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Landlords’ right to build subject to quiet enjoyment covenant

July 2016

The High Court has recently considered whether a landlord breached its covenant for quiet enjoyment by carrying out rebuilding works (Timothy Taylor Ltd v Mayfair House Corporation and another [2016] EWHC 1075 (Ch)).

The tenant had taken out a 20 year lease in 2007 of the basement and ground floors of a five story building in Mayfair, London, for an annual rent of £530,000, from which it operated an art gallery. The lease expressly reserved the right for the landlord to erect temporary scaffolding and to alter and rebuild the property, provided the tenants access and use and enjoyment of the property was not materially adversely affected.

In 2013, the landlord commenced such works, the tenant accepting its right to do so and that some disruption was inevitable. However, due to the high levels of noise and the effect of the scaffolding erected, being substantially different in design to that discussed and obscuring the gallery almost entirely, the tenant argued that the manner of the works were unreasonable and its use and enjoyment of the property were substantially interfered with.

In balancing the landlord’s expressly reserved rights against its covenant to allow quiet enjoyment and the implied obligation not to derogate from its grant, the Court considered the knowledge or notice of the intended works in possession of the tenant at the commencement of the lease, any financial compensation offered by the landlord for the disturbance caused and who would benefit from the works, and concluded that the express lease provisions did not allow the landlord to disregard the tenant’s other rights and that the landlord had acted unreasonably and was in breach of its covenant for quiet enjoyment and in derogation from grant.

As landlords often reserve wide rights of this nature in commercial leases, this case provides useful guidance on how the courts will approach this issue when a dispute arises.
Practical considerations for landlords

    Recognise the standard of reasonableness may be higher if the works are solely for the landlord’s benefit, where no compensation is offered or where the premises are of high value
    Provide as much information to the tenant about the proposed works prior to granting the lease
    At the tender stage, meet with the tenant to discuss how disruption might be minimised and ensure any specific requirements that are agreed are passed on and implemented
    Ensure the works are designed in such a way so as to protect the appearance and use of the tenant’s premises, as far as reasonably practicable
    Discuss what will constitute noisy works and agree with the tenant how disturbance might be minimised
    Ensure that project managers meet with and update tenants on a regular basis
    Ensure the tenant is informed about the likely timescales involved
    Ensure the terms of the lease relating to carrying out works are strictly adhered to

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