Landlord and tenant – Breach of contract – Implied term – Appellant lessee appealing against decision that respondent lessors not breaching implied term in leases by preventing management company performing obligations to complete outstanding building works – Whether management company failing to perform obligations – Whether respondents in fact invoking clause under leases entitling them to undertake works – Whether lack of objection being relevant consideration – Appeal dismissed
The respondents’ father had engaged a developer to build 40 holiday homes on his land at Waters Edge, Cotswold Water Park, near Cirencester. He granted each purchaser a leasehold interest in the relevant plot of land. A management company was incorporated in which each lessee became a shareholder. The appellant purchased five leases in 2007. When the respondents’ father died in 2008, they succeeded him as lessor. In 2009, the developer went into liquidation. Only 24 holiday homes had been built, the accessways on and through the site were incomplete and there was no permanent sewage disposal system. Pursuant to clause 7.1 of the leases, the management company became liable to complete the outstanding works. If the management company failed to perform any of its obligations under clause 7.1, the lessor could fulfil those obligations and recover the cost from the management company. The management company appointed a surveyor to provide a schedule of works and oversee the tender process for the outstanding works. Progress was slow and, on 1 September 2011, before the surveyor had reported back, the respondents invoked the provision in clause 7.1 of the lease, enabling them to undertake the works and recover the costs from the management company.
The appellant claimed damages for breach of contract and in tort. It contended that the leases all contained an implied term that the respondents would not prevent the management company from carrying out its obligations under the leases, including the obligation to undertake and complete the outstanding works once the developer had gone into liquidation. The respondents had not acted under the proviso to clause 7.1, because they deferred other outstanding works until the sewage works were completed, required upfront payment for all works, declined to connect lessees to the new sewage treatment plant if no upfront payment was made, threatened unilaterally to increase the costs demanded by them and caused the sewage contractors to vacate the site. The judge held that no actions of the respondents had prevented the management company from complying with its contractual obligations. The respondents had been entitled to take the view that there had been a failure of performance by the management company and that the respondents were therefore entitled to undertake the outstanding works themselves. Furthermore, the management company had never disputed the respondents’ entitlement to take over the works. Accordingly, the claim was dismissed: [2017] EWHC 1252 (Ch). The appellant appealed.
Held: The appeal was dismissed.
(1) A party claiming that another party had prevented performance in breach of an implied term that he would do nothing to prevent performance had to prove that that party had in fact been prevented. If a landlord repossessed a site with a view to performing outstanding works himself but had no right to do so, he was (other things being equal) preventing the other party from doing the work itself. If on the other hand he was entitled to step in he was doing nothing wrongful and there was no question of breach of the implied term: Luxor v Cooper [1941] AC 108 and Mona Oil Equipment v Rhodesia Railways [1949] 2 All ER 1014 followed.
(2) As a matter of fact, there was a failure by the management company on 1 September 2011 to perform its obligations, whether one called it a duty to complete the works or a duty to undertake (or do) the works. The management company had undoubtedly put in train a process by asking for a schedule of works and seeking bids for the work but there was no contractor appointed and no agreement as to the terms of any building contract or even any detailed specification. Moreover, the management company had not collected the money which would be required for the work to be done. Very little had happened since the developer had gone into liquidation in May 2009. On 1 September 2011, the management company had not been performing its obligation to undertake (or do), let alone to complete, the works. It was at most preparing to undertake the works which was different from performing them. There was thus a failure to perform which justified the respondents invoking the proviso to clause 7 of the leases.
(3) However one chose to characterise the sometimes acrimonious correspondence, the respondents were acting pursuant to the proviso to clause 7. To seek early payment to which the respondents were not strictly entitled and to encourage such payment by pointing out that there would be no obligation to connect non-payers to the new sewage plant was not to cease to act under the proviso. As a matter of practical politics, it was not surprising that the respondents wanted some understanding about how the work was to be paid for. The lessees and the management company did not have to comply with non-contractual demands if they did not wish to do so. They were not entitled to say that the respondents were no longer proceeding under the proviso or that they had precluded themselves from relying on the management company’s failure to perform its own obligations.
(4) There had to be prevention in fact. That depended on a multi-factorial evaluation of the case as a whole. In a tripartite case it could not be irrelevant to consider the conduct of the party said to be prevented. It would not be a decisive factor but it was a matter which any judge was entitled to take into account. Looking at the case as a whole, the management company was not prevented from performing its obligations, mainly because the respondents were entitled to and did invoke the proviso to clause 7 of the leases. However, it was significant that there was never any serious dispute by the management company that the respondents were entitled to take the action that they did.
Adam Rosenthal (instructed by Myers, Fletcher & Gordon) appeared for the appellant; Ewan Paton (instructed by Royds Withy King) appeared for the respondents.
Eileen O’Grady, barrister
Click here to read a summary of Wild Duck Ltd v Smith and others
