A typical lease will give the tenant a right to quietly enjoy the premises whilst at the same time reserving for the landlord a right to carry out building works. But how do these competing interests work where the landlord surrounds the building with scaffolding? This issue was considered in a recent High Court decision.
The tenant operated a high-class art gallery from a building in Mayfair, London paying a rent of £530,000 a year.
The lease contained the usual competing interests:
- A covenant by the landlord to permit the tenant to peaceably and quietly enjoy the premises without any interruption and disturbance from or by the landlord
- An express right for the landlord to alter or rebuild the remainder of the building even if the tenant’s premises or their use or enjoyment were materially affected
- The right for the landlord to erect scaffolding temporarily provided that this did not materially adversely restrict access to, or the use and enjoyment of, the premises.
In 2013, the landlord began works to substantially develop/rebuild the upper floors of the building (to
create new apartments to let). Although some disruption to the tenant’s use and enjoyment was inevitable, the tenant contended that the works being carried out were unreasonable due to the high levels of noise, and the scaffolding design, which enwrapped the gallery in the building and made it almost invisible. The tenant claimed that the landlord had failed to take ‘all reasonable steps’ to minimise the disturbance from the works and was therefore in breach of its covenant for quiet enjoyment. The tenant claimed damages for past breaches of its right to quiet enjoyment and an injunction requiring the landlord to dismantle the scaffolding and restrict noise levels.
High Court decision
The court reaffirmed that the test is whether the landlord had been exercising its rights to build unreasonably and whether it had taken ‘all reasonable steps’ to minimise disturbance to the tenant.
The court concluded that the landlord was acting unreasonably in the exercise of its right to build and was in breach of its covenant for quiet enjoyment for a number of reasons including the following:
¡The landlord did not have regard to the tenant’s need to keep the gallery running particularly where the gallery was let at a substantial rent
¡The landlord’s refusal to offer any form of discount for the disturbance being caused
¡The design of the scaffolding paid little regard to the tenant’s interest and was unreasonable as it obstructed access to the gallery
¡There was no prior consultation with the tenant to discuss the works, the noise levels and how the landlord could mitigate the impact of the noise on the gallery.
The court awarded the tenant a 20% discount on its rent in respect of past breaches. As for future breaches, the court decided that it was impractical to grant an injunction and considered damages the more appropriate remedy, assessed as 20% discount on rent until the works were finished.
This case highlights that even where a landlord expressly reserves a right in the lease to carry out substantial building works, it does not mean that the landlord can impede on and disregard the tenant’s rights. The landlord should always bear in mind that it has an obligation to give the tenant quiet enjoyment and not to derogate from its grant.
Going forward, landlords should consider the following:
- Ensuring that tenants are made aware of and given as much information as possible of any plans for redevelopment at the outset/prior to the lease being granted
- Meeting with tenants to discuss the planned works and how the disturbance can be minimised
- Ensuring the contractor is aware of any requirements agreed between the landlord and tenant in respect of the tenant’s use and enjoyment of the premises
- Continuing to meet with tenants at regular intervals during the course of the works to address any concerns and ensure they are informed of progress and any problems
- Designing the scaffolding in a way to ensure it does not obscure the premises i.e. it protects the appearance of the tenant’s premises and prevents access being obstructed
- Discussing noise levels with the tenants and agree on how to minimise disturbance, perhaps setting quiet periods
- Offering compensation by way of discounted rent
- Noting the standard of reasonableness required may be more stringent where the landlord is carrying out works for its own benefit rather than the tenants’.