In confirming the first instance decision, the High Court in Dunward Properties Ltd v Isaac [2022] has provided some reassurance to landlords and tenants as to the interpretation of commonly used drafting techniques in the form of exceptions and reservations.
Mr Isaac purchased the long lease of a first-floor flat in Balham in 2015. The ground floor of the premises was, at the time, let commercially being used as an estate agency.
In 2016, the commercial premises was vacated and a change of use approved to develop the unit into a bar and restaurant with late-night opening hours. When this subsequently opened in 2017, Mr Isaac said that the resulting noise and fumes amounted to a nuisance, breach of quiet enjoyment and a derogation from grant, as well as breaching the landlord's development rights contained in his lease. He sold the lease in 2020 for £470,000, but argued that had the ground floor not been redeveloped into a restaurant it would have sold for £575,000. Mr Isaac claimed the difference of £105,000.
Dunward, the landlord, had reserved a right to develop other parts of the building in Mr Isaac's lease, "provided that such works do not lead to a diminution in value of [Mr Isaac's] flat". One of the questions before the court was whether this reservation of a right could in fact be breached giving rise to a cause of action. The landlord arguing that the proper interpretation of such a proviso was as a "declaratory" right setting out a range of permitted activities but which did not prevent the landlord from undertaking works outside the remit of the proviso, with the leaseholder able to claim under the general law (relating to nuisance, negligence or trespass).
The appeal judge agreed with the first instance decision dismissing the landlord's submission that a reservation of rights was only declaratory, and its breach could not give rise to a cause of action, as "quite artificial". He noted it was “entirely natural to construe the provisos as contractual promises not to exercise [the landlord’s] existing rights in the circumstances set out i.e. if the result would be a diminution in the value of [Mr Isaac's] flat”. Mr Isaac was therefore entitled to recover £105,000 from the landlord on the basis works had been undertaken which, on the expert evidence, had caused a reduction in the value of his flat. However, Mr Isaac's claims for nuisance, breach of quiet enjoyment and derogation from grant failed on the basis these were "unsustainable" against the landlord who did not authorise nor permit the nuisance caused.
The decision makes commercial sense and recognises that the reference to development in the reservation included both the works undertaken to the building and the resulting change in use, as these together caused the impact which resulted in the diminution in value. It demonstrates a practical approach from the Court to the interpretation of leases and resistance to more abstract interpretations.
