4 October 2016

Landlords' Works And The Impact On Tenants

RWK Goodman


RWK Goodman
Commercial leases often reserve to the Landlord the right to carry out repairs to adjoining premises.
UK Real Estate and Construction
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Commercial leases often reserve to the Landlord the right to carry out repairs to adjoining premises. At times, this right may conflict with the Tenant's right to enjoy the demised premises under the Landlord's covenant for quiet enjoyment. There is also an implied covenant by the Landlord not to derogate from grant – put another way, a Landlord who confers a benefit on a Tenant should not then do something that substantially deprives the Tenant of its enjoyment of that benefit.

An acute conflict may therefore arise between the Landlord's right to repair and the Tenant's right to enjoyment of the property. This conflict was previously considered in Goldmile Properties Ltd v Lechouritis [2003] EWCA Civ 49 in the context of works which formed part of the Landlord's obligation to keep the building in which the demised premises were situated in repair. Circumstances where the works were to be entirely for the Landlord's own benefit were, however, considered in depth more recently by the High Court (Chancery Division) in the case of Timothy Taylor Ltd v Mayfair House Corp & Anor, heard on 10 May 2016.

Facts of the Case

The Claimant, Timothy Taylor Ltd, was the Tenant of basement and ground floor premises of a five storey building in Mayfair from which it operated a high-class art gallery. The Landlord, Mayfair House Corp, owned the premises directly above the gallery, and had retained the right in its lease with Timothy Taylor Ltd to carry out building works to its property above. The Landlord commenced construction of new apartments from the first floor of the building upwards. The Tenant claimed that the works interfered with its use and enjoyment of the premises as an art gallery. Whilst it accepted that the Landlord was entitled to carry out the works, it complained of very significant levels of noise, to the extent that on a number of occasions the gallery had to be closed. Scaffolding was also erected for the purpose of carrying out the works, and the Tenant complained that the design of the scaffolding was such that the gallery entrance was practically invisible.

The Decision

A Landlord must act reasonably in the exercise of its right to build by taking all reasonable steps to minimise the amount of disturbance being suffered by the Tenant, though it is not obliged to eliminate that disturbance completely. The Court decided that in this case, the Landlord had been acting unreasonably in the exercise of its right to build and was consequently in breach of its covenant for quiet enjoyment. The Court took the following factors into account:

  • The use of the premises. The premises were being used as a high-class art gallery, and as a result the Landlord should, as far as reasonably possible, take into account the Tenant's need to keep the gallery open and to minimise disturbance to its customers and staff.
  • Any offer of compensation. The Landlord had point blank refused to compensate the Tenant for the disturbance caused by the works, and this fact was to be taken into account when considering the overall reasonableness of the works.
  • Benefit to the Tenant. In this case, the works were for the Landlord's personal benefit alone.
  • Knowledge of the Tenant. The level of reasonableness required by the Landlord may have been lower, had the Tenant had knowledge of the Landlord's intention to carry out the works at commencement of the lease.
  • Alternative options. The Court found that the manner in which the scaffolding had been erected and the provision for delivery of materials (which at times blocked the entrance to the gallery) were unnecessary, as there were other options available to the Landlord which would have caused less disturbance to the Tenant and the Tenant's business. Expert evidence was given on this point.
  • The level of rent. The Judge refers on a number of occasions in his judgment to the high rent demanded of the Tenant in this case, and comments that the level of rent increases the need for liaison between Landlord and Tenant and the importance of discussion between the parties so as to find ways to carry out the works with as little disturbance to the Tenant as possible.

Having found that the Landlord had not acted reasonably and was in breach of its covenant for quiet enjoyment and its implied covenant not to derogate from grant, the Judge considered the appropriate level of damages. The Tenant could not show that it had suffered any loss of profits as a result of the Landlord's works. In any event, it was held that the appropriate way to assess damages is to assess what the Tenant has lost in terms of its use and enjoyment of the premises. This should be done by way of a rebate in the rent. The Judge ordered a rebate of 20% of the rent payable from the date of commencement of the erection of scaffolding for the works until completion.

Practical Points for Landlords and Tenants

Even where a lease provides the Landlord with an absolute right to carry out works to adjoining premises, that right is not unfettered. A Landlord wishing to carry out works must act reasonably when exercising this right, and consider the disturbance the works will cause to the Tenant and how this might be mitigated. The decision in Timothy Taylor Ltd v Mayfair House Corp & Anor provides helpful guidance as to what factors the Court might consider when determining reasonableness. Specific circumstances, such as the nature of the Tenant's business and the level of rent demanded should be factored in.

Landlords should always consult Tenants before works are commenced to try to avoid a dispute arising. How much the Tenant has been consulted and listened to may have a significant impact on whether a Landlord would be found to have acted reasonably. It is important to consider any options which might mitigate disturbance to the Tenant.

Tenants who are made aware of their Landlord's intention to carry out works should also engage with their Landlord and work in tandem to find a way for the works to be carried out in such a way as to limit disturbance. If there is no way for the works to be carried out without significant disruption and infringement on the Tenant's right to quiet enjoyment, Tenants may consider asking for compensation in the form of a rent rebate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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