Case law: Courts will imply term into agreement not to prevent or delay other party from carrying out their obligations
Contractual parties should ensure that nothing they do could be interpreted as preventing or delaying the other from carrying out their contractual obligations, as the courts will ordinarily imply a term into the agreement preventing them from doing so, a recent case makes clear.
A company bought leases of holiday homes 'off-plan' (ie before they were built) on a site under development. The owner of the land was the lessor, and there was a management company of which each lessee was a shareholder. Unfortunately, the developer had financial problems. Under the relevant agreement the management company became liable to complete the development if the developer was unable to, failing which the lessor could do so - and recover the costs from the management company.
An issue that arose was whether the agreement was subject to an implied duty on the lessor not to prevent the management company from carrying out its obligations.
The court confirmed that a term will only be implied into a contract if it is necessary for 'commercial or practical coherence' - a strict test to satisfy. However, it also confirmed that, in general, a court will imply a term into an agreement that neither party will prevent or delay the other from carrying out its obligations under it - such a clause will ordinarily be 'necessary'.
Parties to an agreement should ensure that nothing they do could be interpreted as preventing or delaying the other from carrying out its contractual obligations, or risk being in breach of an implied term in the agreement
Authorised and Regulated by The Solicitors Regulation Authority. Authority number 591294.
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