knowledge 12 July 2016 |

More Art than Science: A Landlord’s Right to Carry Out Works where a Tenant is in Occupation

This was considered in the recent English decision of Timothy Taylor¹ . The tenant in that case runs a high end art gallery in Mayfair from the basement and ground floor of a larger building. Its landlord commenced major renovation works to the building in 2014, which the tenant alleged adversely affected its ability to trade from the premises. It sued the landlord for breach of its right to use and enjoy the premises free from the disturbance. In addition to the noise, the tenant complained that the scaffolding erected on the exterior of the building (including to the façade of the art gallery) and the delivery and distribution of materials at and above the gallery door, obscured the gallery’s visibility and access.

In the lease, the landlord’s right to alter or rebuild as the landlord thought fit was expressed in very broad terms “….even if [the rights] materially affect the Premises or their use and enjoyment.” As “admittedly…wide and untrammelled” as the Court found this right was, it still wasn’t held by the Court to entitle the landlord to act in the way that it did. The Court found that the scaffolding, the lack of consultation, and the landlord’s failure to recognise and compensate the tenant for the loss of business resulting from the works, all amounted to an unreasonable exercise by the landlord of its rights. The Court ordered a twenty per cent rent reduction for the duration of the works and left it open to the tenant to apply for an injunction if the disturbance got worse.

What does this mean for landlords and tenants of Irish commercial property? English decisions do not have force of law in Ireland but in certain cases, where the underlying legal principles are similar, the English position can be persuasive and is a useful indicator of how the law might be applied here. Landlords and their representatives, in lease negotiations and in estate management decisions, might consider the reasoning as discussed in Timothy Taylor to try to “proof” future works from attack. Tenants might also look at drafting or proposals from their landlords, informed by the reasoning in the case.

Proposals by landlords to carry out works or make changes to commercial properties which are let to tenants are not unusual and so should typically be anticipated by both landlord and tenant at lease negotiation stage. The lease will generally cater for the possibility by expressing the general right of the landlord to carry out works or make changes to the building as the landlord requires. The crucial importance of that right, how it is expressed and its acceptability from a tenant’s perspective will depend on lots of different factors. The development potential of the building, its age and profile, the nature of the tenant’s business, the length of the lease and whether the tenant is to have rights of renewal all come in to play in determining what emphasis the landlord’s right to carry out works should have in the negotiations.

During the term of the lease and before any works are carried out, the landlord should again pause to consider and seek advice as to whether and how its right to do so is expressed in the lease. Every case will have its own particular considerations. The retail industry is very much focused on the visibility of its stores and on people coming through the door for trade. The impact of the scaffolding and management of the construction works in the Timothy Taylor gallery case was particularly relevant. This may not apply in the same way to other industries. Also, and as expressed in Timothy Taylor, whether the works being carried out by the landlord are entirely for its own purposes with little or no benefit to the tenant (as opposed to essential repair works for example) could be a factor that the Courts take into account when viewing the reasonableness of what a landlord is doing.

At a minimum, at lease negotiation stage both sides should:

• consider and reflect in the lease terms, the real likelihood of major works being carried out to the building (or any adjoining building);
• consider the impact that any such works would have on the tenant; and
• settle and agree the terms to apply to those works.

During the term of the lease and before any works commence, again both sides should:

• consult the terms of the lease; and
• ensure that the works are carried out in accordance with those terms.