Landlord’s Quiet Enjoyment Covenant – Jafari v Tareem Limited (2019)

The recent appeal case (Jafari v Tareem Limited [2019] EWHC 3119 (Ch)) between the appellant, Dr Jafari, and respondent, Tareem Limited, raised various issues concerning “Quiet Enjoyment” (QE) covenants. A QE covenant, broadly speaking, puts the onus on the landlord not to interfere with the tenant’s possession and enjoyment of the tenant’s property.

Although there is, in law, an implied QE covenant it is generally the case that the obligation is expressly laid down in the lease terms. An express QE covenant will override an implied QE covenant.

A clause such as the following (or similar terms) is often used in commercial leases:

“The Landlord covenants with the Tenant that the Tenant shall have quiet enjoyment of the Premises without interruption by the Landlord or any person claiming under the Landlord except as permitted by this lease.”

Case law has indicated that a landlord may be able to avoid a claim for breach of a QE covenant by acting as reasonably as possible in, for example, carrying out works to parts of the building other than that in which the lease premises is located. Factors that might assist in meeting the reasonableness threshold include informing the tenant of the proposed works, taking on board tenant concerns, waiving rent etc.

Dr Jafari appealed the lower court’s findings in the High Court. His appeal was based on various grounds. For example, Dr Jafari’s barrister contended that the lower court (County Court) should not have taken the landlord’s waiver of rent into consideration when determining whether the landlord had acted sufficiently reasonably to avoid a claim for breach of the QE covenant.

Background to the case:

The tenant, Dr Jafari, operated a dental practice, which he had bought for approximately £800,000 in 2010. As part of the acquisition of the dental practice Dr Jafari took an assignment of the lease of the premises in which the practice was carried out. The lease, which he bought, was a 20-year lease from 20 May 2002 and as such had approximately 12 years left to run. The rent was £14,500 per year (albeit with two rent reviews outstanding). In this lease the QE clause was as follows:

“The Landlord covenants with the Tenant as follows:

5.1 The Tenant paying the rent reserved in performing the Tenants covenants in this lease may lawfully and peaceably enjoy the premises throughout the term without interruption by the Landlord or by any person lawfully claiming through under or in trust for the Landlord or by title paramount.”

In 2012 the landlord obtained planning permission to convert the remainder of the block in which the dental practice was located for the use of a 134-bedroom hotel. Scaffolding was erected and work started in April 2012. The landlord waived the rent during the period of the works (March 2012 to December 2013).

Dr Jafari complained about various aspects of this work and the impact that it had had on his dental practice. He blamed the effect of various work-related matters including noise, scaffolding etc. for the downturn in the profitability of his practice.

Once the works have been completed the landlord requested that the rent payments re-commence. Dr Jafari made some initial payments but then stopped paying. The landlord issued proceedings making a claim for arrears of rent and service charges.

Dr Jafari made a counterclaim based on 7 grounds. Various losses were claimed by him but the largest portion of the losses concerned the loss of profits for which a claim was made of £450,000.

In the County Court case the judge had reviewed the details of this case including issues concerning noise levels, the erection of scaffolding and the waiver of rent. The District Judge had concluded that overall, subject to one point, the landlord had taken all reasonable steps to minimise the disturbance. The one point that the judge had singled out concerned the fact that the works should have included the replacement of Dr Jafari’s old windows with new but that was never carried out.

Judgment was made in favour of the landlord for the loss of rent and loss of service charges for the total sum of £79,279.14. In his counterclaim Dr Jafari was awarded £77,984.24. (this sum being made up, approximately, of £10,875 award for loss of amenity, £2000 for the cost of repairs carried out and the balance of approximately £65,000 for the cost of repairs that had not been carried out. Dr Jafari was required to pay 80% of the costs of the claim and counterclaim.

