Landlord and tenant — Landlord and Tenant Act 1954 section 38(2) — Disturbance compensation — Meaning of ‘occupied for the purposes of a business’ — Whether tenant entitled to compensation following termination of his business tenancy
By a lease
dated January 14 1974 the appellant tenant held a 20-year term of commercial
premises. In October 1993 the respondent landlords served on the tenant a
notice under section 25 of the Landlord and Tenant Act 1954 seeking to
determine the tenancy on grounds (f) and (g) of section 30(1). In
November 1993 the tenant served a counternotice and later made an application
for a new tenancy. That application was not opposed by the landlords, save as
to the terms of the new tenancy. Subsequently the tenant changed his mind and discontinued
his application. By the operation of section 64 of the Act, the tenancy
continued until August 11 1994 and terminated on that date. On July 29 1994 the
tenant vacated the premises on the mistaken advice of his solicitors that that
was the date he had to quit. In proceedings before the court below it was held
that the tenant was not entitled to claim compensation for disturbance under
section 37 on the grounds that the right was excluded under the lease and the
tenant had not been in occupation of the premises for the five years
‘immediately preceding’ August 11 1994. Accordingly, the continuity of
occupation for the purposes of section 38(2) was broken. The tenant appealed.
short period, whether mid-term or before or after trading at either end of the
lease, the court would be disinclined to find that the business occupancy has
ceased (or not started) for that period, provided always that during the period
there exists no rival for the role of business occupant and that the premises
are not being used for some other non-business purpose. That is how Part II of
the 1954 Act should operate in logic and in justice. It has nothing to do with
the de minimis principle. It is a recognition that the tenant’s business
interests will not invariably require permanent physical possession throughout
the whole term of the lease and he ought not to have to resort to devices like
storage of goods or token visits to satisfy the statutory requirements of
continuing occupation. The word ‘occupy’ bears a broader meaning. The case of Department
of the Environment v Royal Insurance plc [1987] 1 EGLR 83 was
wrongly decided. Section 38 of the 1954 Act operated to render the clause in
the lease excluding compensation void.
The following
cases were referred to in this report.
Aspinall
Finance Ltd v Viscount Chelsea [1989] 1 EGLR
103; [1989] 09 EG 77
Caplan
(I&H) Ltd v Caplan (No 2) [1963] 1 WLR
1247; [1963] 2 All ER 930
Cardshops
Ltd v John Lewis Properties Ltd [1983] QB
161; [1982] 3 WLR 803; [1982] 3 All ER 746; (1982) 45 P&CR 197; [1982] 2
EGLR 53; [1982] EGD 305; 263 EG 791, CA
Department
of the Environment v Royal Insurance plc
(1987) 54 P&CR 26; [1987] 1 EGLR 83; 282 EG 208
Graysim
Holdings Ltd v P&O Property Holdings Ltd
[1996] 1 AC 329; [1995] 3 WLR 854; [1995] 4 All ER 831; [1996] 1 EGLR 109;
[1996] 03 EG 124, HL
Hancock
& Willis v GMS Syndicate Ltd [1983] 1
EGLR 70; [1983] EGD 114; (1982) 265 EG 473, CA
Morrisons
Holdings Ltd v Manders Property (Wolverhampton)
Ltd [1976] 1 WLR 533; [1976] 2 All ER 205; (1975) 32 P&CR 218; [1976] 1
EGLR 70; 238 EG 715, CA
Wandsworth
London Borough Council v Singh (1991) 62
P&CR 219; 89 LGR 729; [1991] 2 EGLR 75; [1991] 33 EG 90, CA
This was an
appeal from part of the order of Judge Bursell QC (sitting as a judge of the
High Court) who held that the appellant, Glauco Bacchiocchi, was not entitled
to statutory compensation for disturbance following the termination of his
business tenancy.
Edward Denehan
(instructed by Withy King & Lee, of Bath) appeared for the appellant;
Richard Stead (instructed by McCloy & Co, of Bradford-on-Avon) represented
the respondents.
Giving the
first judgment, SIMON BROWN LJ said: This is an appeal
from that part of the order of Judge Bursell QC, sitting as a judge of the High
Court in Bristol on February 21 1997, that held the appellant not entitled to
statutory compensation for disturbance following the termination of his
business tenancy. It raises an interesting question under section 38(2) of the
Landlord and Tenant Act 1954.
