Landlord and tenant — Whether agreement a licence or tenancy — Whether exclusive possession intended to be granted — Whether agreement a sham — Rule that, save in exceptional circumstances, the enjoyment of exclusive possession for a term in consideration of periodical payments created a tenancy: Street v Mountford; A G Securities v Vaughan
concerned the legal nature of arrangements for sharing the occupation of a flat
belonging to the appellant owners — The flat consisted of two bedrooms (one
with two beds and the other with one bed) and a bathroom and wc — The first
respondent originally occupied the flat with two other women under an agreement
described as a licence, which was stated not to create any landlord and tenant
relationship — Later the two other women left and the flat was occupied by the
first respondent and a man friend whom she subsequently married and who became
the second respondent — A new and more elaborate contract, inspired by Somma v Hazelhurst, was
entered into between the respondents and the appellants — This contract,
described as creating a licence, expressly disclaimed the grant of exclusive
possession and provided for sharing the flat with the licensor and a third
person; it also declared that no landlord and tenant relationship was created
and that payments should not be treated as rent — The marriage between the
first and second respondents broke
appellants purported to determine the agreement and sought possession of the
premises — The county court judge rejected their claim — He did not believe
that the appellants seriously contemplated the introduction of a third person
to share the flat and he was satisfied that the intention was to grant
exclusive possession — The agreement was a sham — Somma v Hazelhurst had
been overruled and could not be relied on
Court of Appeal that the judge was entitled to come to the conclusion that the
agreement in the present case resulted in a tenancy — It was not one of the
exceptional cases where exclusive possession was consistent with a licence — It
was for the law, not the parties, to decide whether the agreement, whatever it
was called, was a tenancy — Appeal dismissed
The following
cases are referred to in this report.
A G
Securities v Vaughan [1988] 3 WLR 1205;
[1988] 3 All ER 1058; [1988] 2 EGLR 78; [1988] 47 EG 193, HL
Somma v Hazelhurst [1978] 1 WLR 1014; [1978] 2 All ER 1011; (1978)
37 P&CR 391; [1978] EGD 269; 246 EG 311, [1978] 1 EGLR 69, CA
Street v Mountford [1985] AC 809; [1985] 2 WLR 877; [1985] 2 All ER
289; [1985] 1 EGLR 128; (1985) 274 EG 821, HL
This was an
appeal by Andreas Theophanous Nicolaou and Pauline Edith Nicolaou, the freehold
owners of the first-floor flat at 32 Courthope Road, London NW3, from the
decision of Judge Martin QC, at Bloomsbury County Court, holding that the
respondents, Christine Pitt and Nader Sepehr (defendants below) obtained a
tenancy of the flat and that, when the first respondent left, the second respondent,
Nader Sepehr became the sole tenant.
R W
Bailey-King (instructed by A Nicolaou & Co) appeared on behalf of the
appellants; D R Watkinson (instructed by Harter & Loveless) represented the
respondents.
Giving
judgment, MUSTILL LJ said: This is an appeal from the judgment of His Honour
Judge Martin QC in the Bloomsbury County Court. The case is of a kind which has
become very familiar to the courts in recent years. It concerns the status of
an arrangement whereby a landlord made premises available for a fixed term to
be shared by two or more people in consideration of regular payments.
When I say
that judgment was given on May 12 1987 it will be apparent that the learned
judge had available to him the judgment of the Court of Appeal in Somma
v Hazelhurst [1978] 1 WLR 1014 and the speeches of the House of Lords in
Street v Mountford [1985] AC 809*, but he did not have the
advantage of the elucidation provided much more recently by the House of Lords
in A G Securities v Vaughan [1988] 3 WLR 1205† .
*Editor’s
note: Reported also at [1985] 1 EGLR 128.
† Editor’s
note: Reported also at [1988] 2 EGLR 78.
The facts from
which the present case arose may be summarised as follows. The appellant
landlord is the freehold owner of the first-floor flat at 32 Courthope Road,
London NW3. This flat has one bedroom with two beds, one bedroom with one bed
and a bathroom and we. During 1979 the flat was advertised in an evening
newspaper with the words ‘Flat available on licence’.
The
advertisement was answered by a lady called Christine Pitt, who is the first
defendant in the proceedings which ultimately took place. She approached the
appellant, together with two other young women, and the evidence of what then
happened, as given by the appellant, was that he explained to Miss Pitt the
nature of the agreement which he wished her to enter into, namely that it was a
licence and that it was outside the Rent Acts, and he advised her to consult a
solicitor before signing it. In due course the contract was entered into
between the principal appellant and his wife of the one part and Miss Pitt and
two others of the other part whereby:
The Grantors
hereby grant Licence to the Grantees to use and occupy the self-contained fully
furnished Flat on the First floor of the building known as 32 Courthope Road,
London NW3 . . .
