The covenant for quiet enjoyment where the landlord also exercises powers in the public interest

In Shebelle Enterprises Ltd v The Hampstead Garden Trust Ltd ([2013] EWHC 948) the Hampstead Garden Trust Ltd (‘the Trust’) exercised the rights and powers of management under a scheme of management under England’s Leasehold Reform Act 1967 (‘the Act’). Shebelle (‘S’) held a long lease of a house in the area covered by the scheme of management and the Trust was the landlord. The lease contained an express covenant for quiet enjoyment. F owned the freehold of the neighbouring house (enfranchised under the Act and subject to the scheme of management) which was higher up a hill than S’ property. Although F owned the freehold, the Trust was ‘for the purposes of the scheme to be treated as the landlord for the time being’.

F proposed to carry out extensive works at their property. The scheme of management required them to get the Trust’s consent to the work. F applied and S objected because of concerns about the the effect of the development on the movement of ground water. When the Trust indicated that it was minded to grant consent to the works, S sought a quia timet injunction on the grounds that this would amount to a breach of the covenant for quiet enjoyment. The Trust cross-applied for summary judgment on the grounds that S had no real prospect of success.

S relied on the proposition drawn from Sanderson v Berwick-Upon-Tweed that: ‘if a common landlord A demises land to B and also demises neighbouring land to C, A will be liable to B for breach of the covenant if it authorises C to act in a way which will interfere with B’s quiet enjoyment.’ ([27] in Shebelle per Henderson J.). Either the Trust was to be regarded as being akin to a landlord ([27]) or else the proposition should be understood in such a way as to rely on the Trust’s degree of control over F and not on privity of estate ([29]).

One element of the Trust’s defence was the argument that the covenant for quiet enjoyment could not be invoked so as ‘to interfere with (and/or subvert) the performance by the landlord, in its capacity as a “custodian of the public interest”, of a role under a statutory scheme under which the landlord owes a duty to act in the public interest.” ‘ ([31]). This argument succeeded and the Trust was granted summary judgment. It did not matter that at the time of the grant of the lease the landlord was a private body:

‘The freehold reversion to the Lease was always freely assignable, and the parties must be taken to have contemplated that it might at some date become vested in a body which had duties of a public nature to perform. If the proper performance of those public duties impinged on the normal use and enjoyment of the demised premises by the tenant, it must in my view have been envisaged that the tenant would to that extent be deprived of a remedy under the covenant.’ ([63]).

Michael Lower

 

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Quiet enjoyment: are landlords liable for the actions of incorporated owners?

In Chung Lap Fu v Hydra Shipping Services Ltd ([2009] 4 HKC 445, DC) P granted a lease of a flat and parking space to D1. D2 and D3 guaranteed performance by D1 of the tenant’s covenants in the lease. The owner of another flat in the building carried out decoration works that lasted several weeks. This gave rise to noisy drilling works, blocked lifts and other problems. D1 purported to terminate the tenancy on the basis that these problems amounted to a breach of the express covenant for quiet enjoyment in the lease. The landlord covenanted that D1’s possession would be ‘without any interruption by the Landlord or any person lawfully claiming under or in trust for him.’ The argument that there had been a breach of the covenant for quiet enjoyment failed. Neither the owner of the other flat nor the incorporated owners claimed under or in trust for the landlord. Nor had P authorised the works ([40]).

Derogation from grant: relevant factors

In Platt v London Underground Ltd ([2001] WL 172012) LUL granted a lease of a kiosk to P. The kiosk was in the exit from an underground station. Only people leaving the station through that exit (there was another) would use the kiosk. P claimed that LUL only allowed passengers to use the relevant exit during the morning rush hour and at no other times. Thus, the kiosk was starved of trade. P succeeded in his claim that LUL had acted in derogation from grant.

The surrounding circumstances at the time of the grant were a strong indicator as to what the parties must have had in their mutual contemplation. The kiosk relied on passengers going through the exit as its only source of customers. At the time of the lease, the exit was open for much of the time. This was plainly important to the tenant. There was nothing in the circumstances at the time of the grant or in the communications between the parties, or in the express terms of the lease to indicate that P had accepted a risk that the exit might be closed most of the time. The parties had contemplated that the exit would be part of the station operation during the opening hours of the station. Closure of the exit for much of the time during the lease did amount to a derogation from grant.

Neuberger J. provided some commentary on the law concerning derogation from grant. There is  a ”very substantial degree of overlap, between the obligation not to derogate from grant, the covenant for quiet enjoyment, and a normal implied term in a contract.’ (p. 5)

He endorsed the approach of Bowen L.J. in Myers v. Catteson ((1889) 42 ChD 470 at 481) who said that the aim of the covenant is to give effect to,  ‘the obvious intention of the parties, so as to give the transaction between them a minimum of efficacy and value which upon any view of the case it must have been their common intention that it should have.’