The basic
facts are these. From 1974 to 1994 the appellant ran a restaurant, ‘La
Pentola’, in the basement and cellars at 14 North Parade, Bath. He was the
tenant of those premises under a 20-year lease dated January 14 1974 — until
April 23 1983 with a partner and thereafter alone. The respondents became his
landlords on July 11 1980. The annual rent, reviewable at five-year intervals,
started at £900 and rose finally to £2,875. The tenancy was one to which the Landlord
and Tenant Act 1954 Part II applied. All statutory references hereafter are to
that Act.
On October 4
1993 the respondents served a section 25 notice seeking to determine the
tenancy on April 8 1994 and stating that any application by the appellant for a
new tenancy would be opposed on the statutory grounds contained in paras (f)
and (g) of section 30(1). On November 3 1993 the appellant served a
counternotice stating that he was not willing to give up possession of the
premises, and on December 8 1993 he applied to Bath County Court for an order
for the grant of a new tenancy. On January 5 1994 the respondents filed an
answer stating that they would not oppose the appellant’s application for a new
tenancy, but objecting to the terms proposed. The appellant too then changed
his mind and on April 29 1994 applied to the court for leave to withdraw his
application. On May 11 1994 the appellant formally discontinued his application
by notice under CCR Ord 18 r 1. In the result, by operation of section 64, the
tenancy was continued until August 11 1994 and terminated on that date.
Generally
speaking, a tenant in those circumstances would be entitled to compensation
under section 37 — indeed, having occupied the premises for more than 14 years,
to compensation calculated at twice the basic rate. It is common ground here
that such compensation, if due, would amount to £15,030. The respondents,
however, contend, and the judge below held, that no such compensation is
payable: the
certain circumstances such an exclusion is void. That, however, depends upon
the premises having been occupied for the purposes of the business ‘during the
whole of the five years immediately preceding the date on which the tenant … is
to quit the holding’ (here August 11 1994). Critically for present purposes,
the appellant had vacated the premises and handed over the keys to his
solicitors on Friday July 29 1994. During the 12 days between then and August
11 1994, so the judge held, the appellant was not in occupation of the
premises. Those were the days ‘immediately preceding’ August 11 1994. It
accordingly followed that the appellant had not been in occupation during the
whole of the required five-year period. Was the judge right to take that view?
This is the critical issue raised upon this appeal.
With that
brief introduction let me at once set out the relevant clause in the lease and
the material parts of sections 37 and 38.
Clause 4(7) of
the lease provided that:
If the
tenancy hereby granted is within Part II of the Landlord and Tenant Act 1954
then subject to the provisions of sub-section (2) of s38 of that Act neither
the Tenant nor any assignee or under-lessee of the term hereby granted or of
the demised premises shall be entitled on quitting the demised premises to any
compensation under Section 37 of this same Act …
Section 37 (as
amended) so far as material provides:
(1) … where
no other ground is specified in the landlord’s notice under section 25 … than
those specified in the said paragraphs (e), (f) and (g) [of section 30(1)] and
either no application under … section 24 is made or such an application is
withdrawn, then … the tenant shall be entitled on quitting the holding to
recover from the landlord by way of compensation an amount determined in
accordance with the following provisions of this section.
(2) … the
said amount shall be as follows, that is to say, —
(a)
where the conditions specified in the next following subsection are satisfied
it shall be the product of the appropriate multiplier and twice the rateable
value of the holding, …
(3) The said
conditions are —
(a)
that, during the whole of the fourteen years immediately preceding the
termination of the current tenancy, premises being or comprised in the holding
have been occupied for the purposes of a business carried on by the occupier or
for those and other purposes; …
Section 38 so
far as material provides:
(2) Where —
(a)
during the whole of the five years immediately preceding the date on which the
tenant under a tenancy to which this Part of this Act applies is to quit the
holding, premises being or comprised in the holding have been occupied for the
purposes of a business carried on by the occupier or for those and other
purposes, and …
any agreement
(whether contained in the instrument creating the tenancy or not and whether
made before or after the termination of that tenancy) which purports to exclude
or reduce compensation under the last foregoing section shall to that extent be
void …
(3) In a case
not falling within the last foregoing subsection the right to compensation
conferred by the last foregoing section may be excluded or modified by
agreement.
