Landlords, especially those with development plans, often find it difficult to balance any right which has been reserved to it within a lease to build and redevelop retained areas, against their covenant to give a tenant quiet enjoyment of their property nor derogate from grant. A landlord may also have an implied right to carry out works to a property if it has covenanted to repair it.
Prior to 2002, a covenant to permit quiet enjoyment of a property meant just that – a landlord must not make excessive noise to such an extent that the tenant’s covenant for quiet enjoyment was breached. However, over the last 14 years the giving of a covenant to permit quiet enjoyment of a property has evolved into meaning that a landlord agrees not to disturb the tenant’s right to occupy a property in any way and not just from a noise perspective.
Closely linked to a landlord’s covenant to give the tenant quiet enjoyment of a property is also the implied covenant not to derogate for grant (i.e. with one hand covenant to do a number of things but on the other hand breach those covenants).
The case of Timothy Taylor Limited v Mayfair House Corporation and another [2016] EWHC 1075 (Ch) is a recent decision in which the High Court examined a tenant’s right to quiet enjoyment balanced against a landlord’s right to build and develop a property.
Background
The tenant operated a high-class art gallery in the ground and basement floors (“the Property”) of the landlord’s building in Mayfair, London. In January 2007, it took a lease of the Property for a term of 20 years with approximately 11 years left to run when the matter came to trial. In 2013 the landlord began substantial works to the building including rebuilding the interior to turn the building into apartments from the first floor upwards. Works included the erection of scaffolding on the exterior of the Property and significant noise. The tenant claimed that the works substantially interfered with its use and enjoyment of the Property and so it sought damages, in respect of the past works and injunctive relief in respect of the future works, as well as declarations in respect of a number of other points.
It was stated that the landlord always had plans to develop the remainder of the building to turn it into residential apartments from a period prior to the lease being granted. For this reason, when the lease negotiations took place, the landlord contended that the tenant was made aware that there would be development works over the coming years and that the plans were available to see at the landlord’s architect’s office. The landlord further contended that in lieu of the fact that the tenant was likely to suffer some disturbance from the works, it granted the lease at a rent reduction by way of compensation for the future works.
Court’s decision
The High Court held that the landlord had unreasonably exercised its rights in relation to the scaffolding which impeded access to the Property. It found, on the evidence, that there had been no real attempts made to mitigate the impact of the noise and that there had been little liaison as to the nature or duration of the works. As the landlord had reserved to it a right to carry out the works, to ensure that it had taken all reasonable steps to minimise the disturbance to the tenant, the court would take into account the following when questioning whether the landlord had acted reasonably in carrying out those works:
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What knowledge or notice the tenant had of the works at the commencement of the lease
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Whether an offer of financial compensation had been made
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Whether the works were for the personal benefit of the landlord or whether the works were to benefit the tenant.
Practical considerations
The issue of balancing a tenant’s right to quiet enjoyment against a landlord’s right to build is a common one that often arises in practice. Although only a High Court decision, it has brought together the decisions of a number of other cases and set out clearly the steps that the court will consider when assessing whether a landlord has acted reasonably in balancing those rights. At all times, a landlord wishing to develop its property would be well advised to ensure that a good dialogue is kept with any tenants at all times in relation to its plans to develop as well as the likely duration. It may also wish to consider the offer of financial compensation for disturbance if the works are purely for the benefit of the landlord.
June 2016
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