27 May 2016

Paying to the Gallery - a cautionary tale for landlords

For a variety of reasons, including repair and redevelopment,  landlords commonly carry out works to buildings whilst there are tenants in occupation.  However, as the recent case of Timothy Taylor Ltd v Mayfair House Corporation & Anr (10 May 2016) shows, landlords should proceed with caution and consultation.  Failure to do so could be costly.

The facts

The Timothy Taylor art gallery ("T") has a lease of the ground and basement floors of premises in Mayfair.  In 2013 the landlord ("L") engaged a contractor to carry out extensive refurbishment works to the rest of the building above the premises.

Issues arose between L and T from August 2014 when scaffolding was first erected and the works began in earnest. T's primary complaints centred on the design of the scaffolding and the noise generated by the works.

The scaffolding

At the time the lease was granted, it was known that some works would be undertaken in the future but, in any event, leases normally reserve a number of building rights in favour of landlords,  including the right to erect scaffolding provided it does not materially adversely restrict access to or use of the premises.  

In summer 2014, a preliminary drawing illustrating the proposed design of the scaffolding was issued to T.  The drawing showed the scaffolding in "towers" form, giving the impression that the scaffolding would not be overly intrusive once constructed.  Unfortunately, the scaffolding was not erected in "towers" form, but via an alternative method which had the effect of enwrapping the whole of the building. On complaining, T was told that the revised design was necessary and could not be re-considered.

The noise

It was not strongly contested that T had been experiencing high levels of noise on an almost daily basis since August 2014.  It was not until part way through the project that an agreement was reached whereby T would be warned weekly of upcoming noisy periods with a '2 hours on, 2 hours off' policy.

The judgment

The judge found that L had procured the works without due regard to T's rights as to quiet enjoyment and non derogation from grant under the lease as:

  • the scaffolding could and should have been built in "towers" form and could have been re-designed at the time of complaint;
  • no real efforts were made to engage with T to agree a programme which would minimise inconvenience and forewarn T of likely disturbance so it could plan its business activities accordingly; and
  • no compensation was ever offered to T by way of any rent abatement or otherwise.

Crucially from a landlord's perspective, whilst the building contract contained an obligation requiring the contractor to have due regard to T being in occupation, the contractor did not know or cater for all T's leasehold rights.  For example, it failed to understand the need to design the scaffolding not just to be suitable for the works but so as to minimise disruption to T's business. 

The contractor in this case might not therefore be in breach of the contract and it might fall to L to pick up the tab.  Damages in this case were calculated on the basis of 20% of the rent paid for the period of the works.

Practical advice

  • Before commencing any works, review lease arrangements with current tenants and check what obligations (express and implied) may be owed.
  • Draft into the building contract a clause requiring the contractor to have due regard to the rights of any tenants but make sure that the chosen contractor is aware of what those rights mean in practice and the extent of the obligations owed to any tenants (including the need to design any element of the works (not forgetting temporary works) in accordance with those obligations).
  • Where necessary (and early on) arrange a meeting between any tenants, the contractor and the project manager so that the works can be programmed to minimise disruption to any tenants.
  • Require the contractor to keep any tenants regularly updated on the works and expected inconvenience.
  • Where appropriate, offer the tenant some financial compensation for the level of disturbance.
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