Australia: Quiet enjoyment in a lease – what does it mean?

Most leases, whether commercial, industrial or retail, will include a covenant for 'quiet enjoyment'. Even if no such covenant is stipulated in the lease, this right would still be implied by law. But what does quiet enjoyment in fact mean?

What does quiet enjoyment mean?

Under a lease, a landlord grants a tenant exclusive use and occupation of the leased premises subject to the terms of the lease and any rights expressly reserved by the landlord. However, the tenant may not be able to fully enjoy its use of the premises if the landlord unreasonably interferes with that use. Accordingly, the Courts developed a doctrine under the common law, whereby landlords are under an implied obligation to allow their tenants 'quiet enjoyment'. This means that the landlord must not only ensure that the tenant has the right to use and occupy the premises but also to enjoy that use without substantial interference from the landlord or anyone claiming through it.

What constitutes 'substantial' is a question of fact, having regard to the tenant's use of the premises. Where the lease has been granted for the carrying on by the tenant of a particular business known to both parties, it is that business which forms the framework of the analysis as to whether there has been interference with the possession of the tenant. It is the ordinary and lawful enjoyment of the demised premises for the known purpose which is to be protected from interference which is substantial (Byrnes v Jokona Pty Ltd [2002] FCA 41 paragraph 61).

Conduct that has in the past, been held to be a breach of the covenant for quiet enjoyment, includes:

• erection of scaffolding or hoardings that impede customer-flow to the leased premises
• disconnection of a sprinkler system
• ceasing to operate lifts and escalators in the common areas under the landlord's control, which limited access by potential customers of the tenant's cafeteria
• construction works taking place near leased premises which affected the profitability of the tenant's business
• failure by the landlord to prevent dust generated from an adjacent carpark entering the demised premises and interfering with the tenant's window tinting operations
• disruption of a tenant's business caused by the activities of an adjoining lessee where the landlord failed to enforce lease covenants
• failure of the landlord to repair a leaking roof.

Breach of the Covenant

If there is a breach of the covenant for quiet enjoyment, then the tenant will have a right to damages. Even though it is interference with the tenant's property right that provides the basis of claim, the amount of any damages will almost certainly reflect the adverse effect upon the profitability of the tenant's business. If the breach is serious enough, the tenant may be entitled to terminate the lease. The factors which the court may take into account in this regard include: the adequacy of damages and the ability to quantify damages; any apparent injustice, including unjust enrichment of the innocent party, should that party terminate; and the history of and uncertainty or not surrounding future compliance with the lease.

Implied covenant versus express rights in lease

Whilst there is an implied covenant at common law for quiet enjoyment, generally leases include this as an express right. In doing so, landlords may limit the scope of the covenant. For instance, a landlord may make the right to quiet enjoyment conditional upon the tenant paying rent and complying generally with its obligations under the lease. Additionally, the landlord may expressly reserve rights under the lease including that it may:

• carry out works in the building, or limit access to or close common areas, if the landlord takes reasonable steps to minimise interference with the tenant's business
• enter a tenant's premises upon giving notice, to determine if the tenant is complying with its obligations under its lease or to do anything the landlord must or may do under the lease.

Statutory Considerations

In the past, landlords of shopping centres have expressly reserved extensive rights relating to the development of those centres including the right to carry out building works and in some cases, to relocate tenants for this purpose. This often led to financial loss for the affected tenants. Legislation has now been passed in each of the states and territories providing landlords and tenants of retail shops with a framework for what landlords must do prior to carrying out works which are likely to interfere with the tenant's right to quiet enjoyment, including the relevant prior notice which must be provided.

In New South Wales for example, section 34 of the Retail Leases Act 1994 (NSW) sets out matters which a tenant can require a landlord to rectify, including if a landlord:

• takes any action that significantly affects the tenant's trading
• fails to rectify any breakdown of plant or equipment under the landlord's care
• fails to clean, maintain or repair the retail shopping centre (including common areas).

If the landlord does not rectify the matter as soon as reasonably practicable after being requested in writing by the tenant to do so, the landlord is liable to pay the tenant reasonable compensation for any loss or damage suffered by the tenant as a consequence. Corresponding provisions also exist in the relevant retail legislation of other states and territories.

Procedure for planned works

Depending upon the nature of the premises (and whether retail shop legislation applies) and the terms of the applicable lease, it would be prudent for a landlord to issue a statement to the tenant prior to the tenant entering into a lease as to any planned works which gives:

• a specific description of the likely disturbance
• an assessment of the likelihood of the disturbance occurring, and
• a prediction of timing, duration and effect of the disturbance, so far as they can be predicted.

If planned works are specifically drawn to a tenant's attention prior to it entering into a lease, then it should be difficult for that tenant to succeed in a future claim for breach of the covenant for quiet enjoyment where the interference arises out of those works.

Conclusion

In summary:

• In order for a tenant to succeed in a claim for a breach of its right to quiet enjoyment, the tenant must show there has been an event which substantially interferes with its agreed use of the premises.
• The interference does not necessarily need to arise from an action by the landlord; rather it could result from a failure of the landlord to act.
• Whilst the right to quiet enjoyment is implied at law, from a landlord's perspective it is best to deal with this right within the lease. This is in order to limit the scope of the covenant to the conduct of the landlord and those claiming through it and to reserve the landlord's reasonable rights. Where the tenant is only leasing part of the building, this might include rights to carry out works or to close the building in an emergency.
• Landlords should be conscious that failure to comply with an obligation under a lease requiring the landlord to maintain the building in a specified state of repair, could amount to a breach of the covenant for quiet enjoyment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.