The High Court has recently considered the interrelationship of a landlord's right to develop and the covenant for quiet enjoyment given to its tenant in the case of Timothy Taylor Ltd v Mayfair House Corporation and another.

In this case the tenant, Timothy Taylor Ltd, occupied the basement and ground floor of a five storey building in Carlos Place, Mayfair as a high class gallery. The landlord undertook substantial works to the upper floors of the building, to create new residential apartments, which necessitated high levels of noise and the enveloping of the whole building with scaffolding.

The tenant did not dispute the landlord's right to carry out the works, indeed, the lease contained a standard right allowing the landlord to alter or rebuild the building, notwithstanding that this may materially affect the tenant's use or enjoyment of the premises. The lease also contained the right for the landlord to erect temporary scaffolding provided that this did not materially adversely restrict access to, or the use and enjoyment of, the premises.

The tenant did, however, dispute the manner of the execution of the works. The tenant claimed that the landlord had not taken all reasonable steps to minimise the disturbance caused in exercising the right to build and erect the scaffolding and was, therefore, in breach of the covenant in the lease given by the landlord to permit the tenant to occupy the premises "peaceably and quietly" and "without any interruption or disturbance" from the landlord.

The tenant sought both damages for breach of its rights under its lease and an injunction to prevent future works. The tenant was successful in its claim against the landlord for breach of quiet enjoyment and, whilst the claim for an injunction was rejected, the tenant was awarded significant damages.

Need to act "reasonably"

In considering how best to balance these seemingly conflicting rights the High Court set out some key points to landlords when undertaking such works.

Even where, as in this case, the landlord's right to build was wide, a landlord must take "all reasonable steps to minimise the disturbance to the tenant caused thereby" if it is to avoid breaching the covenant for quiet enjoyment. As to what is "reasonable" the court may consider:

  • The extent to which the tenant had knowledge or notice of the intended works at the time that it entered into the lease.  Any offer made by the landlord to the tenant to discount the rent to reflect the potential disturbance, particularly if a high rent is payable.
  • The purpose of the works, for example where, as in this case, the works are being undertaken by the landlord entirely for its own purpose, rather than for the benefit of all of the tenants of the building.

Applying the reasonableness test

Whilst it was acknowledged that, in the words of one of the landlord's witnesses "you cannot hammer a nail in without creating noise", the Court held that the landlord in this case had acted unreasonably in exercising its right to build, and was, therefore in breach of the covenant for quiet enjoyment for the following reasons:

  • The nature of the premises should be taken into account. In this case the premises were let as a high class art gallery in Mayfair for a high rent, and, as a result, the right to build should be exercised with regard to the need to keep the gallery open and running with as little disturbance as possible.
  • Although not obliged to offer the tenant a rent discount to take into account the disturbance caused by the works, to refuse point blank to entertain such a discount had "raised the bar" as to the works that may be considered to be reasonable.
  • As regards scaffolding, the landlord could have erected the scaffolding in a manner more sympathetic to the tenant; by the use of towers to prevent the impression that the gallery premises were closed and by installing a high level hoist so as to minimise disturbance from deliveries to and from the building site.
  • As regards noise, whilst the lease permitted the landlord to undertake the works and some disturbance was inevitable, liaison between the parties, particularly as to the magnitude of and timing of the works, would have allowed the tenant to find alternative temporary accommodation or limit the use of the premises during noisy periods.

The appropriate remedy

The tenant's claim for an injunction to include the removal of the scaffolding and its replacement with scaffolding in the less instructive tower design and /or the imposition of a noise limit was dismissed as being "wholly disproportionate" and "impracticable and probably unworkable".

Instead, the Court assessed the damages on the basis of a reasonable, in this case 20%, rebate in the rent for the premises having been rendered less fit for occupation as a result of the landlord's breach of covenant. Interestingly, and perhaps with the intention of avoiding future dispute, the Court cautioned the landlord not to take the award of damages as being a "carte blanche" to finish the works in any way it thought fit without regard to the tenant's rights.

Practical steps for landlords

Landlords should not take an express lease term giving the right to build as a green light to undertake works regardless of any potential disturbance to its tenants. Steps should be taken to minimise the disturbance to tenants to avoid breaching the covenant for quiet enjoyment may be an express term of a lease, as in this case, but may also be an implied lease term.

What may or may not be considered to be "reasonable" will vary depending on whether the works are undertaken for the sole benefit of the landlord rather than the tenant and whether or not any form of financial compensation has been made to the tenant, particularly where a high rent is payable.

So far as is possible the landlord should liaise with tenants, provide details of the works and the plans to minimise disturbance. This should be an ongoing process to allow the tenant to make appropriate alternative arrangements. Any scaffolding should be designed to avoid obstruction to the tenant's premises.