A right to rebuild land is of paramount importance to a property owner, particularly if it wishes to enhance the commercial value of its property. In the landlord and tenant context, a landlord is under an implied obligation to give its tenant “quiet enjoyment” of premises, meaning that it must ensure that the tenant is able to possess and enjoy the property without interference. Normally, a covenant for quiet enjoyment is expressly included in the lease. The covenant has some overlap with a landlord’s implied obligation not to derogate from its grant, meaning that the landlord cannot do something that would take away from the tenant enjoying the property that has been let to it.
The latest case that considers these obligations is the High Court case of Timothy Taylor Ltd v Mayfair House Corporation and another (2016). In this case, the tenant ran a high class art gallery from the ground and basement of a five-storey building in Mayfair, London, let on a 20 year lease at a rent of £530,000 p.a. The lease reserved the right for the landlord to alter or rebuild the building even if the premises (or its use or enjoyment) were materially affected. The landlord also had the right to erect scaffolding provided that this did not materially adversely restrict access to, or the use and enjoyment of the premises. A quiet enjoyment covenant was also included in the lease, with the words “without any interruption or disturbance from or by the Landlord”.
Six years into the term, the landlord began works to rebuild the interior of the building, from the first floor upwards to construct new flats. Whilst the tenant accepted that a certain degree of disturbance was unavoidable, it was of the view that the works were carried out in an unreasonable manner and there was substantial interference with its use and enjoyment of the premises. Examples of such interference included the following:
- High noise levels on a regular basis, resulting in (amongst other things) staff illness and intermittent closures of the gallery; and
- The scaffolding enveloping the whole building, which obscured the art gallery and/or made it appear closed. The landlord had in fact informed the tenant that the scaffolding would have towers on the ground floor so that the gallery could be seen as being open and accessible whilst the works progressed.
The tenant claimed that the landlord had failed to take reasonable steps to minimise disturbance from the works and sought damages for a breach of the quiet enjoyment covenant, and an injunction regarding future works.
The court decided that the reservation of a right to rebuild entitles a landlord to carry out works, provided that the landlord takes all reasonable steps to minimise disturbance to the tenant. What was considered “reasonable” depended on the facts, for example:
- The level of knowledge/notice the tenant had of the intended works at the start of the lease – in Timothy Taylor, the tenant was only informed of a general intention to carry out works, rather than being given any specifics.
- Any offer of financial recompense for disturbance caused – in Timothy Taylor, the landlord dismissed the tenant’s suggestion to meet to discuss compensation.
- Whether works were being carried out for the personal benefit of the landlord or the benefit of all tenants in the building – in Timothy Taylor, the landlord’s works were for its own purposes.
The court’s view in Timothy Taylor was that the landlord had acted unreasonably in exercising its right to build and was in breach of the quiet enjoyment covenant for the following reasons:
- The premises was let as a high class art gallery at a considerable rent, which meant that whilst the landlord had the right to build, it had to consider, so far as was reasonably possible, the tenant’s need to keep the gallery running with minimal disturbance.
- An outright refusal to offer any form of discount to the rent increased the level of reasonableness that was required.
- The construction of the scaffolding was not carried out in consideration of the interests of the tenant and was entirely unreasonable – there was no evidence of the landlord asking the scaffolding company to consider the “tower” design.
- There was no discussion with the tenant on the duration of the works, the likely noise levels, and how to lessen the impact of the noise on the gallery.
Accordingly, the tenant was entitled to damages for the breach of quiet enjoyment covenant and derogation from grant. However, the court did not grant an injunction requiring the landlord to use reasonable endeavours to restrict noise during particular hours, as it was difficult to decide what constituted “noisy” and “reasonable endeavours”. The court also refrained from ordering the scaffolding be dismantled and was in favour of an award of damages in lieu for prospective breaches.
The case has therefore highlighted some important points that will affect landlords on a practical level:
- All reasonable precautions must be used to minimise disturbance to the tenant whilst works are carried out.
- The standard of reasonableness required may be higher when works are carried out for the landlord’s own benefit rather that the tenants, particularly if it does not offer financial compensation to the tenant or if the premises are high value.
- The landlord should provide as much information as possible on the proposed works (including the anticipated duration) before the lease is granted and meet with the tenant to explain the planned works and discuss methods to minimise disturbance.
When drafting leases, landlords’ lawyers will need to carefully consider provisos that limit the landlords’ rights to carry out works and remind their clients that such provisos are to be strictly observed to prevent an unwitting breach of covenant or derogation from grant.