Landlord’s right to develop v tenant’s right to quiet enjoyment

Landlords who are considering undertaking works should heed the recent High Court case Timothy Taylor Limited v Mayfair House Corporation and another [2016] EWHC 1075 (Ch) (Taylor), which addresses the delicate balance between exercise by a landlord of its reservation to develop its property and a tenant’s right for quiet enjoyment.

When a landlord grants a lease of property to a tenant, there is an implied obligation (which is typically also added as an express obligation within the lease) that the landlord will not interfere with the tenant’s use and enjoyment of the property, known as the tenant’s right to “quiet enjoyment”. Further, the landlord also has an implied obligation not to derogate from its grant: that is, a landlord is prevented from undertaking any actions which prevent the tenant from enjoying the property. Yet, a landlord will also generally have an obligation to repair the building and, provided the same is reserved within the lease, a right to develop its property.

Thus whose rights prevail: the landlord’s or the tenants?

In Taylor, the tenant ran an art gallery in the ground floor and basement of the landlord’s building. The landlord, having reserved its right to do so, commenced works to redevelop the upper parts of its Property into residential flats for resale. The lease reserved rights for the landlord to erect scaffolding; however, this right was subject to the scaffolding not materially, adversely restricting access to or the use and enjoyment of the Property. However, the lease provisions reserving the landlord’s ability to redevelop explicitly reserved the landlord’s right “even if they [the works] materially affect the Premises or their use and enjoyment”.

Not unsurprisingly, in undertaking the works, various acts by the landlord seriously impacted the tenant’s ability to use and enjoy its premises including:

1. positioning the works equipment such that delivery lorries parked directly in front of the gallery’s entrance;
2. generating considerable noise to the extent that employees in the gallery had to wear headphones and at times the gallery had to be closed; and
3. erecting scaffolding which enveloped the whole of the building, turning the gallery into a “coffin-like enclave” which gave the impression that the gallery was closed to business.

The Court concluded that there is a balance to be struck between a tenant’s rights of quiet enjoyment and non-derogation from grant and a landlord’s right to redevelop and/or its obligation to repair: the landlord has to take all “reasonable steps to minimise the disturbance to the tenant”.

In looking at the particular facts of the case, the Court found that the landlord had not acted reasonably in exercising its rights. In particular:

1. hoists could have been erected so as not to result in the blocked gallery entrance;
2. the landlord’s actions in respect of the tenant’s concerns with the noise occurred only after the works commenced; and
3. the scaffolding could easily have been erected in such a manner as to preserve the gallery’s external appearance.

To compensate the tenant for the loss of use and enjoyment of the property, damages of 20% of the rent payable by the tenant from the date the scaffolding was erected to the date of judgment were awarded. In relation to ongoing/future breaches, since it was impractical to grant an injunction for restriction of noisy works and disproportionate to order new scaffolding to be erected, damages of 20% of rent from the date of judgment to the date of completion of the works were awarded to compensate for future breaches.

The case provides clear guidance for landlords who are looking to undertake works: provided the required rights to develop and/or repair have been reserved within the lease, the landlord should undertake all reasonable steps to minimise the impact of any works on its tenants. While the individual circumstances will of course dictate what is “reasonable”, it is recommended that landlords consider the following:

1. Communicate with the tenant – Prior to letting a property, landlords should ensure they provide full details of any upcoming or proposed works to prospective tenants. It is also key for landlords to have open communication with their tenants before any works commence. Tenants should be informed of what works will be undertaken, and the proposed start date and duration of the works. Throughout the course of the works, landlords and/or their agents should provide ongoing and regular updates to their tenants. It is also essential for landlords and tenants to work together to determine how best to minimise any distribution on the tenant of the works.
2. Consider who is the actual beneficiary of the works – What is “reasonable” will be influenced by whether the tenant will benefit from the works to be undertaken (i.e. is the landlord undertaking repairs as opposed to redevelopment?).
3. Think about offering compensation to the tenant – Any offer by a landlord of a reduction in rent or some other financial compensation will be taken into account by the court, especially where the ability of the tenant to trade will be impacted by the landlord’s works.

For further information regarding this topic or any other property and construction matter, please contact Joanna Osborne, or any member of Edwin Coe Property Litigation team.

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