We were
referred to a number of cases decided under Part II of the 1954 Act that
consider the question of what constitutes the occupation of business premises.
All but one of these, one should note, were concerned with the basic question
arising under section 23, the question of whether, when the contractual term
ends, the tenant is occupying the premises for business purposes and thus
entitled under the Act to continue his tenancy. The question of occupation in
the present case arises in a rather different context; here, by definition,
there is to be no continuation of the tenancy. It is nevertheless important to
discover the central principles emerging from the section 23 authorities.
I start with
the most authoritative of the cases, the recent decision of the House of Lords
in Graysim Holdings Ltd v P&O Property Holdings Ltd [1996] 1
AC 329*, far removed though that case was from the present. The question there
was not whether anyone was in business occupation of the premises, but rather
which among competing candidates for that role was properly to be regarded as
occupier. Was it the respondent, the tenant of the enclosed market hall, or was
it the individual stallholders who had exclusive possession of their stalls? In
holding the latter Lord Nicholls, in the single reasoned speech, made, under
the heading ‘Occupied’, these important general observations [at p334F]:
*Editor’s note: Also reported at [1996] 1 EGLR 109;
[1996] 03 EG 124
As has been
said on many occasions, the concept of occupation is not a legal term of art,
with one single and precise legal meaning applicable in all circumstances. Its
meaning varies according to the subject matter. Like most ordinary English
words ‘occupied,’ and corresponding expressions such as occupier and occupation,
have different shades of meaning according to the context in which they are
being used …
In many
factual situations questions of occupation will attract the same answer,
whatever the context. A tenant living alone in a detached house under a
residential lease would be regarded as the sole occupier of the house. It would
need an unusual context to point to any other answer. But the answer in
situations which are not so clear cut is affected by the purpose for which the
concept of occupation is being used. In such situations the purpose for which
the distinction between occupation and non-occupation is being drawn, and the
consequences flowing from the presence or absence of occupation, will throw
light on what sort of activities are or are not to be regarded as occupation in
the particular context. In Part II of the Act of 1954 ‘occupied’ and ‘occupied
for the purposes of a business carried on by him’ are expressions employed as
the means of identifying whether a tenancy is a business tenancy and whether the
property is part of the holding and qualifies for inclusion in the grant of a
new tenancy. In this context ‘occupied’ points to some business activity by the
tenant on the property in question. The Act seeks to protect the tenant in his
continuing use of the property for the purposes of that activity. Thus the word
carries a connotation of some physical use of the property by the tenant for
the purposes of his business.
This is a
good starting point, but it is not a test which will provide an answer in all
cases. Occasionally the question will be whether the property is occupied or
unoccupied. Wandsworth London Borough Council v Singh (1991) 89
LGR concerning a small public open space at St John’s Hill in Wandsworth, is an
example of this. More usually, however, when disputes arise about business
tenancies there is no question of the property being unoccupied. Rather, there
is competition for the role of occupier.
The present,
of course, is one of those ‘occasional’ cases where the question is ‘whether
property is occupied or unoccupied’. Among other such cases referred to us were
I&H Caplan Ltd v Caplan (No 2) [1963] 1 WLR 1247, Morrisons
Holdings Ltd v Manders Property (Wolverhampton) Ltd [1976] 1 WLR
533*, Hancock & Willis v GMS Syndicate Ltd [1983] 1 EGLR 70†
and Wandsworth London Borough Council v Singh (1991) 89 LGR 729‡
(the one referred to by Lord Nicholls).
*Editor’s note: Also reported at [1976] 1 EGLR 70;
(1975) 238 EG 715, CA
†Editor’s note: Also reported at (1982) 265 EG 473
‡Editor’s note: Also reported at [1991] 2 EGLR 75;
[1991] 33 EG 90
I propose to
deal with these cases very briefly indeed, quoting only very selectively from
the judgments.
Caplan v Caplan
For some
months while the tenants’ right to a new tenancy was being litigated, they
ceased trading and vacated the premises. Having succeeded before the Court of
Appeal, they started trading afresh. Cross J subsequently held that although it
was ‘distinctly a border-line case’, the ‘thread of continuity’ was not broken.
