In this case, the Claimant tenant sought an injunction and damages against the Defendant landlord in relation to building works being carried out above the tenant at 14/15 Carlos Place, Mayfair, London W1.
The Claimant is the tenant of the ground and basement floors under a lease which runs for 20 years from 2007. The initial annual rent was £360,000 and it was increased to £510,000 in 2012/3, £520,000 in 2014, and £530,000 in 2015/6.
Since 2013, the Defendant has pursued substantial works to virtually rebuild the interior of the premises from the first floor upwards so as to create a number of residential apartments. It was the Claimant’s case that the Defendant has undertaken these works in breach of the terms of the lease and, in particular, that it had behaved unreasonably in relation to the erection of scaffolding enveloping the whole of the building and with regard to undertaking noisy works.
The Claimant operates its premises as an Art Gallery and claimed that that its enjoyment and use of the premises has been substantially disturbed. Its employees and customers have suffered from the noise and general interference caused by the works. Somewhat surprisingly, the Claimant has not suffered any reduction in its profits during this period of time.
There was no issue that, under the lease, the Defendant has the right to carry out building works and to erect scaffolding (providing access was maintained). The dispute related to the manner in which the Defendant had proceeded in this respect and, as is frequently the case, the dispute centred on what was the right balance to be found between the landlord’s rights under a lease to develop adjoining premises and the tenant’s rights under a lease for quite enjoyment of their premises.
The Judge summarised the already established law in this field. He confirmed that a landlord has the right to do the work contemplated by the reservation of rights to build in a lease provided that, in doing that work, the landlord has taken all reasonable steps to minimise the disturbance to the tenant caused thereby.
In this case, the Judge took particular note of the quality of the premises and their location and the high rent payable and of the fact that the landlord was undertaking the works for its own benefit (rather than simply seeking to comply with any repairing obligation or any duty to the tenant).
The Judge also listed the following propositions which he thought needed to be taken into account in deciding what is or isn’t reasonable:
- In considering what can reasonably be carried out, it is relevant what knowledge or notice the tenant had of the works intended to be carried out by the landlord at the commencement of the lease.
- An offer by the landlord of financial compensation to the tenant to compensate the tenant for disturbance caused by the works is a factor which the Court is entitled to take into account in considering the overall reasonableness of the steps which a landlord has taken.
After hearing the witness and expert evidence, the Judge made the following findings:
- The Claimant had no specific knowledge of the works intended when it took the lease. It knew nothing more than that there was a possibility that the Defendant might be carrying out some redevelopment works in the future.
- Contrary to the Defendant’s case, the rent that had been agreed on review did not take into any account the building works that were now being undertaken (so the Defendant could not argue that it had already given some concession in this regard in return for being able to proceed as it wished).
- It is not sufficient for a landlord to argue that a tenant has notice of works simply because planning permission has been granted. It is incumbent upon a landlord to provide a tenant with full details of the proposed works in advance and to consult and liaise with the tenant to minimise the disturbance.
- It is also not sufficient for a landlord to rely upon terms in the Building Contract which require the contractor to have regard to the tenant in occupation. A contractor will not have knowledge or regard to the leasehold rights of a tenant and, in this case, had designed and erected the scaffolding in a way which enveloped the building entirely rather than in “towers” so that the scaffolding was far less intrusive and it could be seen that the Art Gallery was open for business and it was as readily accessible as before.
- The carrying out of the works did substantially interfere with the use and enjoyment of the premises as an Art Gallery. There were periods of high levels of noise on almost a daily basis (although the contractors undertook noisy works for only 2 hours at a time with a 2 hour gap between) and it was not until some time after the works had commenced that the Claimant was given any advance notice regarding noisy works so that it could try to organise its business to fit in with noisy and quiet periods.
- 6. It was no defence for the Defendant to argue that it had not been allowed to install its own noise monitoring equipment. The works were undoubtedly generating at times high levels of noise which were bound to be disturbing to staff and customers in what was supposed to be a peaceful and quiet high class Art Gallery in Mayfair. The issue was not whether or not high levels of noise beyond nuisance levels were at times being created but whether the Defendant had been acting reasonably in the exercise of its right to build by taking all reasonable steps to minimise the amount of disturbance being suffered by the Claimant.
- The failure and refusal of the Defendant to offer any form of rental discount raised the bar as to what level of reasonableness was required on its part.
- The way the scaffolding was designed and erected paid no or little regard to the interests of the Claimant and was, for that reason, entirely unreasonable. Furthermore, the positioning of the hoist close to the entrance of the Gallery had the consequence that lorries delivering building materials frequently blocked the front of the Gallery and, thereby further interfered with the Claimant’s rights to quiet enjoyment and constituted a derogation from grant.
- Although the Defendant called expert evidence to try to justify the steps taken regarding erection of the scaffolding and the hoists, the Judge found that there was no particular structural or other reason why the scaffolding had to be erected in such an intrusive manner (thereby creating a coffin-like enclave).
- The real issue regarding the level of noise was in relation to the lack of any real liaison with the Claimant right from the start of the works. It was vital for any tenant to know the likely duration of the works, the noise levels likely to be experienced, and for there to be discussion as to the means of being able to mitigate the impact of such noise on the tenant. The failure of the Defendant and/or its representatives to sit down with the tenant and to engage until a much later stage amounted to a breach of the covenant of quite enjoyment and derogation from grant.
- An Injunction would not be appropriate. It was likely to be impracticable. It is inherently difficult to set a precise limit on levels of noise and as to how building works should be undertaken. This was likely to only lead to further litigation and, as the scaffolding had already been in place for 19 months and would take some 3 months to reassemble into towers, it would be disproportionate to require the Defendant to carry out such works. Damages would be the appropriate remedy for the Defendant’s past and future breaches of the lease.
- The level of damages should be a reduction in 20% of the rent payable during the course of the works. This figure was determined after hearing evidence from the Claimant’s expert that a rebate of between 20%-30% would be appropriate; as opposed to the Defendant’s expert’s argument that the rebate should be 15%.
There are, of course, many lessons for landlords and their representatives to learn from this case. The reservation of a right to build does not entitle a landlord to trammel over the tenant’s rights and a landlord who does not consult fully or offer any form of compensation is likely to have to satisfy a very high bar of reasonableness if it is not going to have any liability to a tenant.
There are lessons for tenants to learn as well. In particular, to seek to insert added protection in their leases regarding requiring consultation and the use of best endeavours by the landlord to minimise any disturbance.