The contract
further provided that the grantees (as they were called) should pay to the
grantors £195 per month for the use and occupation of the flat, together with a
deposit. The licence (as it was described) was to be for one month from April 1
and thereafter on a monthly basis until determination in accordance with the
contract. The agreement also stipulated that the grantors should be permitted
to enter the flat for the purpose of examining the state and condition of its
interior and of the furniture and effects. The concluding clause of the
agreement read as follows:
The Grantees
hereby jointly and severally agree and declare that no landlord and tenant
relationship is created or intended to be created by virtue of the provisions
of this Licence or otherwise and that all sums paid by the Grantees to the
Grantors are accepted by the Grantors as provided in clause 3 hereof and not as
rent.
Miss Pitt and
the others who were to share with her duly entered into the flat and remained
there for a time. However, late in the year 1979 the other two sharers left and
Miss Pitt suggested to the appellant that she should be allowed to introduce as
another sharer a Mr Sepehr, a friend of hers, who was to become the second
defendant in the resulting proceedings. The appellant agreed to this after
meeting him at his request. Subsequently, a new contract was entered into
between the appellant and his wife on the one hand, and Miss Pitt and Mr Sepehr
on the other. It is right to note that, according to the findings of the
learned judge, the appellant once again explained the nature of the agreement
and suggested that Mr Sepehr should take advice.
There is no
doubt that the layout of this new agreement was inspired by the decision of the
Court of Appeal in Somma v Hazelhurst (supra). It was in
terms markedly different from those of the agreement which had previously been
made. It began as follows:
This Licence
is made the 29th day of November One thousand Nine hundred and Seventy Nine
between Andreas Theophanous Nicolaou and Pauline Edith Nicolaou of 67 Southover
Woodside Park, London, N12 (hereinafter referred to as ‘the Licensor’) of the
one part and Christine Pitt of Burway 11 Lincoln Close Tupsley Hereford and
Nader Sepehr of 39 Tanza Road NW3 (hereinafter referred to as ‘the Licensee’)
of the other part
Whereas the
Licensor is not willing to grant the Licensee exclusive possession of the Flat
or any part thereof hereinafter referred to And whereas the Licensees are
anxious to secure the use of the Flat notwithstanding that such use be in
common between them and with the Licensor and such other Licensee or invitees
as the Licensor may permit from time to time to use the said Flat
And whereas
this Licence is entered into by the Licensor and the Licensee solely upon the
above basis By this Licence the Licensor licenses the licensees to use (but not
exclusively) of (sic) all that Flat . . .
and then the
premises are described —
. . . for six
months from the 1st day of December One thousand nine hundred and seventy nine
until the 30th day of June One thousand nine hundred and eighty . . .
The terms and
conditions on which this grant was made included the following:
3 The Licensee shall use their best endeavours
amicably and peaceably to share the use of the rooms in the said flat with the
licensor and with such other licensee or invitee whom the licensor shall from
time to time permit to use the Flat and shall not interfere with or otherwise
obstruct such shared occupation in any way whatsoever.
24 The Licensee hereby jointly and severally
agree (sic) and declare that no landlord and tenant relationship is
created or intended to be created by virtue of the provisions of this Licence
or otherwise.
25 The Licensee hereby further jointly and
severally agree (sic) and declare that all sums of money payable
hereunder shall not be rent payable by a tenant to a Landlord but a fee payable
by a Licensee to a Licensor.
After making
this contract Mr Sepehr went to live in the flat with Miss Pitt. After a while
they were married, but unfortunately the relationship broke down and Miss Pitt
left the premises, leaving Mr Sepehr on his own.
On March 6
1986, after there had been an application to the rent officer to fix a fair
rent, the appellant purported to determine the agreement. Proceedings then
eventuated in the Bloomsbury County Court in which the appellant and his wife
had sought to obtain possession of the premises together with an order for
mesne profits. At the conclusion of the trial the learned county court judge
dismissed the claim, holding that Mr Sepehr was, as he had alleged, a tenant.
The landlords now appeal to this court, contending that the agreement should be
interpreted at its face value as a licence.
According to
the notes approved by the learned trial judge, the greater part of the judgment
was, as one would expect, occupied by a recital of the facts as I have
endeavoured to summarise them. The learned judge also drew attention to the
fact that he had had cited to him Street v Mountford (supra),
Somma v Hazelhurst (supra) and two other authorities. The crucial
findings on the contested issues as set out in the notes of the judgment were
as follows:
12 Mr Nicolaou was asked if he seriously had it
in contemplation to introduce a third person — a stranger — into the flat.
After a certain amount of humming and hawing he said he did so contemplate. I
do not believe him. I do not think he ever contemplated introducing either a
third person, nor himself, occupying the flat. He wanted to get round the Rent
Acts.