Appeal Grounds

Dr Jafari made an appeal to the High Court based on 7 grounds. Grounds 1 and 2 concerned a question as to whether the correct approach had been taken in determining whether there had been a breach of covenant for QE and specifically whether the judge in the County Court was right to consider that the financial compensation offered by the landlord was relevant to that question. The appeal court judge, Justice Nugee, held that none of the other grounds of appeal raised any issues of law; rather they focussed on questions of fact.

Justice Nugee dealt with the 7 grounds as summarised below.

Prior to considering Grounds 1 and 2 he commented that established principles make it difficult to challenge a judge’s factual findings and that for that reason not just the County Court findings of primary fact but the County Court judge’s evaluative assessments based on the facts would be difficult to challenge because of the established principles.

Grounds 1 and 2

In regard to appeal Grounds (1) and (2) Justice Nugee considered the question as to whether the landlord had acted reasonably and sufficiently so to negate a breach of QE covenant. Specifically, he considered whether or not the County Court judge should have taken account of the rent waiver in assessing the question of reasonableness. The barrister acting for the Tenant had raised the argument that the County Court judgment should not have taken account of the rent waiver in assessing reasonableness, at all, and, within his argument, had contended that taking account of the waiver of rent should only be possible in specified circumstances.

He argued that previous case law supported the view that the question of waiver of rent and reasonableness should only be considered in cases in which the lease contains not only a covenant for quiet enjoyment but also a right or obligation on the landlord to do the works in question; quoting the case of Goldmile Properties Ltd v Lechouritis (2003) and Timothy Taylor Ltd v Mayfair House Corporation and another [2016] EWHC 1075 (Ch).

Lechouritis case

In the Lechouritis case the landlord had covenanted with the tenants to carry out specific repairs and, as such, had an implied right to carry out building works which required scaffolding to be erected. The tenant’s business was disrupted and the tenant claimed damages for breach of the landlord’s QE covenant. The Court of Appeal considered that the landlord had used all reasonable precautions (rather than “all possible steps” that the Circuit judge in initially overturning the lower court’s judgment had indicated was required to meet the threshold) to minimise disturbance for carrying out the repairs.

Timothy Taylor case

In the Timothy Taylor case the tenant ran an art gallery in Mayfair. The landlord’s lease terms reserved the right for the landlord to alter or rebuild the building even if the use or enjoyment was materially affected. The landlord also reserved the right to erect scaffolding temporarily provided it did not materially adversely restrict access to, use or enjoyment of the premises. Once again consideration of issues such as noise and scaffolding were central. Mr Alan Steinfeld QC (sitting as a Deputy Judge of the Chancery Division), at para 24 of his judgment, and after having reviewed various other cases, made the following propositions:

(a) In a case like the present, the landlord’s reservation of a right to build in a way which, but for that reservation, would constitute either a breach of the covenant for quiet enjoyment or a breach of the implied covenant not to derogate from the grant should be construed as entitling the landlord to do the work contemplated by the reservation provided that in doing that work the landlord has taken all reasonable steps to minimise the disturbance to the tenant caused thereby.

(b) In considering what can reasonably be carried out, it is relevant what knowledge or notice the tenant had of the works intended to be carried out by the landlord at the commencement of the lease.

(c) An offer by the landlord of financial compensation to the tenant to compensate the tenant for disturbance caused by the works is a factor which the Court is entitled to take into account in considering the overall reasonableness of the steps which the landlord has taken.

Dr Jafari’s barrister argued that the option of any Landlord to claim that it took reasonable steps to negate a breach of the QE covenant would only be available to it if, and only if, the landlord had also expressly reserved the right to carry out works in the lease or was expressly obliged to carry out works. In the case of Jafari v Tareem no express reservation was made by the Landlord to carry out works to the building.

The barrister acting for Dr Jafari further contended, under Ground 2, that: “What the Court of Appeal said in Goldmile was obiter and that, logically, an offer of compensation could not be relevant to the question of breach although it could be taken into account in assessing quantum.” Comments that are obiter do not form part of the court’s decision, as such.

