Landlord's works v tenant's quiet enjoyment: Practical solutions to a perennial problem

19th February 2020

Steve Nixon and David Manda, experts in Real Estate transactional work and litigation respectively, offer practical advice following a recent case concerning the tension that so often arises when a landlord’s repair or development works entail disruption for its tenant.

Why is this case of interest?

The recent appeal case of Jafari v Tareem Ltd [1] affirms the approach the courts will take in trying to strike a balance between a tenant’s right to quiet enjoyment under a lease, and the landlord’s right to repair or develop its property.

On the one hand, the ability to carry out works is a fundamental proprietorial right and is crucial for landlords who want to properly maintain or realise the value of their property.  On the other hand, it is an essential tenet of the landlord and tenant relationship that the tenant be able to enjoy its leasehold interest.

This case demonstrates that collaboration between the parties can help to avoid disputes arising; and that, where litigation is required, evidence of the landlord’s conduct and of the true consequences for the tenant will be key.

What practical advice arises?

Landlords:

• If you wish to develop your property, you need not do everything that is possible, but you must do everything that is reasonable, to minimise disturbance to the tenant.
• A collaborative approach with the tenant will aid the process, pre-emptively mitigate any potential claims, and can even minimise the chance of a dispute arising at all.
• Issues to consider in advance with the tenant can include: reviewing the overall plans, deciding access routes for the works, the positioning of scaffolding, minimising disruption to the appearance of the premises, minimising noise pollution, offering financial compensation, and so on.
• If you are not in the financial position to offer the payment of compensation, or if you are depending on the rental income to fund the development, restricting the hours in which the works are conducted will minimise disruption and avoid the tenant suffering noise during their hours of operation. This can be essential if the tenant is operating a business from the premises.
• Jafari v Tareem confirms that any offer of financial compensation can be taken into account. It can to help to establish the overall reasonableness of the landlord’s approach; is an effective mechanism in appeasing the tenant and preserving relationships; and can mitigate against any potential damages award.
• However, the adequacy of any financial compensation will depend on the facts of the case and should be carefully assessed. For example, in this case the tenant was not able to prove that the works had directly caused a financial downturn in the business in the relevant period, nor was it able to sufficiently prove that the works caused intolerable noise outside of the restricted hours. This allowed the judge to look favourably upon the rent waiver proffered by the landlord as “both substantial and generous”. Simply offering a nominal amount of financial compensation as a box-ticking exercise is unlikely to suffice.

Tenants:

• Whilst disruption to your business and/or your overall enjoyment of your property by virtue of landlord’s works is no doubt frustrating, it can be an inevitability.
• In order to avoid the time, cost and risk inherent in any litigation, engaging with the landlord and helping to shape its plans and its development operations can be the most effective way of protecting your position and minimising disturbance and damage suffered.
• In case issues do arise, however, tenants are best advised to keep a methodical and thorough record of the works, the landlord’s/contractors’ approach and any instances of disruption to quiet enjoyment, including – crucially – any direct impact, loss or damage suffered as a result. Causation is an essential element of any successful claim, and must be proved with evidence.

What happened in the particular case?

The tenant, Dr Jafari, operated a dental practice within the north block of a building. The landlord, Tareem Limited, owned the building and elected to convert the rest of the property into a 134-bedroom hotel. Given that this would be a substantial project that would inevitably impact the tenant to some degree, the landlord waived the rent for the period of the works.

Despite this, the tenant alleged that the works caused a significant amount of noise, and the scaffolding erected around the exterior of the property obscured the entrance to his premises making it look closed. He claimed to have a suffered a significant financial downturn in the profitability of the business as a result, and stopped paying rent altogether. The landlord brought a claim for arrears, and the tenant counterclaimed for breach of the quiet enjoyment covenant.

The questions for the court at first instance where whether the landlord had taken all reasonable steps to minimise disturbance, and whether the court should take into consideration the rent waiver.

The court acknowledged that more could have been done to minimise the impact to the tenant, but found that the landlord did take all reasonable steps, including offering financial compensation.  The tenant appealed to the High Court.

What did the appeal court decide?

The tenant argued on appeal that the judge at first instance showed a lack of consistency by acknowledging the failure of the landlord to take all possible steps (including the landlord’s failure to act only within restricted hours), and that the court should not have factored in the rent waiver.

The High Court disagreed: the decision could only be overturned if there was a clear gap in logic, or a failure to take into account a material factor. Although the first instance judge had acknowledged that the landlord could have done more to minimise the disturbance, the landlord had “principally” worked within the restricted hours, and they had more than recompensed for this with the amount of rent waiver. Even if the judge was wrong to account for the rent waiver in this way, he would have concluded that the rent waiver objectively acted as generous compensation, and would therefore have mitigated against any further damages being awarded.

The tenant also failed to produce clear evidence that any significant financial loss was caused as a result of the landlord’s works – there were, on the facts, other possible causes for the tenant’s financial loss, and that was fatal to the tenant’s claim.

The appeal failed on all grounds.

WM Comment

Collaboration is inevitably the best course – not only for avoiding disputes in the short term, but also for preserving the ongoing landlord and tenant relationship.  However, if collaboration attempts prove unsuccessful, it may be sensible to seek expert advice on how to handle the competing rights of the parties and what legal recourse might be available to you.

Please do not hesitate to contact Steve, David or any member of the Real Estate or Real Estate Litigation teams if you would like any further advice or assistance.

[1] [2019] EWHC 3119 (Ch)