14 Mr Nicolaou has said that before the first
agreement was made Miss Pitt had said that she would occupy the large room and
Mr Sepehr the small one. He had no knowledge of the sharing arrangements as
between the two of them. He only went there when a problem arose.
19 Despite the words which were used and despite
what was said I am satisfied that Mr Nicolaou, the first plaintiff, intended to
grant exclusive possession. I am satisfied also that the first and second
defendants had exclusive possession and that they paid a periodic rent of £195
per month. What they actually got was a tenancy. When Miss Pitt left Mr Sepehr
became the sole tenant. I find that he is now the statutory tenant.
On these facts
Mr Bailey-King, who has economically advanced all the available arguments on
behalf of his clients, makes the following points:
(1) The oft-cited passage in Somma v Hazelhurst
at p 1024 of the report underlines the distinction between a tenancy and a
licence in a manner which is still valid today. The overruling of Somma
v Hazelhurst in the subsequent cases in the House of Lords took place because
the House formed a different opinion from the Court of Appeal on the facts, and
the statements of principle by the Court of Appeal were not affected.
(2) The trial judge has not expressly found that
the agreement was a sham designed to conceal the fact that it really fell
within the Rent Acts. In the absence of such a finding there is no ground upon
which this court could form its own opinion to that effect.
(3) The parties not only wrote down that the
agreement was a licence; they actually agreed that it was a licence and
intended it to be a licence. There is no reason in law or policy for this court
to frustrate their intention.
I will take
these points in turn.
As to the
first point, I intend no disrespect to the division of this court which decided
Somma v Hazelhurst to say that there is little purpose now in
having regard to what was said in that case given that it has been expressly
overruled. The court should, in my judgment, direct itself in accordance with Street
v Mountford, as explained and developed in A G Securities v Vaughan
and in the light of any exposition of them which may be given hereafter. I do
not think that what is said in Somma v Hazelhurst can be relied
upon to illuminate problems such as the one with which we are now faced.
Second, while
it is true that the trial judge did not make use of the word ‘sham’, the thrust
of his judgment is unmistakable. The findings of paras 12 and 19 clearly convey
that, as regards the right to exclusive possession, the agreement did not mean
what it said. That is a sham.
Third, it is
not accurate to say that the parties ‘agreed’ that their relationship should be
a licence. They had a joint explicit intention that the agreement should give
them the mutual rights and duties of licensors and licensees, but the
categorisation of the agreement as a licence or a tenancy is for the law to
decide, not the parties. I understand A G Securities v Vaughan as
making it clear that, otherwise than in exceptional cases, an agreement for
exclusive occupation for rent for a term of years must be a tenancy. The
findings of fact in paras 12 and 19 were based on the learned judge’s
observation of the witnesses and accord with the commonsense of the transaction
and with the subsequent conduct of the parties. There is no ground upon which
it would be possible for us to interfere with those findings on the material
now before us. Indeed, it seems to me that the learned judge was plainly right.
In these
circumstances, and absent any ground for considering that this is one of those
exceptional cases where it is possible to have exclusive possession
consistently with the existence of a licence, I see no alternative but to
conclude, as did the learned judge, that, whatever the parties may have said or
wished, what was brought into existence here was a tenancy.
Accordingly, I
would hold that the judgment is unassailable and that the appeal must be
dismissed.
Agreeing,
STUART-SMITH LJ said: Mustill LJ has set out the crucial findings of the judge
to be found in paras 12 and 19 of his judgment and I need not repeat them. In
my judgment, these were findings that the judge was fully entitled to make on
the evidence. The result is, as it seems to me, that, on the authority of Street
v Mountford [1985] AC 809 and A G Securities v Vaughan
[1988] 3 WLR 1205, the relationship is that of landlord and tenant and not
licensor and licensee, unless the case falls within one of the clear
exceptions, which it does not.
The burden of
Mr Bailey-King’s submissions is that, before the agreement was entered into,
the appellant clearly explained both to Miss Pitt and Mr Sepehr that he was
granting a licence and not a tenancy, and that consequently they had no security
of tenure, a fact which was understood and accepted by them. But this does not
affect the judge’s finding to which I have referred. It matters not that the
parties described the agreement as a licence or that the appellant explained
that he does not want to grant security of tenure, or indeed that this is
accepted. If, in fact, the intention is to grant exclusive possession at a
rent, it is that which creates a tenancy. It is that which makes it in
substance and reality not a licence.
I therefore
agree, and for the reasons given by Mustill LJ, that this appeal must be
dismissed.
The appeal
was dismissed with costs. Legal aid taxation of respondent’s costs was ordered.
Leave to appeal to the House of Lords was refused.
