I suspect that many lawyers heave a heavy sigh at neighbour disputes. They seem to be fought with an intensity in inverse proportion to the scale of the problems. Throw in issues in construing lease covenants and enforceability by third parties and it is not surprising that this case ended up in the Court of Appeal, much to the Court’s disapproval.

Faidi & Anor v Elliot Corporation [2012] EWCA Civ 287 concerned two leaseholders in Eaton Mansions. The freeholder is the Grosvenor Estate and the reversioner is Eaton Mansions (Westminster) Ltd (EMW), a company owned by the leaseholders. The Claimant had Flat 6, the Defendant Flat 8, directly above it. The leases were in identical terms.

Clause 4 of the lease contained covenants by the tenant with the landlord “and with and for the benefit of the Flat Owners”. Clause 4(5) stated that the tenant covenanted to:

“observe and perform the regulations in the Fourth Schedule hereto or any future regulations imposed by the Lessors for the better management of the Building Provided that the Lessors reserve the right to modify or waive such regulations in their absolute discretion”

The Fourth Schedule contained at paragraph 3 a prohibition on ‘doing, permitting or suffering, in or upon the demised premises, any act or thing which may be or become a nuisance or annoyance to the lessors or the tenants of the lessors or the occupiers of any part of the building or of any adjoining or neighbouring premises’, and at paragraph 15, this:

“At all times to cover and keep covered with carpet and underlay the floors of the Demised Premises other than those of the kitchen and bathrooms and at all times suitably and properly to cover and keep covered the floors of the kitchen and bathrooms in the Demised Premises”

Flats 8 and 10 had been joined as one. The Defendant decided to separate them, and obtained consent from the freeholder and EMW in 2007. A part of this consent involved a letter requiring the works to include “an appropriate sound resisting/absorbent material must be laid between the floor structure and the new floor finish”, as the new floors in Flat 8 where to be timber, with underfloor heating.

The Defendant’s evidence was that sound proofing material had indeed been put in place between wooded floor and the concrete.

The licence for the works was to last the term of the lease, unless breaches of licence term were unremedied. Clause 7.3 of the licence stated

“It is agreed and declared that the obligations on the part of the Tenant and the conditions contained in the Lease which are now applicable to the Premises shall continue to be applicable to the same when and as altered as permitted by this licence and shall extend to all additions made to the Premises in the course of the Tenant’s Works.”

The Claimants claimed that ordinary noise from Flat 8 was a disturbance to them in Flat 6. Eventually they issued proceedings in the tort of nuisance and in breach of covenant. Both heads of claim were dismissed at first instance trial. The Claimants appealed, solely on the breach of covenant issue.

The argument from each party was:

The Defendant’s case was that, by agreeing to the work being done as proposed by Stinger, EMW had waived the obligation to carpet those rooms to which otherwise the obligation to lay carpet and underlay would have applied under paragraph 15 of the Fourth Schedule. That is because it would have been inconsistent with the giving of consent to the installation of the new timber floor in general, and in particular also with the installation of underfloor heating as the primary source of room heating. It was open to EMW to waive that obligation under clause 4(5), and that is what they did.

The Claimants opposed this on two different bases. First it was said to be inconsistent with clause 7.3 of the licence, which preserved the application of the lease. Secondly, it was said that the conduct of EMW was not clear enough to amount to an irrevocable waiver, especially having regard to the effect of the waiver not only on EMW itself but on the lessees of other flats. It was said that, if Stinger had wanted a dispensation from the terms of paragraph 15 of the Fourth Schedule, it should have sought it in express terms as a provision of the licence.

At first instance, the Judge held that there had been a waiver of paragraph 15 as the licence gave permission to carry out the specific works involved. Laying carpet would reduce the effectiveness of the underfloor heating, so carpeting throughout was not a reasonable solution. In addition the sound proofing that had been put in exceeded the relevant building regulation requirements.