He said [at p1260]:
I think it is
quite clear that a tenant does not lose the protection of this Act simply by
ceasing physically to occupy the premises. They may well continue to be
occupied for the purposes of the business although they are de facto
empty for some period of time. One rather obvious example would be if there was
a need for urgent structural repairs and the tenant had to go out of physical
occupation in order to enable them to be effected. Another example would be
that which the Court of Appeal had to deal with in Teasdale v Walker
[1958] 1 WLR 1076. That was a case where premises were only occupied during the
seasonal periods: they were closed and empty in the winter and only used in the
summer. On the other hand, as the Court of Appeal pointed out in Teasdale
will not preserve the continuity of the business user if the thread has once
been definitely broken.
Morrisons
Holdings Ltd
The tenants
had to cease trading as a result of a catastrophic fire next door. They
required the landlords to reinstate and expressed their desire to continue
trading as soon as possible. Following the landlords’ demolition and
reconstruction of the premises, the tenants were held to be entitled to a new
tenancy. Scarman LJ approved what Cross J had said in Caplan, and
continued at p540A:
I would put
it in my own words as follows: in order to apply for a new tenancy under the
Act a tenant must show either that he is continuing in occupation of the
premises for the purposes of a business carried on by him, or, if events over
which he has no control have led him to absent himself from the premises, if he
continues to exert and claim his right to occupancy … the temporary absence in Caplan
(I&H) Ltd v Caplan (No 2) which did not destroy the continuity
of occupation was absence at the volition of the tenant. In the present case
the absenting by the tenants of themselves from the premises after the
devastating fire was not their choice, but was brought about by the state of
the premises created by the fire …
Hancock &
Willis
The solicitor
tenants moved to larger premises and for six months licensed the subject
premises to others, save for the wine cellar and save that they reserved to
themselves the right to use the dining area twice a month. The Court of Appeal
held that the thread of continuity had been broken. Eveleigh LJ said at p72L:
The words
with which we are concerned import, in my judgment, an element of control and
user and they involve the notion of physical occupation. That does not mean
physical occupation every minute of the day, provided the right to occupy
continues. But it is necessary for the judge trying the case to assess the
whole situation where the element of control and use may exist in variable
degrees. At the end of the day it is a question of fact for the tribunal to
decide, treating the words as ordinary words in the way in which I have
referred to them
Wandsworth
London Borough Council v Singh
The local
authority were lessees of some 500m2 of public open space, which
they and their horticultural subcontractors visited periodically. The Court of
Appeal held that sufficient to constitute occupation. Ralph Gibson LJ said at
p79H:
The concept
[of sufficiency of physical presence and of use] was whether the occupation of
the premises by the tenant was shown to be such as Parliament intended to be
covered by the words used in section 23(1) and (2).
Depending
always, therefore, upon their individual facts, these section 23 cases seem to
have turned essentially on:
1. The extent
of the tenant’s physical presence on, use of, and control over the premises.
2. Whether or
not the tenant vacated the premises voluntarily or involuntarily in the sense
of leaving for reasons beyond his control.
3. Whether or
not, having vacated, the tenant evinced an intention to return.
4. Whether the
thread of continuity was broken. In determining this, however, the fact that
business use may be interrupted by circumstances such as seasonal closure,
holiday periods and repair work was not to be regarded as inconsistent with the
notion of continuing occupation.
I come now to
the authority closest in point, one concerned not with the general concept of
occupation for business purposes under section 23, but with the more directly
relevant question of whether a tenant has occupied the demised premises ‘during
the whole of the fourteen years immediately preceding the termination of the
current tenancy’ within the meaning of section 37(3)(a), a very similar
question to that arising here. Falconer J in Department of the Environment
v Royal Insurance plc [1987] 1 EGLR 83* had to decide whether the fact
that the tenants under a 14-year lease had entered into occupation of the
premises one day after the term began meant that they had thereby failed to
occupy for ‘the whole of the fourteen years’, in which event, of course, they
were entitled only to the basic rate of compensation when, at the end of the
14-year term, they quitted the premises. In holding that the tenants had indeed
failed to satisfy the requirement for double compensation, Falconer J said of
the section 23 authorities [at p87F]:
*Editor’s note: Also reported at (1987) 282 EG 208
It seems to
me that all those sorts of cases are different from the present case in that
they were all examples of cases where there had been physical occupation prior
to the gap or break which occurred and the real question to be determined every
time by the courts was: had the absence for that period, for whatever reason,
effected a cesser of the occupation which had already been in existence? In the
present case, as I say, it is common ground that as a physical fact the
initiation of the occupation by the contractors going in did not commence until
… [the second day of the term].
