Future-proofing real estate investments
Landlords upgrading buildings to keep up with technological changes must give tenants their “quiet enjoyment”
Our recent report, “The New Real: unlocking new gains through smart buildings”, demonstrates the need for upgrading existing buildings to futureproof investment.
70% of landlords and building owners interviewed believe that changing technology needs will have a greater impact on building obsolescence than energy efficiency requirements. A further 68% of the stakeholders interviewed think that the majority of commercial buildings will need to be upgraded to meet new technology demands, rather than replaced, due to the costs involved.
Particular care will need to be taken where works are proposed to buildings with existing or adjoining tenants. This is the case even where the right to re-develop is expressly reserved under the lease.
Tenant’s right to quiet enjoyment
A tenant has an implied right (often expressly set out in the lease) of quiet enjoyment of its demise. Even where a landlord has reserved a broad express right under a lease to carry out works to the building, they must consider the impact that works will have on a tenant and take all reasonable steps to minimise disturbance.
The recent case of Timothy Taylor Ltd v Mayfair House Corporation demonstrates the danger of failing to take the impact on a tenant’s right to quiet enjoyment into account. In that case, the tenant operated a high end art gallery from the ground floor and basement of a five-storey building in Mayfair. The landlord started substantial works to rebuild the interior of the building from the first floor upwards to create new apartments. The landlord had expressly reserved the right to alter or rebuild the building under the lease, even if the gallery (or its use or enjoyment) was materially affected. The tenant claimed that the works substantially interfered with its use and enjoyment of the gallery.
The court was not impressed with the manner in which the works were carried out, which included high levels of noise on a daily basis and a scaffolding design which engulfed the whole building, meaning the gallery was almost invisible. The landlord was obliged to pay damages at a rate of 20% of the rent payable from the erection of scaffolding to completion of works (the rent being £530,000 per annum) which represented the tenant’s loss of use and enjoyment of the premises. These were awarded despite the fact that the tenant had not suffered a loss of profit and had in fact had an increase in sales.
Practical steps to avoid a dispute
The court helpfully highlighted some practical points which a landlord should consider to avoid a claim:
- Where possible, the tenant should be informed of any works the landlord intends to carry out before the grant of its lease;
- Engage with the tenant early and prior to the tender stage to set out the proposed works and discuss arrangements to minimise disturbance including the design of scaffolding and plans for noisy works;
- The design of scaffolding should not obstruct access to the tenant’s premises and maintain the appearance of the tenant’s façade as far as possible. In particular, the landlord should consider the use of pillars or towers to avoid obstruction;
- Ensure that deliveries of building materials do not obstruct access to the tenant’s premises;
- Consider limiting the hours for noisy works or give the tenant notice so that alternative staffing arrangements can be made;
- Keep the tenant regularly informed about likely timescales and ensure regular meetings take place between the tenant and contractors. A landlord will not be able to rely on instructing a reputable contractor with no further action taken;
- If a dispute does arise, consider offering a rent concession (particularly where the premises is rented for full rack rent) to avoid costly and lengthy proceedings.
Landlords considering works should seek advice early to avoid substantial claims for compensation.
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