The judgment contains a set of principles concerning non-derogation from grant (pp. 4 – 8). The express terms of the lease and the surrounding circumstances at the date of the lease will be highly relevant in determining whether an act amounts to a derogation from grant. Where the action complained of is the use of the landlord’s retained land, the tenant cannot complain of uses to which the retained land could reasonably be put after the grant of the lease.

‘When assessing what the parties to a contract actually or must have contemplated, one should focus on facts known to both parties and statements and communications between them. A fact which could only have been known to one party could not, save in very unusual circumstances, be a legitimate part of the factual matrix. A thought locked away in the mind of the parties, or even perhaps of both parties, cannot normally be a relevant factor when assessing the parties’ understanding. In English law at any rate, contract is concerned with communication as well as mutuality’.

Quiet enjoyment: landlord’s liability for the actions of other tenants

In Hilton v James Smith & Sons (Norwood) Ltd ([1979] 2 EGLR 44, CA (Eng)) L owned a row of shops with a private road (a cul de sac) giving access to the rear of the shops. T was the tenant of the end of the cul de sac. It had an easement to use the road for access and delivery but could never use it because other tenants and people making deliveries to them parked in such a way as to obstruct the road. The leases of all of the shops contained a prohibition on parking cars, obstructing the road or causing a nuisance or annoyance to the landlord or other tenants and to use the road only for delivery purposes. L was liable to T (even though the actions were not lawful under the terms of the other tenants’ leases) in nuisance and for breach of the covenants for quiet enjoyment and non-derogation from grant (Ormrod L.J. thought the label didn’t matter). L was liable because it had the means of bringing the problem to an end (an action for nuisance or breach of the express covenant just mentioned) but had done nothing.

Landlord’s use of adjoining land making demised property less fit for contemplated purpose

In Aldin v Latimer Clark, Muirhead & Co ([1894] 2 Ch 437) a landlord granted a lease of property to be used for the purpose of carrying on the business of a timber merchant. The tenant covenanted not to use the property for any other purpose. The landlord later erected buildings on the neighbouring land retained by him which interfered with the flow of air to the sheds and made them less useful for the tenant’s business. The court held that the right to the flow of air could be an easement but no such easement had been acquired here.

The tenant claimed that this amounted to nuisance, derogation from grant and breach of the covenant for quiet enjoyment. The landlord was liable in damages.

‘[W]here a landlord demises part of his property for carrying on a particular business, he is bound to abstain from doing anything on the remaining portion which would  render the demised premises unfit for carrying on such business in the way in which it is ordinarily carried on, but that this obligation does not extend to special branches of the business which call for extraordinary protection.’ (444 per Stirling J).

Express covenant for quiet enjoyment leaves no room for the implied covenant

In Miller v Emcer Products Ltd ([1956] Ch. 304, CA (Eng)) a landlord granted a lease of ground floor premises and the right to use a lavatory on the second floor of the building. The lease contained an express covenant for quiet enjoyment but limited liability under it to actions of the landlord, the  superior landlord and people deriving title under the landlord. The tenants of the second floor (including the lavatory) did not fall into any of these categories. The second floor tenants locked the lavatory and refused to allow the ground floor tenants to use it. The ground floor tenants could not rely on the express covenant for title since it did not cover actions of the second floor tenant. They argued that it was a breach of the unqualified implied covenant for quiet enjoyment.

The English Court of Appeal held that the right to use the second floor lavatory was an easement attached to the ground floor lease and so the covenant could apply to it. Where, however, there was an express covenant covering the same ground as the implied covenant there was no room for the implied covenant (expressio unius est exclusio alterius). The implied covenant did not apply and there had been no breach of the express covenant (since it did not cover actions of the second floor tenants).

Omission and quiet enjoyment

In Booth v Thomas ([1926] Ch. 397) a landowner’s predecessors in title had enclosed a stream in a culvert. A lease had been granted of neighbouring land and a building was constructed on it. The current owner of the stream was also the landlord of the neighbouring land on which the building stood (but the stream was not part of the lease). The landowner failed to keep the culvert in good repair. As a result, the culvert broke after a heavy storm. The result was that the foundations of the nearby building were damaged and the building partially collapsed. It was held that this was a breach of the landlord’s covenant for quiet enjoyment even though the problem was caused by an omission. Independently of the covenant for quiet enjoyment, the landlord owed a duty to keep the culvert in good repair. The failure to perform that duty was also a breach of the covenant for quiet enjoyment.

