It’s…Oh…So…Quiet and so Peaceful Until…
13/01/2017 | ACUMEN BUSINESS LAW
The interests of landlords and tenants can often come into conflict during the term of any tenancy. This can be particularly relevant where a landlord wants to carry out works to a property which is occupied by a tenant. Recent case law on this point has certainly made for interesting reading for both landlords (who want to carry out the works with minimal fuss) and tenants (who do not want their use of the property curtailed in any way).
Landlords will almost always find themselves under a covenant of quiet enjoyment, either by implication or, as is usually the case, by way of an express covenant contained in the lease. The term quiet enjoyment does not only protect a tenant from excessive noise or caterwauling but also ensures that a tenant can use its property without any obstruction of interruption. It is generally a non-controversial notion that such protection is granted to a tenant and so a quiet enjoyment covenant will usually be contained in most modern leases.
Quiet enjoyment covenants become particularly relevant when a landlord wants to carry out work on a property. In such circumstances landlords are likely to find themselves trying to balance the need to carry out work in the most cost effective and efficient manner and their obligations to the tenant under the quiet enjoyment covenant, which may be breached if any of the works interfere with the tenants use of the property.
What do the Courts Say?
This fine line was considered recently in the case Timothy Taylor Ltd v Mayfair House Corporation.
In the case the landlord had reserved its right to rebuild the property, part of which was let out to the tenants and the lease even went so far as to state that works could be carried out even if the use of the property would be materially affected. The landlord started work accordingly from the first floor upwards and as a result the tenant, who paid over £500,000.00 rent per annum and ran a high end art gallery on the ground floor and basement level, suffered major disturbances.
In reaching this decision the court stated that the right to carry out building work was subject to the landlord’s obligation to take all reasonable steps to minimise disturbance to the tenant. As such, the court decided that the landlord was liable to the tenant for damages of 20% of the price of the rent for breach of the quiet enjoyment covenant, despite the fact that the tenant had not suffered a loss of profits. The court did not, however, grant an injunction restricting the scope of works to be carried out, but instead ordered that the future rent payable would be reduced by 20% until the works were completed.
The decision has clear implications for landlords, who must make sure they take all reasonable steps to minimise any interference with their tenant’s use of the property. In particular, landlords should take care when planning building works on premises which contain tenants and make sure they take the following practical steps, which were discussed in the case:
• Notice - courts will generally have regard to whether or not the tenant was given ample notice of any proposed works. This not only relates to giving notice to a current tenant of planned work but also informing a prospective tenant if work is planned.
• Communication - another practical step which will be looked at favourably is consulting with tenants to try and find a solution to minimise disruption.
• Don’t obstruct - landlords should also ensure that any scaffolding or structure will not obstruct the property.
• Compensate - another issue which worked against the landlord in the case was its failure to offer any compensation to the tenant. Whilst this will have a direct impact on the cost of carrying out works, offering such compensation is likely to negate a long court battle, particularly as documentation can be drafted for the tenant to sign preventing it from bringing a claim.
Tenants Take Note!
The case highlights the importance of a quiet enjoyment covenant and how it can serve a tenant’s interests. Even when a lease reserves the landlord’s right to carry out works, such work must be done in accordance with the tenant’s right to quiet enjoyment. This is an important outcome of the case as tenants may read their lease, see that the landlord has the right to build, and just make do with the situation.
As is clear from the case, even where no loss of profits has occurred a tenant may be entitled to damages, however as a practical point it would be prudent for tenants to keep notes of any interference resulting from building works as such evidence may help maximise any damages claim.
There are obviously different points to take from the case for both landlords and tenants. Clearly, in the case of landlords the ultimate outcome is that carrying out works may become somewhat more costly but risk of facing costly proceedings should be enough to justify those costs on a commercial basis. For tenants, even though case law seems to be on their side, it is important to be prepared to discuss the situation with their landlords in order to find a way that both parties can achieve their objectives without the need for court action. It is therefore apparent that the ultimate take home point here is the one which equally applies to both sides – the best way to deal with building works when a tenant occupies a property is for both parties to discuss a mutually suitable way forwards and reasonable compensation.