A room with a View

Century Projects Ltd v Almacantar (Centre Point) Ltd [2014] EWHC 394

Summary

The Court has considered the apparently conflicting rights under a lease for the tenant to have quiet enjoyment and for the landlord to have the ability to carry out works. It has confirmed that neither provision is an ace that will automatically trump the other. Rather, the terms must be made to work together.

The case also provides useful guidance as to the factors the Court will take into account when deciding whether to award interim injunctions. In this case it refused the injunction because it considered that the landlord was more at risk of injury for which it might not be compensated. Furthermore the Court did not consider that it was appropriate for a third party, even the Court or the tenant, to be able to dictate to the landlord how it must carry out works.

The facts

The tenant has a lease of the top floors and viewing platform at Central London landmark building Centre Point Tower.  It trades from the premises as an exclusive bar and restaurant known as "Paramount", and relies heavily upon the panoramic views across London from the premises as a unique selling point.

The landlord intended to carry out redevelopment works to the site as a whole. It carried out a full survey, and concluded that the Centre Point façade required cleaning and repairs. The landlord duly instructed a contractor to determine the best method of carrying out these works.  The contractor considered six possible options. Eventually it advised the landlord that traditional scaffolding covered in sheet plastic was the only viable option.

The tenant was greatly disturbed by the impact that this would have on its business. Taking advice from its own expert, it argued that the works could be carried out just as effectively by suspended cradles from the roof. As this would have caused less disruption, the landlord would not be acting reasonably if it insisted on scaffolding. 

In response, the landlord sought the opinion of a further expert, who came to the same conclusion - scaffolding was the best way to carry out the works. The works were scheduled to take between four and six months.

The tenant therefore sought an injunction to prevent the landlords from carrying out the works, on the basis that they would put the landlord in breach of its covenants to allow quiet enjoyment and not to derogate from grant. It argued that the landlord had to take into account the potential disruption to the tenant's business and take all reasonable precautions to minimise that disruption.

The issues

It is important to bear in mind that the issue before the Court was whether or not the interim injunction should be granted.

The Court was not making a decision on the merits of the claim or making an award for damages.

However, the case is very useful in terms of guidance on both points.

The decision

The Court refused to grant the interim injunction for a number of reasons.

Landlord and Tenant

First, it found that there was a serious question to be tried in this case. The wording of the lease by itself was not sufficient to dispose of the need for a trial.

Secondly, the Court had to consider whether there was a reasonable prospect of the tenant establishing that the landlord would be in breach of its obligations if it carried out the repair using scaffolding rather than cradles. Although the Court was not determining whether or not the tenant succeeded, it made some very useful points:

  1. It was common ground that the repairs were needed;
  2. As the landlord had a duty to do the repairs, it also had a right to do them;
  3. It was for the landlord to choose how to do the works. It would not be normal for a third party to dictate how it should do so;
  4. However, this does not give the landlord carte blanche. It must still act reasonably in making choices, as they will impact seriously upon the tenant;
  5. Neither the landlord's nor the tenant's rights will trump one another. Instead, they must be made to fit together. The way to do this is to permit the landlord to carry out works, provided he acts reasonably in doing so.

The Court reiterated that it was not being asked to determine whether the landlord had thoroughly investigated the question of which alternative was to be preferred. But it did say that the tenant faced "a very uphill task" in establishing that a landlord that was following consistent advice from its experts would be in breach of covenant. The Court said that, if the test at trial is one of reasonableness, it would be hard to see how the landlord could have acted unreasonably in these circumstances.

The failure of the landlord's expert to mention the impact of the works on the tenant when making a recommendation did not invalidate or undermine the expert's advice.

Although the Court was not making a decision on whether the landlord was in breach, the difficulties for the tenant highlighted above were highly relevant in deciding whether to grant an injunction. The tenant's case was fraught with difficulty.

Injunction

This reasoning brought the Court to its main decision. The first key question, following the leading case of American Cyanamid Co (No 1) v Ethicon Ltd [1975], is: Would the claimant be adequately compensated by an award of damages if no interim injunction is granted, and then the Court finds at the main trial that the defendant was in breach of covenant after all?

The Court found that the tenant could mostly be compensated in damages. It accepted that there might be some element that was non-compensable, principally because the tenant had worked hard at building up its business. The landlord had substantial assets and was therefore able to meet any award that might be made to the tenant.

The second key question, which follows naturally from the first, is: If the injunction were granted, and the defendant then went on to succeed at trial, would it be adequately compensated by a payment from the claimant, known as a "cross-undertaking in damages" to reflect the delay.

The Court found that the landlord could be fully compensated in damages for the delay to its scheme. However, it had to consider whether the tenant would be able to meet such an Order. The landlord argued that its losses would be in the region of £3,750,000. Looking at the accounts of the tenant, it simply did not seem to be capable of meeting its liabilities if it lost at trial.

The ability of a party to meet the undertaking is not the sole factor in making a decision, but it does mean that the Court has to consider the balance of convenience. In light of the above, the Court found that there was a significant risk of uncompensable damage to the landlords. The risk to the tenant was nowhere near so compelling. The Court also felt that the landlord had a "disproportionately stronger" case than the tenant.

For these reasons, the balance of convenience tipped heavily in favour of the landlord, and the injunction was refused.

Our advice for landlords

Where works are required, ensure that you have taken steps to show that you have acted reasonably in making your decision.

This could include considering multiple options or even seeking a second expert opinion, as this expert did.

If the building is tenanted, ensure that you have reflected the considerations of the tenant in the decision, so that you can demonstrate reasonableness. Keep clear records of all communications, and try to involve tenants in decisions if/when this is practicable.

If works are likely to be required during the term of a lease that is being negotiated, seek to have some express terms included.

Our advice for tenants

Although no final determination on whether the landlord would be in breach has been made, the judge relied upon an earlier Court of Appeal decision in Goldmile v Lechouritis [2003]. In this case, scaffolding was not held to be a breach by the landlord, despite a serious impact upon the tenant's business, because the landlord had taken all reasonable steps to minimise disruption.

These cases make it clear that the Court will follow this reasoning, and the critical question will be whether the landlord has acted reasonably, NOT whether it has disturbed your business.

If your landlord is looking to carry out works, seek early advice from an expert on the proposals and whether there are any alternatives.

Again, try to agree any concessions or other terms in writing, to prevent disputes further down the line.

Keep clear records of the disturbance and all communications in respect of the proposals and works.