Owners of properties affected by compulsory purchase for infrastructure or regeneration schemes generally look to the acquiring authority for compensation. The question that arose in Smoke Club Ltd (in administration) v Network Rail Infrastructure Ltd [2021] UKUT 0078 (LC); [2021] PLSCS 67 was whether the operator of a nightclub located in the arches under London Bridge, which was compulsorily acquired in connection with the Thameslink Programme, had a compensatable interest in the land.
The nightclub operator, now in administration, claimed to have a long lease protected by the Landlord and Tenant Act 1954, thanks to the doctrine of proprietary estoppel or, alternatively, an annual periodic tenancy. But Network Rail claimed that the operator was simply a tenant at will.
The operator’s claim to proprietary estoppel rested on a purported agreement with Network Rail’s letting manager who, during a meeting at the end of 2008 (when it was believed that the land was not at risk of being needed for Thameslink), indicated that he could arrange a letting for a term of at least 20 years. But there was no documentary record of the discussion and the evidence suggested that the parties had reached nothing more than an agreement in principle. The length of term, the commencement date, the annual rent and the basis of the rent review had yet to be agreed – and subsequent notes and correspondence were inconsistent with there being a deal.
Furthermore, although the lettings manager was undoubtedly confident of his ability to effect the deal, he did not have express or implied authority to bind Network Rail. The operator had known that further terms needed to be agreed and that a formal lease was required – and it had not been reasonable to ignore the warning of its solicitors that the grant of the lease was by no means guaranteed and to spend over £1.2m fitting out the premises as a nightclub in reliance on the representations made during the 2008 meeting.
The operator had gone into possession and had been paying rent quarterly. So did it have an annual periodic tenancy instead? The judge noted that if the circumstances and conduct of the parties negate any intention to enter into a periodic tenancy – for example, if the parties are negotiating the terms of an intended lease and the putative lessee goes into possession and starts to pay rent – the law is unlikely to infer a grant of a different interest: Javad v Aqil [1990] 2 EGLR 82.
However, two factors here were unusual and markedly different. Although the operator initially went into occupation as a gratuitous licensee or tenant at will, the lettings manager’s usual approach was to create a written yearly periodic tenancy, as an interim measure, which was eventually replaced by a formal lease. That had been the intention in this case too, although no periodic tenancy was expressly granted – and there had been no objection to the creation of an interest with security of tenure.
So the fact that rent was demanded and paid at a time when the eventual grant of a long lease was in contemplation did not, on the particular facts of this case, negate an intention to create some other interest in the meantime, because that was exactly what the parties had envisaged. Therefore, the operator did have a compensatable interest – in the form of a periodic tenancy, which enjoyed security of tenure – in the reference land.
Allyson Colby is a property law consultant
