Refurb of tenanted properties

Any building that is ripe for refurbishment or maintenance means an exciting project and a very busy time. The owner has to choose the scope of the works and financing, while contractors have to pitch and put together project management programmes and documentation.
But if the building is let, it is very important that tenants do not get overlooked in all the work that goes into compiling method statements and timescales. Tenants will not be thrilled at the erection of scaffolding, dust sheets and hoarding, or noise, vibrations, dust and dirt.

Landlords and contractors who fail to take this into account from the outset could find themselves facing lengthy delays and substantial costs if tenants take action.

For this reason, parties working on tenanted properties should seek advice at an early stage, and take appropriate measures.

What rights do tenants have?

Tenants have the right to enjoy their premises without disturbance. This is known as “quiet enjoyment”. The landlord also has a duty not to “derogate from grant”, ie. anything that makes the property less valuable or attractive than it was when the lease was granted.

It is possible that building works would breach these rights and give the tenant the opportunity to pursue a claim for an injunction to stop the works and/or compensation.

What rights do landlords have?

The tenant is not the only party to have rights. Landlords may also have obligations to carry out repairs, or rights to carry out works to other parts of the site. Sometimes it will be impossible to do these works without breaching the tenant’s rights. If the landlord is prevented from doing the works, it could face claims from other tenants, a loss in the value of its property, or lose the ability to carry out valuable redevelopment.

What approach do the courts take?

How can these rights be balanced fairly for both parties? This is an important question and, with the current significant increase in construction and property transactions, “can the landlord erect scaffolding” in particular is a query that we are asked regularly.

Seeking early advice on tenant rights is the best way to ensure minimal disruption for all parties

There are two important cases to bear in mind when planning works. In the first one, Goldmile Properties Ltd vs Lechouritis [2003], the tenant’s business was a restaurant. The landlord needed to carry out repairs. The builders erected scaffolding and sheeting, which made the restaurant appear closed. The inside looked dark and dingy, and was infested with dust. The tenant sued the landlord for disruption to his business.

The court found that, given the nature of the works, some degree of disruption was inevitable. Even where there will obviously be interference to the tenant, the test is: has the landlord used all reasonable precautions to minimise disturbance? The test is not: has there actually been disturbance. In this case, the landlord had taken all reasonable precautions.

The issue arose again earlier this year, in Century Projects Ltd vs Almacantar (Centre Point) Ltd [2014]. It is memorable, because it involves London landmark Centre Point and an exclusive restaurant tenant that relies upon its penthouse views.

The landlord was carrying out development works, and discovered that the building facade required repairs. It considered alternative methods before selecting traditional scaffolding covered in sheeting. When the tenant was told that this scaffolding would be in place for four to six months, it said that this would kill the business, and applied for an injunction to stop the works.

The court refused the injunction because of concerns that the tenant could not meet the landlord’s damages claim if the landlord wIere ultimately successful. However, it made some very useful comments on how conflicting rights of landlord and tenant should be balanced in this situation. Fundamentally, where there is a covenant for quiet enjoyment and an obligation / right for the landlord to do works, neither is an ace that automatically trumps the other. On the contrary, they must be made to work together. This means that the landlord should be permitted to carry out works, provided that it acts reasonably.

How can landlords and contractors do this?

It is for the party doing the works to decide what is done and how it is done. However, landlords cannot simply do whatever they like. There is a clear duty to act reasonably when making choices.

Seeking early advice on the rights of the tenants is therefore the best way to ensure minimal disruption for all parties. This should be borne in mind when preparing the project documentation, and landlords and contractors should keep records that all alternatives have been fairly considered.

If the landlord can prove that it has taken “all reasonable steps” to minimise disruption, this will be the best way to protect the project from expensive or even fatal delays.

Jill Carey is senior associate in the Real Estate Disputes team at international law firm Taylor Wessing