‘It appears to me that the case is one in which the defendant is liable by reason of his omission to repair and keep in good repair the culvert, in consequence of which the stream was able to get at the premises of the plaintiff, and by that failure or omission the defendant has rendered himself responsible to the plaintiff for a breach of the covenant for quiet enjoyment.’ (Pollock M.R. at 404)

Quiet enjoyment: Southwark LBC v Long

In Southwark LBC v Long ([2002] EWCA Civ. 403, CA (Eng)) S had granted L a lease of a flat in a block of flats. There was a communal rubbish bin. Residents could either put rubbish in the bin or into a chute leading to it from their floor. S agreed to ‘take all reasonable steps to keep the estate and common parts clean and tidy.’ In fact, the bin was often full. The area was smelly and there had been maggot infestations. The rubbish chutes were not big enough so residents had to bang them to force their rubbish down. This was noisy and was often done late at night. The English Court of Appeal found that S was in breach of its covenant. Handing over the operation of the system of refuse collection to contractors did not amount to taking all reasonable steps unless there was a proper system for monitoring the performance of the contractors. Nor was it enough simply to remind residents not to use the refuse chutes outside certain hours. This did not satisfy the requirement to take all reasonable steps. While the fact that this was low cost public housing was a relevant component of the factual matrix to be borne in mind when interpreting the covenant, there was no room for compromise on basic standards of cleanliness. The cost-effectivess of a proposed measure was relevant to an assessment of whether it was a reasonable step.

On the covenant for quiet enjoyment, this case was indistinguishable from Southwark LBC v Mills. The state of the facilities and the use of them was as originally contemplated so that there was no breach of the covenant.

Implied licence for landlord to enter property to perform repairing covenant

A tenant who uses property in a reasonable way for a reasonably contemplated use does not commit waste. A covenant to ‘keep’ property in repair implies that, if need be, it will first be put in repair. A landlord who has covenanted to keep demised premises in repair has an implied licence to enter the property for a reasonable time in order to perform the covenant.

In Saner v Bilton ((1877 – 78) L.R. 7 Ch.D. 815) L owned a newly constructed warehouse for the storage of grain. He granted a lease of it to T. L covenanted to ‘keep the main walls and main timbers of the warehouse in good repair and condition.’ T used the property in a reasonable way (L alleged that this was not so but failed to make out this allegation). Nevertheless, a beam supporting one of the floors broke. Two of the external walls bulged and very extensive repair works were needed.

Fry J. held that T had not committed waste. He had not used the property unreasonably. A tenant who uses property in a reasonable way for a reasonably contemplated use does not commit waste. The fact that the cause of the problems arose from the original construction of the building did not take the work outside the scope of the landlord’s repairing covenant. A covenant to ‘keep’ property in repair implies that, if need be, it will first be put in repair. Put another way, a covenant to ‘keep’ in repair does not water down the scope of the repairing covenant. T was not entitled to damages in respect of the time he was kept out of possession by the landlord’s presence for the purpose of the repair works. A landlord who has covenanted to keep demised premises in repair has an implied licence to enter the property for a reasonable time in order to perform the covenant. This implied licence is not inconsistent with the covenant for quiet enjoyment:

“I think the covenant for quiet enjoyment must be read as subject to the license which I have held to be implied in the covenant to repair.’ (per Fry J at 824).

Assessing damages where breach of covenant for quiet enjoyment makes it impossible to trade

Where there has been a breach of a covenant for quiet enjoyment which makes it impossible to trade from the demised premises, it is legitimate for the judge to find on the balance of probabilities that the tenant would have traded successfully and then to reach a conclusion as to the profit likely to have been earned. If this approach is taken there is no need to apply a discount to the resulting figure to take account of the possibility of failure.

In Vasiliou v Hajigeorgiou ([2010] EWCA Civ 1475, CA (Eng)) L broke the covenant for quiet enjoyment in a lease of restaurant premises on the ground floor and in the rear yard of his property. He had stored materials in the yard making trade unlawful. Then work done by his contractors resulted in foul water leaking into the restaurant from upstairs flats. T brought separate proceedings in respect of each incident. In the first case, the judge found as a fact that the tenant would have traded successfully from the premises. He then reached a conclusion as to the amount of profit that would have been earned had the landlord not been in breach. The court in the second case replicated this approach. On appeal, the landlord argued that a percentage discount should have been applied to reflect the possibility of failure. The English Court of Appeal rejected this. The judges below were entitled to take the approach they had. Once the judge had found that the tenant would have made a go of the restaurant there was no place for a discount.