Falconer J rejected
too the tenants’ alternative, de minimis, argument [at p88F]:
In section
37(3)(a), as I think I have already indicated, it seems to me that
Parliament has made its intention perfectly clear. It provides for a period of
14 years and not only does it provide for a period of 14 years immediately
preceding the termination to be the qualifying period for the higher rate under
para (a) of subsection (2), it says: ‘during the whole of the 14 years
immediately preceding’, emphasising in my mind that there must be a complete 14
years. Cases have arisen, of course, where the occupancy has been broken in the
ways I have indicated; they give rise to the question of whether the break that
occurs causes a cesser of the occupation. But that question does not arise when
the occupation has not yet commenced.
Mr Richard
Stead, for the respondents, submits that the present case is a fortiori
to the DOE case: there, after all, the intention was to occupy after the
one day’s period of absence, here there was no such intention; and here in any
event the premises were empty for substantially longer. Mr Edward Denehan, for
the appellant, also seeks to distinguish the DOE case on two grounds:
first, because there was no break there in an existing period of occupation:
occupation had simply not commenced in time; second, because the date that
business occupation was to commence was there entirely in the tenants’ hands,
whereas here the appellant had to ensure that he gave vacant possession by
August 11.
For my part, I
would reject every one of these arguments. There seems to me no distinction
whatever between the two cases and certainly none in principle. If DOE
was rightly decided, then the present appeal too must fail.
Before coming
to a final conclusion on the point, it is necessary to return briefly to the
facts to see just why the appellant here physically vacated these premises 12
days before he needed to — 12 days during which, of course, he remained liable
under the lease for rent and subject also to all other relevant covenants,
including for example as to the state of the premises. The factual position
can, I think, be fairly summarised as follows:
1. In early
1994 the appellant changed his mind about wanting a new lease because he
decided it was time for him to retire. He was 60 years of age and had been in
the restaurant business for nearly 40 years. He did not want the responsibility
of taking on a new long-term lease.
2. His
solicitors mistakenly thought that under the statute the tenancy terminated on
July 29. On June 9 they wrote to the respondents’ solicitors: ‘as previously
confirmed our client will be leaving at the end of July’. On June 24 1994 they
wrote:
the
application was withdrawn by us on 29th April — see copy application to the
Court herewith. Accordingly rent is due up to the 29th July.
On July 5 the
respondents’ solicitors pointed out that time runs from when the proceedings
are actually discontinued and that the lease would therefore end on August 11.
Their letter concluded:
If your
client is saying that he will give possession at the end of this month and
wants us to consider with our client whether he is prepared to forego the rent
if early possession is given, we will take our client’s instructions.
On July 22
1994 the appellant’s solicitors replied:
Our client
proposes vacating on the 29th July providing he is released from any further
liability for rent and we shall be obliged if you will confirm this is agreed
by return.
There was no
response to that letter.
3. As stated,
the appellant vacated the premises and handed over the keys to his own
solicitors on Friday July 29 1994. The restaurant had closed the previous
Saturday, July 23. The intervening six days had been spent cleaning up the
premises.
Woodfall’s
Law of Landlord and Tenant (1994 ed) in para
22.172, after referring to the DOE case, says:
It is not
clear what the position would be if a tenant who had been in occupation for
more than 14 years at the date of service of the landlord’s section 25 notice
quit some months before the date of termination. On one view he would not have
been in occupation for the whole of the 14 years preceding the termination of
the tenancy, and consequently would not be entitled to higher rate
compensation. The justice of this is hard to see, but it may be compelled by a
literal reading of the Act.
That so-called
literal reading of the Act is what Mr Stead contends for here. He submits that
the words ‘immediately preceding’ are strong words, clearly designed to ensure
that compensation is only payable in cases where the business use has continued
to the very end. Such a conclusion, he argues, is not unjust, particularly in a
case like the present where the appellant had agreed to an exclusion of the
right to compensation for disturbance and where, in any event, when the
opportunity of a fresh tenancy was put before him, he withdrew his application.
