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28/12/17

Striking the balance – a landlord’s right to redevelop v. a tenant’s right to quiet enjoyment

In what is proving to be a competitive market, commercial landlords are increasingly taking the opportunity to improve yields by undertaking development projects in tenanted premises.

Changing energy efficiency requirements have also been a catalyst for landlords to carry out works to bring buildings up to a ‘lettable standard’. However, in undertaking such works landlords often find themselves treading a fine line so as not to interfere with the tenant’s possession and enjoyment of a property.

It is almost a certainty that any lease, be it of commercial or residential premises, will include a covenant on the part of the landlord for “quiet enjoyment” and even if it doesn’t, such a covenant will be implied as a matter of law. Whilst many tenants interpret this right of quiet enjoyment as a right to legitimately complain to their landlord about noisy neighbours this is not in fact the purpose of the provision.

So what does “quiet enjoyment” mean and how can a landlord achieve the delicate balance of carrying out redevelopment works without interfering with their tenants’ quiet enjoyment rights?

The starting point is to put paid to the common misconception that the word “quiet” in quiet enjoyment means the absence of noise. Despite the fact that a number of cases on the subject have been noise related in fact “quiet” in this context means without interruption of possession. The covenant for quiet enjoyment is therefore broken if the landlord does anything that substantially interferes with the tenant’s ordinary and lawful enjoyment of the premises.

In practice, there is a degree of overlap between a tenant’s right to occupy the premises free from substantial interruption by the landlord, and that of derogation from grant where a landlord has taken steps, or granted rights to another party, which render the premises unfit or unsuitable for the purpose for which they were let. Tenants who bring a claim against their landlord in relation to development works will often make a claim both for breach of the covenant for quiet enjoyment and for derogation from grant.

It is often very difficult to reconcile quiet enjoyment with other covenants in a lease and whether or not a landlord has breached a quiet enjoyment covenant or derogated from grant will depend on the facts and circumstances of a particular case. There will inevitably be some degree of conflict where a landlord carries out works to a tenanted property. How best to cope with this conflict requires a sound legal and practical approach.

In terms of the legalities, a well-drafted commercial lease will always contain specific rights which enable landlords to carry out building works around existing tenants, notwithstanding the disturbance that may be caused. Such rights will usually need to be balanced against a tenant’s right to quiet enjoyment of its premises. Tenants will want redevelopment rights qualified by landlord’s covenants to use reasonable endeavours to minimise the disruption caused by such works and to make good any resulting damage.

In practice, the starting point for landlords is to acknowledge that if they are going to carry out development works pursuant to an express right in the lease such works are inevitably going to cause disturbance to a tenant and they must therefore be able to show they have taken all reasonable precautions to minimise disruption in order to reduce the risk of a tenant making a claim for damages or requesting an injunction to restrain works.

While the individual circumstances will of course dictate what is “reasonable”, case law provides useful guidance for all manner of landlords who are about to embark on a project to redevelop their property. Precautionary steps that a landlord may take to reduce the risk of liability include:

  • opening a dialogue with the tenant at the earliest opportunity when works are being considered and maintaining that communication during the course of the project;
  • meeting with the tenant at regular intervals during the course of the works to continue assessing any concerns and how best they can be mitigated;
  • taking into account any wishes of the tenant and ensuring that they are listened to and their wishes acted upon;
  • instructing contractors specifically to take into account the tenant’s use and enjoyment of the premises;
  • carrying out the works in a reasonable and considerate way and in particular timetabling the most disruptive works to take place at the least disruptive time for the tenant;
  • designing any scaffolding to have the least visual impact on the property;
  • offering financial compensation, or a rent reduction during the works to compensate for the disturbance which, case law has indicated may lower the bar of reasonableness which the landlord’s works needed to reach.

Finally, it is worth bearing in mind that what is “reasonable” will be influenced by whether the tenant ultimately benefits from the works to be undertaken. To this end, in addition to adopting any appropriate precautionary measures, by identifying any element of the works that also benefit the tenant such as modernisation or repair will place a landlord in a position of strength to rebut a claim of unreasonableness when carrying out redevelopment works.