Landlord and tenant disputes

Big money and high society always pique press interest. Timothy Taylor Ltd v Mayfair House Corporation and another [2016] EWHC 1075 (Ch) has been covered in the Daily Telegraph as well as legal publications.

The tenant (or, as the Telegraph described him, the 52-year-old husband of the Duke of Kent’s daughter) has a lease of ground floor and basement premises in Mayfair for a high-class modern art gallery. The landlord has, since 2013, been carrying out extensive work on the rest of the building to rebuild the interior from the first floor up and create a number of apartments. The tenant accepted that the landlord had the right to carry out work and that this would have some effect on the tenant’s use and enjoyment of its premises.

However the tenant - Timothy Taylor (pictured) - claimed that the manner in which the works were carried out, and continued to be carried out, was unreasonable: the tenant sought damages for previous works and an injunction to regulate future works.

What covenants had the landlord breached? Was the tenant entitled to the one thing a developer fears most, mid-build: an injunction? What are the wider lessons for practitioners from this case?

The Timothy Taylor lease had two relevant landlord obligations common to many leases and one more specific one. There was an unqualified covenant for quiet enjoyment. This can be breached if the landlord carries out activities on land adjoining the demised premises which substantially interfere with the use and enjoyment of the premises by the tenant. The implied covenant not to derogate from grant is also relevant – as is so often the case in landlord and tenant, the terms of the lease do not tell the whole story.

Finally, the landlord had reserved the right to erect scaffolding, on the following terms: ‘The right to temporarily erect scaffolding for any purposes connected with or related to the building or the premises, provided it does not materially adversely restrict access to, or the use and enjoyment of, the premises and the landlord agrees to use all reasonable endeavours to minimise the time for which scaffolding is erected on or in connection with the building.’

Works started in August 2014, as did complaints from the tenant about noise levels within the demise. The tenant soon discovered that a neighbouring gallery had been paid £50,000 as compensation for scaffolding and asked the landlord for compensation. This was refused. By December solicitors had become involved and in March 2015 the tenant installed noise-monitoring apparatus.

The final straw seems to have been in June 2015, when the landlord asserted that it had rights under the lease to come into the premises and remain there for three to four weeks to remove a screed containing asbestos by accessing the ceiling in the premises. The gallery would need to close during this period.

The inter-relationship between the landlord’s right to build and the tenant’s right to quiet enjoyment required the court to balance the conflicting rights of the two parties. The judge said that there were a number of key factors:

• Communication between the parties. After work had started and before the matter became litigious, the landlord met the gallery manager two or three times a week. A programme of two hours on, two hours off for noisy works was instituted and, by and large, the tenant’s requests for particular periods of quiet were adhered to. However, there was no discussion with the tenant about the works programme before the work started and the tenant was not given a date by which the works would be likely to stop.
• The works were carried out for the landlord’s sole profit, not as part of a repairing obligation to the tenant.
• The use of premises as a high-class art gallery was important – staff and customers would expect a contemplative space.
• The rent was at a high market level. There was no evidence to suggest the tenant had accepted a discounted rent in anticipation of disruptive works in the rest of the building. Although the landlord was not obliged to offer a discount, the lack of offer was relevant to whether the landlord’s behaviour had been reasonable.
• Scaffolding wrapped the entire building, making the gallery hard to see. It would have been possible for the scaffolding to be designed differently, but the landlord had not asked its contractors to consider the effect of the scaffolding on the tenant. In addition, two hoists used as part of the works meant it was very hard to find the access to the premises. The hoists could have been sited differently, which would have made the gallery entrance easier to find.
• The cumulative effect of the works was also important – the scaffolding and noise levels had to be looked at together.

The judge decided that the landlord was exercising its right unreasonably when it erected the scaffolding in the way that it did. The way the works were done substantially interfered with the use and enjoyment of the premises as an art gallery. The landlord had breached both the express covenant for quiet enjoyment and the implied covenant not to derogate from grant. Furthermore, as the scaffolding materially impeded the entrance to the premises, the landlord had not complied with the terms of the reserved right to put up scaffolding.

As far as the noise was concerned, the landlord’s failure to liaise with the tenant before the works started was  critical. The landlord should have sat down with the tenant to discuss the works and sought to agree a method by which the works could have been carried out with the minimum of disturbance.

By failing to do so, the landlord deprived the tenant of the ability to make a decision to move out while the works were being carried out. When a landlord is carrying out major work it is reasonable for a tenant whose premises have virtually been incorporated into a building site to know when the works might cease.

The tenant had sought an injunction. However the trial was almost two years after the work had started. The court could only award damages for the breach of covenant before the trial.

A claim for loss of profits was somewhat hampered by evidence suggesting the tenant’s profits had actually increased during the relevant period. In any event, the judge felt that assessing the tenant’s loss in terms of use and enjoyment was a more attractive method of calculation and that this should be assessed as a rent rebate: a 20% reduction was ordered. In principle an injunction was available for future works, but by trial there were only 12 weeks’ work left to do.

It would take the landlord 12 weeks to dismantle the wrap-around scaffolding and erect a more suitable alternative. Any injunction would also require policing by the court. The judge declined to award an injunction and ordered the 20% rent discount to continue, strictly on the basis the tenant’s suffering continued at the same level as before.

It seems to me that the landlord will have been delighted to avoid an injunction: delay in pursuing legal remedies coupled with the usual delay in the court process were important in the award of money damages. Practitioners will be able to advise their clients on what a reasonable developer/landlord should do in similar situations. But more thought around the construction process could have avoided the case entirely.

A holistic approach is what is called for here: the brief to the landlord’s professional team, especially the scaffolding contractors, ignored any concept of landlord and tenant issues. Solicitors practise in increasingly specialised teams, but that does not mean we need not be alert to issues from related fields of work.

Suzanne Gill is commercial property partner at Wedlake Bell