Active asset management
The market's a bit choppy and you need to maximise the value of your portfolio. By adding a new floor to one of your properties you'll significantly increase its value. Part of the property is currently let, but you've always thought that you might want to extend so you've expressly reserved a right in the lease to do so, even if your works materially affect the use of that part.
Q. Do I still have to worry about the tenant?
Most commercial leases have a covenant for "quiet enjoyment", which means that the landlord must not do anything to substantially interfere with the tenant's use and enjoyment of the property.
However, if the lease expressly grants the landlord a right to alter, extend or rebuild then that right has to be balanced with the right to quiet enjoyment.
A tricky balancing act: landlord's vs tenant's rights
Q. So how do I balance the rights?
A. As landlord you are entitled to do the works, because the lease expressly says so, BUT, to avoid breaching the QE covenant, you must take "reasonable steps" to minimise the disturbance to the tenant.
Q. So what steps are reasonable?
A. What is reasonable will depend on the circumstances. The court will look at the landlord's actions and consider them against a number of factors, including:
- The nature of the property. For example, different considerations will apply for high class retail and low grade industrial;
- Why you're carrying out the works. If the works are exclusively for your own benefit and profit and not, say, repair works, then the steps you'll need to take to reduce disturbance to the tenant will be increased.
- Did the tenant know about the works before it took the lease? Has that been factored into the rent? If the tenant knew all about the works and is paying a lower rent to reflect the likely disturbance, then you're in a stronger position.
- How the works are carried out. Have you met and discussed your approach with the tenant? Have you taken steps to control the noise or limit it to set periods that accord with the tenant's needs? Have you designed the scaffolding in the best way to avoid interference? The more you do to show that you have listened to your tenant and tried to accommodate their needs, the better.
- Compensation. You're not obliged to pay compensation, but if you don’t then the steps you'll need to take to reduce disturbance to the tenant will be increased.
Why are you telling me this now?
These principles were set out by the high court in the recent case of Timothy Taylor Ltd v Mayfair House. In that case the landlord refurbished the upper floors of his building and was found to have taken inadequate steps to minimise disturbance to its' tenant. As a consequence the court ordered that the rent should be reduced by 20% for the duration of the works.