Justice Nugee’s considered these arguments and the relevant comments as at para 41 of his judgment:

“Both points were developed by Mr Francis at some length and with some cogency but the difficulty I have is that I do not see that they will assist Dr Jafari. Let it be supposed that Mr Francis is right and the Judge should have ignored the rent waiver when deciding whether Tareem had unreasonably interfered with Dr Jafari’s enjoyment of the premises. That would mean that he should have concluded that Tareem was in breach of the covenant for quiet enjoyment. But it seems to me that had he done so, he would inevitably have come to the same overall conclusion. As I have already said, it is necessarily implicit in his conclusion that he considered the rent waiver to be, at the very least, adequate compensation for the disturbance he had found, if not indeed overcompensation. If, therefore, he had been asked to assess damages for the breach which, on this view, he should have found, I think he would have been bound to come to the view that no further damages were payable as the damage had already been adequately compensated for by the rent waiver.”

As such Justice Nugee saw no need to consider whether the County Court judge was right to have taken account of the waiver of rent nor the possible matter of whether comments were obiter or not.

Grounds 3 and 4

Grounds 3 and 4 were put forward on the basis (Ground 3) that if the judge was entitled to have regard to the waiver of rent at all he gave undue weight to it and (Ground 4) that the judge reached a decision that no reasonable judge could reach having regard to the evidence. Justice Nugee states in paragraph 39 of his judgment that: “Standing back from the detail, the judge evidently thought that for Tareem [Landlord] to have waived 100% of the rent for the duration of the works was sufficient offset for the inconveniences suffered by Dr Jafari. I do not think I can possibly conclude that that was a conclusion no judge could reasonably come to.”

Ground 5

Ground 5 raises a challenge in regard to a question of fact; to what extent the landlord’s contractors restricted noisy work to specified hours. Justice Nugee commented that what needs to be shown on an appeal, against findings of primary fact, is either that there was literally no evidence to support a conclusion or that a decision under appeal is one that no reasonable judge could have reached because it was rationally insupportable. He considered that there certainly was evidence to support the contention that restricted hours were adhered to. He also stated that there was nothing irrational about the decision that had been made. As such ground 5 was not made out.

Ground 6

Ground 6 also concerned a primary fact and challenged the lower court’s conclusion that the works did not cause the loss of profits. Justice Nugee considered the accounting evidence and held that they did not appear to show a drop in income, certainly in the year ended April 2013. The later falloff in income was accounted for by the fact that the tenant was also practising from another dental business that he had acquired in a different area. Ground 6 was not made out.

Ground 7

This challenge concerned the judges award of damages for the loss of amenity. As mentioned above the judge had awarded a sum of £10,875 and this was equivalent to 15% of the rent of £14,500 for 5 years. Dr Jafari’s contention was that the amount awarded was too little. Justice Nugee considered various previous cases and percentage values that had been applied as multipliers to the rent in order to determine the sum for loss of amenity. He stated that it was not appropriate to be too prescriptive in terms of percentages that should be applied and considered that the figure of 15% was not outside parameters set in other cases. For that and other reasons he found that ground 7 was not made out.

Summary

Issues surrounding a covenant for QE can be complex, especially in matters that involve the landlord carrying out works. It is important for a landlord to be aware that the standard of reasonableness may be more demanding in circumstances where the landlord is carrying out works for its own benefit rather than for the benefit of the tenant. As noted above, in the case of Timothy Taylor, an offer by the landlord of financial compensation to the tenant for disturbance caused by the works is

a factor which the Court is entitled to take into account in considering the overall reasonableness of the steps which the landlord has taken. The argument that Dr Jafari’s barrister put forward i.e. that waiver of rent might only be sufficient to negate a claim for breach of QE if the landlord also has an express right or obligation to carry out the works, has yet to be tested.

As well as waiving rent other reasonable steps might include keeping the tenant fully informed of the proposed works, the time that the works will take to complete, likely issues and taking account of the tenant’s requirements.