Rather astonishingly, there was no issue on privity of contract or privity of estate taken in the assignee leaseholder of flat 6 seeking to enforce a lease covenant in the lease of flat 8 against the assignee of that lease.

On appeal, the Claimant argued that the carpeting requirement should not be seen as all or nothing. There were rugs in parts of flat 8. Thus EMW’s licence should not be seen as irrevocably waiving paragraph 15. It was thus open to the court to make an injunction, at its discretion, for an intermediate solution which would give some sound protection while not affecting the purpose of the underfloor heating and wooden flooring.

The Court of Appeal was not having this:

Clause 4(5), as applying to paragraph 15, is either effective or it is not. If it is effective it requires the entire floor surface of the relevant rooms to be covered with carpet and underlay. If it is not effective, it does not require carpeting at all. An intermediate solution might have a great deal to be said for it as an agreed or mediated solution to this sort of issue, arising as it does between neighbours who may have to live with the situation over a long period. It does not seem to me that an arrangement for agreed partial carpeting is one which the court could achieve, whether under its discretion as to the grant of, and the terms of, an injunction, or in any other way.

The Claimant also argued that clause 7.3 of the licence meant that the lease covenants applied as before. This included para 15 of the Fourth Schedule – the carpeting obligation.

Further, the Claimant argued that there was nothing in the licence which precluded EMW later requiring compliance with paragraph 15 if it turned out that there remained problems of sound disturbance. EMW as landlord was also acting on behalf of other lessees. Its position was to be taken as being not that it would never seek to enforce the paragraph 15 obligation, but that it would not do so except for good cause.

The Court of Appeal found that, while it would have been better if the licence had been clearer on this point, the licence had expressly addressed the specific works and alterations in a way that could not be overcome by a general clause. The waiver was good.

Further it was unrealistic to take the licence as being less than a full waiver. The possibility of enforcement of paragraph 15 was wholly at odds with the nature, extent and expense of the works covered by the licence.

Appeal dismissed.

Lord Justice Jackson went on the make the following observations on neighbour disputes, the courts and the value of mediation:

34. […] This case concerns a dispute between neighbours, which should have been capable of sensible resolution without recourse to the courts. During the course of his submissions in the Court of Appeal Mr Pearce for the claimants observed that this may not be an “all or nothing” case. A moderate degree of carpeting in flat 8 might (a) reduce the noise penetrating into flat 6 and (b) still enable the occupants of flat 8 to enjoy their new wooden floor. This is precisely the sort of outcome which a skilled mediator could achieve, but which the court will not impose.

35. Of course there are many cases where a strict determination of rights and liabilities is what the parties require. The courts stand ready to deliver such a service to litigants and must do so as expeditiously and economically as practicable. But before embarking upon full blooded adversarial litigation parties should first explore the possibility of settlement. In neighbour disputes of the kind now before the court (and of which I have seen many similar examples) if negotiation fails, mediation is the obvious and constructive way forward.

36. In the present case a mediator would not have been concerned about the interaction between the various leases and the licence to carry out works. Nor would he have been concerned about the other interesting points of construction, which first the county court judge and now this court have been called upon to decide. Instead he would have been helping the parties to find a sensible resolution of the practical problem which had arisen. I have little doubt that such a mediation would have been successful. The points of law upon which the litigation has turned are not easy ones and at the time of the hypothetical mediation neither party could have been confident of victory.

37. As it is, neither side wrote to the other proposing mediation until shortly before the hearing in the Court of Appeal. By then huge costs had been incurred. The claimants’ costs up to the end of trial were £23,195. The claimants incurred a further £34,609 costs on the appeal. The defendant’s costs up to the end of trial were £32,798. The defendant incurred a further £49,532 costs on the appeal. Thus the total costs thrown away amount to £140,134. If the parties were driven by concern for the well being of lawyers, they could have given half that sum to the Solicitors Benevolent Association and then resolved their dispute for a modest fraction of the monies left over.