Landlord’s works affecting the tenant’s premises – breach of quiet enjoyment?

The recent High Court decision of Timothy Taylor Ltd v Mayfair House Corporation and another has explored the conflict between two commonly encountered lease clauses, namely an express right for the landlord to redevelop retained property and the covenant for quiet enjoyment.

Background

Timothy Taylor Ltd (the “Tenant”) brought a claim against its landlord Mayfair House Corporation (the “Landlord”) and its superior landlord in respect of substantial works being carried out by the Landlord.  In this instance, the Tenant operated a high end art gallery from the basement and ground floors of a building in Mayfair, London.  The Tenant entered into a lease for a term of 20 years in January 2007 at a rent of £530,000 per annum. Upon entering into the lease, the Tenant was aware that the Landlord intended to carry out some development works in the future and an express right for the Landlord to alter or rebuild the building was included in the lease whether or not such works might materially affect the Tenant’s use and enjoyment of its premises.  A specific right to temporarily erect scaffolding was also granted provided that such scaffolding did not materially affect the use of or access to the premises. The lease also included the usual landlord covenant to permit the tenant the quiet enjoyment of the premises during the term.

In 2013, the Landlord commenced an extensive rebuild of the building and in mid-August 2014 erected scaffolding; the effect of which was to enwrap the building as a whole and make the gallery premises appear to be part of the building site.  Hoists were also installed, obstructing the entrance to the gallery.  It had previously been agreed that the scaffolding would be configured to include towers at ground floor level to allow the gallery to be seen from the street as open for business, but this was not implemented so the Tenant immediately challenged the installation.  As compensation for the disruption arising from the works the Tenant proposed a rent reduction.  This was rejected outright by the Landlord who refused to engage any conversations surrounding compensation.

Decision

The Court held that the Landlord had breached the quiet enjoyment covenant in not exercising its right to build reasonably and there was derogation from grant.  The Tenant was therefore entitled to damages.  As the Tenant had not suffered a loss of profits, the Court assessed the damages to be 20% of the rent payable under the lease from the date of installation of the scaffolding to the date of judgment as compensation for the breach of covenants. In place of an injunction on future breaches, the same rent reduction was imposed from the date of the judgment until the works are completed.  The judgment stressed that, although an injunction was not being granted in this instance, should the agreed compromises eg “quiet” times not be adhered to, the Tenant would have the liberty to return to the Court for a reassessment of the damages granted.

Commentary

In reaching its decision, the Court had regard to a number of factors which will have practical application when a landlord is considering carrying out works to a property with occupational tenants.  The key practical conclusions were:

• If works are anticipated at the time of entering into a lease, the landlord must give as much information to the tenant as possible at the time of grant.
• If specific arrangements or variations to the works are agreed with the tenant these must be communicated to the landlord’s contractors and they must be implemented.
• Consideration must be given to the purpose for which the property is already being used and the impact of the works on the use.  In this instance, the Court highlighted that the high rents, the permitted use of the property and location imposed an additional burden on the Landlord in exercising the right to carry out the works.
• An absolute refusal to consider any compensation will not be looked on favourably by the Court.  Although the Landlord was not (in this instance) obliged to offer the Tenant any form of discount for the works, the offer of some form of discount could affect the consideration of the overall reasonableness of the actions of a landlord in carrying out the works.
• In assessing reasonableness, landlords should also be aware that the Court will impose a higher standard of reasonableness where the works are solely for the benefit of the landlord. In such instances a landlord will need to take more account of the requirements of, and impact on, any occupying tenant.
• To minimise the likelihood of a dispute, a landlord should give the tenant a clear timetable as to an anticipated timeframe for completion of the works, where possible agree “quiet” periods from noisy works ensure that the tenant is regularly updated as to progress and is given a chance to discuss any current and future concerns surrounding the works.

The overarching lesson is that a standard covenant for quiet enjoyment and a clause permitting the landlord to carry out works are interlinked and have to be made, in practice, to fit together. The facts in each case will need to be considered on their own merit but landlords will need to be able to evidence that they have acted reasonably and considered the impact of the works on the use and enjoyment of premises let to an existing tenant.