In the case of Timothy Taylor Ltd v Mayfair House Corporation & Another (2016) a landlord that carried out substantial building works in tenanted property was found to have breached its covenant for quiet enjoyment.
The tenant, Timothy Taylor Ltd, had a lease of ground and basement floor premises in Mayfair which it used for a high class art gallery. The lease was for a term of 20 years starting in 2007. The landlord owned the building which, aside from the gallery, consisted of apartments spread over 5 storeys. The tenant's rent was significant, amounting to over half a million pounds, annually, at the time of the claim.
In 2013 the landlord commenced substantial works to virtually rebuild the interior of the whole building above the gallery to create new apartments. The tenant claimed that the works, by reason of the noise they generated and the wrapping of the building in scaffolding - which obscured the gallery - substantially interfered with its use and enjoyment of the premises.
The tenant did not dispute that the landlord was entitled to carry out the majority of the works and that some disruption would be inevitable. However, it said the manner in which the works were carried out was unreasonable and paid no regard to the tenant's rights under the lease. It sought damages for the breaches of its rights which had occurred to date and declaratory and injunctive relief to regulate future works.
The landlord argued that it had carried out the works reasonably and with due and proper regard to the tenant's rights. It said the tenant had unreasonably refused access for some of the works and counterclaimed for an injunction prohibiting the tenant from refusing access in the future, as well as damages for past refusals.
The main issue in the case was the interrelationship between the landlord's covenant for quiet enjoyment and its right to build reserved to it in the lease. The court said:
- a landlord's right to build in a way which, but for that right being reserved, would constitute either a breach of quiet enjoyment or implied covenant not to derogate from grant means that the landlord can do the work contemplated by the right provided that, in doing so, it has taken all reasonable steps to minimise the disturbance caused to the tenant
- any knowledge the tenant had of the intended works on commencement of the lease was relevant in considering what could reasonably be carried out
- a landlord's offer of compensation to the tenant for disturbance caused by the works is a factor in considering the overall reasonable of the steps the landlord has taken.
The court found that the landlord had acted unreasonably in the exercise of its rights and was therefore in breach of its covenant for quiet enjoyment because:
- The works did substantially interfere with the use and enjoyment of the premises as an art gallery, with high levels of noise being experienced on an almost daily basis
- The fact that the premises were let for use as a high class art gallery meant the right to build should be exercised with regard to the tenant's need to keep the gallery running with as little disturbance as possible
- The tenant was told in general terms when it took the lease that the landlord intended to carry out some works but was not told specifics or that they would be as extensive as they were. Because of this, no discount was applied to the rent to take account of the works, either on commencement of the lease or on review at the 5th anniversary of term commencement
- The landlord was not obliged to offer any discount for the works. However such an offer could affect the overall reasonableness of the works. The landlord's "point blank refusal" to offer a discounted rent raised the bar as to what was reasonable
- The scaffolding was designed and erected in a way which paid no or little regard to the tenant's interests and so was entirely unreasonable; it could have been erected differently to minimise disturbance
- There was no real attempt made to liaise with the tenant as to the likely duration of the works, the likely noise levels and how the impact of the works could be mitigated. The landlord should have 'sat down with the tenant' to discuss the works and plan how they could be carried out to minimise disturbance.
The court awarded the tenant damages equivalent to a 20% discount in rent starting from the date the works commenced until the completion date of the works. The discount for future works was instead of an injunction curtailing/changing the works method, which the court considered would be impracticable and probably unworkable. The court was at pains to point out that it was not 'giving a carte blanche to the landlord to finish the works in any way it thinks fit'; the damages were assessed on the basis that the future works would not be any more disruptive than those to date.
Advice to landlords wishing to carry out building works:
- Inform your tenants in advance of the nature and duration of any intended works
- Liaise with your tenants as to the impact the works could have and how this could reasonably be minimised
- Take into account the nature of your tenant's use of the premises
- If the works can only be done in a way which is likely to interfere with the use and enjoyment of the premises, consider whether a rent discount might be appropriate