A landlord’s right to build versus a tenant’s right to quiet enjoyment

28 / 09 / 2016

Commercial leases usually contain an express covenant by the landlord to give the tenant quiet enjoyment of the demised premises i.e. to ensure that there is no interference with the tenant’s possession and enjoyment of the demised premises and reserve various rights to the landlord including rights to carry out works to the demised premises or adjoining premises, even if such works affect or interfere with the tenant’s business. In the recent case of Timothy Taylor Ltd v Mayfair House Corporation [2016] EWHC 1075 the High Court considered the relationship between these two provisions.

The Case

Timothy Taylor Limited (“the Tenant“) held a 20 year lease of the ground floor and basement of a five storey building in Mayfair (“the Property“) at a rent of over £500,000 per annum, from which it operated a high-class art gallery. Mayfair House Corporation (“the Landlord“) retained the remaining floors.

The Tenant’s lease contained a covenant by the Landlord to give the Tenant quiet enjoyment of the Property. The Tenant however had been made aware that some work would be carried out to the building during the term of the lease, therefore the lease reserved to the Landlord:

  • the right to alter or rebuild the building even if the Property or its use and enjoyment were materially affected; and
  • the right to erect scaffolding temporarily, provided that this did not materially restrict access to or the use and enjoyment of the Property.

The lease was granted in 2007 and in 2013 the Landlord began extensive works to develop the upper floors of the building as new apartments. These works were very noisy and involved scaffolding which wrapped around the building, largely obscuring the gallery from view.

The Tenant claimed that its business was seriously affected by these works and that the Landlord was in breach of the quiet enjoyment covenant.

The Decision

The Court ruled that although the Landlord had the right to carry out works to the building it had not taken all reasonable steps to minimise disruption to the Tenant. The Landlord was therefore exercising its rights unreasonably and was in breach of its quiet enjoyment covenant.

In considering whether a landlord has exercised its rights reasonably the court may consider:

  • The nature of the tenant’s business – In this case the Property was used as a high-class art gallery, so the Landlord had to exercise its rights with regard to the Tenant’s need to keep the gallery running with as little disturbance as possible.
  • What knowledge or notice the tenant has of the intended works at the start of the lease – in this case the Tenant only had a very general idea of the Landlord’s intention to carry out works at some stage, rather than specific details.
  • Any offer of financial compensation made to the tenant – In this case the Tenant requested financial compensation but this was refused by the Landlord. The Court found that the Landlord was entitled to refuse to financially compensate the Tenant but that this increased the level of reasonableness required.
  • Whether the works were being carried out for the personal benefit of the landlord or for the benefit of some or all of the tenants in the building – In this case the works were entirely for the Landlord’s benefit.

The Court awarded the Tenant a rebate of 20% discount on the annual rent, backdated from the date of commencement of the works.

Points for landlords to consider when intending to carry out works

Landlords should:

  • Give tenants as much information as possible regarding anticipated works, before the lease is granted.
  • Schedule frequent meetings with tenants so as to address any specific concerns and adjust any method statement accordingly.
  • Instruct contractors to carry out the works with due regard to the occupation and use of premises by tenants.
  • Consider scaffolding options which avoid obscuring tenants’ premises.
  • Consider offering compensation to tenants.