What right does a landlord have to develop in contrast to a tenant’s covenant for quiet enjoyment?

The High Court held a landlord who had carried out substantial building works above its tenant’s art gallery had not taken reasonable steps to minimise disturbance to the tenant and was therefore in breach of the tenant’s covenant for quiet enjoyment.

The High Court in the recent case of Timothy Taylor Ltd v Mayfair House Corporation and another (2016) has offered guidance as to how to deal with potentially conflicting rights of a landlord to develop its property whilst observing a tenant’s covenant for quiet enjoyment.

The facts in Timothy Taylor Ltd v Mayfair House Corporation (2016)

Timothy Taylor Ltd was the tenant in this case, who occupied the basement and ground floor of a five storey building in Mayfair. Timothy Taylor Ltd let the premises as a high class art gallery in return for a significant rental sum. The landlord wanted to develop the upper levels of the building into residential apartments, which created high levels of noise and surrounded the building with scaffolding.

The lease contained a clause allowing the landlord to alter or rebuild the building, as well as to erect temporary scaffolding, insofar as it does not adversely restrict access to, or the use and enjoyment of the premises for the tenant. The tenant claimed the development interfered with its covenant allowing it to occupy the premises peaceably and quietly and without any interruption or disturbance from the landlord.

The tenant claimed the landlord did not take all reasonable steps to minimise the interruption caused from the development and as a result was in breach of its covenant to the tenant. The tenant sought damages and an injunction to prevent future works from being carried out.

The decision

The High Court held a landlord should take “all reasonable steps to minimise the disturbance to the tenant caused” by the works. As to the definition of “reasonable”, the court can consider:

1. Whether the tenant had any knowledge of the works at the time the lease was granted

2. Any offer by the landlord to discount the rent during the timeframe, particularly if the property has a high rental value; and

3. The purpose of the works; for example, if the works will benefit all of the tenants or just the landlord.

The court held that in this case the landlord had acted unreasonably and the tenant was successful in its claim for damages, although, the injunction was not granted. Further, the court awarded damages on the basis of a reasonable rent reduction rebate for the duration of the works. Here, this reasonable figure was deemed to be 20%. The landlord was held to be in breach because:

1. The nature of the property. Here, the property was let as a high class art gallery for high rent and as a result, the landlord should have considered that the gallery needed to be kept open and running with little interference;

2. The landlord had refused to consider a rental discount for the period of the works;

3. The landlord had failed to inform the tenant of its plans prior to commencing development; and,

4. The scaffolding was erected in such a way as to make the gallery appear closed. The landlord ought to have erected it in a more sympathetic way.

Whilst the court did not grant an injunction, it did warn the landlord not to finish the development without first considering the tenant’s rights. This should be taken as a warning to landlords who are considering redevelopment in the future.

For further information, please contact the Real Estate Disputes Team at Hamlins.