Law: An arcade turns to hard-core pawn

Katherine Campbell reports on a landmark case that affects the law governing landlords' responsibilities to their retail tenants.

Landlords could be prompted into taking more care about who they let premises to as a result of a recent legal decision. The unreported case of Chartered Trust Plc vs Davis found that the landlord of a shopping arcade in Bognor Regis had derogated from its grant by failing to act to prevent a nuisance caused by one of the tenants of the arcade, which resulted in the defendant "disclaiming" her lease.

The problem began when a Ms Davis occupied a unit in Clock Walk, Bognor Regis in December 1988. As the recession hit the development, the units surrounding Miss Davis' unit became unoccupied for a substantial period. In January 1992, a neighbouring unit was let to a pawn brokers.

Ms Davis claimed that this letting caused her severe problems because it was only opened to one customer at a time, leaving queuing customers to hang around the passageway leading to the shop or to come into Miss Davis' shop. The adverse effect on her business was exacerbated by the fact that tables and chairs set outside a neighbouring unit were regularly taken up by the pawn broker's customers, thus deterring shoppers from entering the arcade to get to Ms Davis' shop. Ms Davis was also forced to employ persons to assist in her shop so that the premises were never unattended. The problem was compounded by the fact that the pawn broker's sign was hung above the entrance to the arcade making it look as though it was the only business in the arcade.

On appeal from a judgment of Chichester County Court, Lord Justice Henry found that in cases such as this, there are three possible causes of action by the tenant against the landlord, namely breach of the covenant of quiet enjoyment, derogation from grant and nuisance.

The principle of derogation of grant is that it makes the premises materially less fit for the particular purpose for which the grant was made and the question in this case was whether the landlord was under an obligation not to use the land in such a way as to render it unfit or materially less fit for the particular purpose for which the demise was made.

In reaching his decision, Lord Justice Henry found that it was an important point in the case that the landlords were marketing not just a separate and independent retail unit, but a shop in a particular place in a shopping arcade. This letting carried with it obligations on the part of the tenants including payment of service charge, restriction on alterations and on obstructing shop windows etc. He found that by looking at the lease there was a clear recognition by the landlords that the enjoyment of the benefit that the tenant took under the lease depended in part on the actions of the landlord in letting and controlling the remaining units and the common parts of the development.

On a review of the case law in this area, it was found that cases were tending towards the proposition that a mere act or omission on the part of a landlord is capable of constituting a breach of the covenant for quiet enjoyment, but only if there is found to be a duty on the landlord to do something. Historically, cases found that there was no such duty on the landlord. Lord Justice Henry considered whether in this case it could be shown that the landlord had a duty to act and he came to the conclusion that if a landlord was never required to take action to protect what he had granted to his tenant, he could render valueless the protection of his tenant's business inherent in the letting scheme that was being marketed. This made no commercial sense. He found that there must come a point where the landlord becomes legally obliged to take action to protect that which he has granted to his tenant.

Specifically on the facts, Lord Justice Henry found that the landlord could have acted to stop the pawn broker's clientele queuing in the access to the arcade and if necessary could have cleared tables and chairs obstructing that access. Instead they chose to do nothing and made the premises less fit for the purpose for which they were let. They were therefore actively continuing the nuisance caused by the pawn broker and derogating from their grant. The landlord's appeal was therefore dismissed.

This case brings into focus the responsibilities placed upon a landlord in a multiple letting situation. It is now clearly established that a landlord may have a duty to act positively in certain circumstances to protect what he has granted to his tenants.

The author is an associate at the Coventry office of solicitors Warner Cranston.