Management of residential blocks

Breach of covenant during construction works.

The background

In Wild Duck Ltd v Smith [2017], the claimant had acquired 5 leases from the defendants, on which land holiday homes were to be constructed. The developer carrying out the works went into liquidation, and under the leases the management company, which was owned by the tenants, was then to assume responsibility for completion of the project. If the management company failed to undertake the works, the defendants could do so instead and recover its costs from the management company.

The defendants did so, claiming that the management company had not undertaken the works. The claimant’s action centred on two implied terms in the lease:

• that the defendants should not prevent the management company from undertaking its obligations but should cooperate with it, and
• that the defendants had breached a covenant not to cause a ‘nuisance or annoyance’ as a result of some partially-built derelict units and a ‘corridor’ of fencing leading to the claimant’s properties.

The decision

The court dismissed the claim. Although it was agreed that there was an implied term for the defendants not to prevent the management company from performing its obligations, there was no implied term relating to cooperation between the landlord and the management company.

The court also concluded that there was no nuisance or annoyance presented by the partially-built units or the fencing ‘corridor’. ‘Annoyance’ has a wider meaning than ‘nuisance’, which has been defined in many cases, but objectively there was no annoyance presented here.

Advice and action for landlords

This case discusses the management of relationships, and how landlords and management companies work together. Replying on implied terms can be a risky strategy when commencing a claim, and if the parties’ intentions are not made clear in drafting, issues may arise later on.

The court relied on common and objective sense, looking at the facts of the case; to have implied a ‘nuisance or annoyance’ covenant and found a breach of this may have set an uncomfortable precedent for landlords or management companies which wish to carry out works, and parties are well-advised to incorporate into drafts clearly defined responsibilities. It is certainly sensible to provide that a landlord will not prevent a management company from carrying out its obligations.