Covenants with your neighbours: has your landlord thrown a spanner in the works?

The recent Court of Appeal case of Faidi and another v Elliott Corporation highlights the risk to tenants of multi-let buildings where a landlord permits one tenant to carry out works to its premises which may prevent the other tenants relying on mutually enforceable covenants in their leases.
Mr and Mrs Faidi owned Flat 6 in London's Eaton Mansions.  Elliott Corporation owned Flat 8 which is directly above Flat 6.  The landlord of both flats was Eaton Mansions (Westminster) Ltd ("EMW"), a company owned by the tenants of Eaton Mansions.
The leases for both flats contained tenant’s covenants including a covenant to keep the floors covered with carpet, except the kitchen and bathroom floors.  The covenants were expressed to be for the benefit of the landlord and all other tenants of the building.  The leases also contained a landlord’s covenant to ensure that similar tenant covenants were included in all other leases.
In 2007 EMW granted a licence for alterations to the then tenant of Flat 8 which permitted the tenant to carry out works to the flat including the installation of an oak wood floor and under floor heating costing £100,000.  The licence stated that the tenant’s covenants and the conditions contained in the lease would remain applicable once the alterations had been completed and would extend to any additions to the flat as a result of those works.
Elliott Corporation subsequently acquired the lease of Flat 8 and sub-let it.
Mr and Mrs Faidi claimed that the occupants of Flat 8 were causing significant noise as a result of the lack of carpeting which they said was disturbing the enjoyment of Flat 6.  They issued proceedings against Elliott Corporation seeking an injunction to require them to comply with the covenant to carpet their flat.  Elliott Corporation argued that the previous landlord had waived compliance with this covenant by granting a licence for alterations which permitted works that were wholly inconsistent with a requirement to keep the flat carpeted.
The Court of Appeal affirmed the lower Courts decision that the requirement to lay carpet was indeed incompatible with the objective of the works permitted by the licence.  The inclusion in the licence of specific provision that the obligations in the lease of Flat 8 would continue after the works were completed, which was intended to safeguard the covenants, was held to be ineffective.  By giving its consent to the works the landlord had precluded itself from insisting on the floors being carpeted and as a result had prevented Mr and Mrs Faidi from enforcing the obligation against Elliott Corporation.
This is a sobering tale for tenants who may well be unaware of what permissions a landlord has granted to neighbouring tenants.  It is worth tenants' remaining vigilant about what activities are taking place within a multi-let building and contacting the landlord if they are concerned that these might prejudice their ability to enforce covenants in the leases of the other tenants.
Finally, the Court of Appeal noted that it is highly desirable for neighbours to try to resolve this type of dispute without recourse to litigation, either through mediation or direct discussion between the parties.  A full case report can be found at http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWCA/Civ/2012/287.html&query=title+(+faidi+)&method=boolean

by Tom Evans, Solicitor