The prospect of carrying out redevelopment works to a building while it is let to tenants can be attractive for landlords: rental income from the occupied areas can help fund the works being carried out elsewhere, plus it avoids the delay of having to secure vacant possession of the whole building before works can begin.
However, as the recent case of Timothy Taylor Ltd v Mayfair House Corporation and another [2016] EWHC 1075 (Ch); [2016] PLSCS 136 showed, redevelopment around a sitting tenant needs to be managed carefully to avoid landlords falling foul of their lease obligations.
The competing rights
While many commercial leases will contain specific rights enabling a landlord to undertake works to adjoining premises notwithstanding disturbance to an existing occupier, such a right will usually need to be balanced against both:
• the covenant for quiet enjoyment, being the obligation on a landlord (which will be implied into a lease even if it is not expressly stated) not to interfere with the tenant’s possession and enjoyment of the property; and
• the covenant not to derogate from grant, which prevents a landlord from “giving with one hand and taking with the other”.
In Goldmile Properties Ltd v Lechouritis [2003] EWCA Civ 49; [2003] PLSCS 66, it was established that in order to strike the right balance between a landlord’s right to do works on the one hand, and the covenants of quiet enjoyment/non-derogation from grant on the other, a landlord needed to take all reasonable precautions to minimise disturbance to tenants. Timothy Taylor provides further clarity on the application of the Goldmile test.
The facts
Timothy Taylor Ltd ran the business of a high-class art gallery from basement and ground-floor premises in Mayfair. It took a 20-year lease of the premises in 2007, which as well as granting the usual right to quiet enjoyment in favour of the tenant, also reserved to the landlord a right “to alter, raise the height of, or rebuild the Building … in such manner as the Landlord thinks fit even if doing so may obstruct, affect, or interfere with the amenity of or access to the Premises or the passage of light and air to the Premises, and even if they materially affect the Premises or their use and enjoyment”.
In 2013, the landlord embarked upon works to virtually rebuild the interior of the building from the first floor upwards. In 2014, it erected scaffolding around the whole of the exterior, including the gallery’s façade, and placed a hoist above the gallery’s front door for the purposes of lifting construction materials from delivery trucks to the upper levels of the building.
Although the gallery accepted that the landlord had a right to do development works, it complained that the manner in which they were being done breached its right to quiet enjoyment, particularly as regards to:
• the scaffolding which differed in design from the proposals they had previously been shown by the landlord, and which made the gallery almost invisible to the public;
• the positioning of the hoist which caused delivery trucks to regularly park outside the gallery’s entrance, further impeding visibility and access; and
• the high levels of noise being generated by the works which made staff feel unwell and/or work off-site, and had forced the gallery to close its doors on occasion.
The gallery also disputed that the landlord had the right to enter the gallery premises in order to carry out works to the floor above. This would have required the gallery to move out its staff and stock for a period of at least four weeks.
The gallery sought damages for the historical disturbance and injunctions to regulate the landlord’s works going forward.
The decision
The court found that the design of the landlord’s scaffolding and its failure to consult and provide sufficient information to enable the gallery to plan around the worst of the noise were unreasonable and a breach of the lease. The landlord’s refusal to offer a discount on rent during the period of disturbance raised the bar of reasonableness required of it in respect of the works. In addition the landlord’s rights were not wide enough to entitle it to undertake works within the tenant’s premises itself and the gallery ought to be awarded damages to compensate it for the historical disruption it had experienced to date.
While it was impractical for the court to grant an injunction to restrain noisy works to a precise limit and disproportionate to force the landlord to redesign the scaffolding (given it was due to be taken down relatively soon anyway), the gallery was entitled to damages in lieu of injunctions for future disruption until the scaffolding was removed and the noisy works subsided.
Lessons learned
Landlords should take on board the Timothy Taylor ruling and strive to:
• consult with tenants at the earliest opportunity about proposed works, even at the pre-lease stage, since a tenant’s knowledge at the outset of the lease can be relevant in determining the level of obligation on a landlord to limit disturbance;
• work with tenants to find ways of minimising disruption;
• take into account the nature of the tenant’s business: particularly sensitive uses may require more protection;
• incorporate into construction contracts appropriate controls to minimise disturbance to tenants;
• during the works, regularly update tenants on progress, and give advanced warning of delay; and
• while each case will need to be assessed on its merits (and the particular terms of the leases consulted), an offer to discount the rent may prove more beneficial for a landlord in the long run, by avoiding litigation and maintaining good landlord/tenant relations.
Joanna Lampert is a partner and Hayley Harris is a senior associate in real estate disputes at Berwin Leighton Paisner
