresentation claims? First, the parties will want to make sure the history of negotiations over key terms are clear and in writing. Second, if a term of a lease is important, and even if it relates to future contingencies, it probably should be included within the four corners of the lease itself (and any exhibits or attachments). Third, and most importantly, the lease itself should include a clear and firm integration or merger clause. At a minimum, it should state three things:

1)    All prior negotiations and agreements are merged into the lease;

2)    The parties are not relying on any other representations, warranties or inducements; and

3)    The parties waive any rights to challenge the lease based on prior negotiations, discussions or representations.

While this might not protect against all potential post-execution misrepresentation claims, it is certainly helps in establishing the lease as the one and only operative document governing the tenancy. The parties might not like the terms of the tenancy, but at least they will have better certainty about what the terms of that tenancy are, or are not.