True, at the other end of the merits spectrum would be a section 37(3)(a)
case in which neither of these considerations arose, but, contends Mr Stead,
there is always the possibility of casualties from the strict construction of
any legislation.
To my mind,
however, the question here is not whether the words of the statute should be
construed literally or otherwise, but rather what is meant in this specific
context by the words ‘occupied for the purposes of a business’. It is at this
point that the section 23 authorities provide some help.
Once it is
recognised that premises can be occupied for the purposes of a business even
when they are closed for the season, or for holidays, or for repairs (as those
authorities plainly establish), it must surely follow that section 38(2)(a)
can perfectly well be satisfied, notwithstanding that the tenancy comes to an
end during such a period of closure. So much, indeed, the respondents recognise
and accept; that is why they do not seek to rely upon the six-day period
between July 23 and 29 when the restaurant was shut for the premises to be
cleaned.
What, then, is
different about the final 10 days of this appellant’s lease? Mr Stead argues
that none of the touchstones of occupation established by the section 23
authorities was satisfied during that period: the appellant vacated these
premises voluntarily, left them empty and had no intention of ever returning.
But all that would have been equally true had the lease ended during a holiday
period. What is it, one therefore asks, about periods of mid-term closure for
repairs and the like that in the eyes of the law they do not destroy the
continuity of business occupation? That is the critical question and the answer
surely is this: each of these events is recognisable as an incident in the
ordinary course or conduct of business life. By the same token that trading may
have to cease mid-term for repairs, so also it may have to be delayed for the
premises to be fitted out in the first place or may have to end before the term
of the lease expires so that the premises may be cleaned up and handed over
with vacant possession on the due date.
If, as one would
readily have inferred in the DOE case, it suited the tenants for
business reasons to go into occupation a day late — perhaps because architects
or fitters could not conveniently attend earlier — that seems to me no less an
incident of the overall business use of the premises during the period of the
lease than had mid-term repairs taken a day longer for the same reason. Indeed,
whenever business premises are empty for only a short period, whether mid-term
or before or after trading at either end of the lease, I would be disinclined
to find that the business occupancy has ceased (or not started) for that period
provided always that during it there exists no rival for the role of business
occupant and that the premises are not being used for some other, non-business
purpose. That, to my mind, is how Part II of the 1954 Act should operate in
logic and in justice. It has nothing to do with the de minimis
principle. Rather, it is a recognition that the tenant’s business interests
will not invariably require permanent physical possession throughout the whole
term of the lease and he ought not to have to resort to devices like storage of
goods or token visits to satisfy the statutory requirements of continuing
occupation. If, of course, premises are left vacant for a matter of months, the
court would be readier to conclude that the thread of continuity has been
broken.
In the present
case it seems plain that, having planned for some time on vacating the premises
in late July through a misunderstanding of when the lease was to end, the
appellant found it commercially sensible to stick to this plan, even though
ultimately he obtained no rent rebate (which no doubt is why he left the keys
with his solicitors instead of giving immediate vacant possession to the respondents).
All of this I regard as no less an incident of normal business life than the
events so regarded in the section 23 cases. Here, of course, unlike in those
cases, the tenant, when vacating the premises, had no intention of returning.
But that, as I observed earlier, is because the present context necessarily
predicates the ending of the business tenancy. The court in the DOE
case, just as Judge Bursell QC here, to my mind, paid too much attention to the
words ‘immediately preceding’ and thereby overlooked the correct approach to
the concept of continuing occupation as it applies at each end of the term of a
business tenancy. Had the ordinary section 23 approach been adapted to the
present, different context, I have no doubt that, on the facts, this appellant
must have been found entitled to the statutory compensation. I would therefore
allow his appeal and alter Judge Bursell’s order accordingly.
In those
circumstances the respondents’ cross-appeal on costs does not arise for
decision. It was, in any event, brought improperly, without leave.
Agreeing, WARD LJ said:
Material
facts
1. After
carrying out certain renovations and improvements, the appellant opened his
restaurant business at the premises in April 1974. He served his last meal
there more than 20 years later on Saturday July 23 1994.
2. He took
some days to clear up and leave the premises in good order. He locked the doors
on Friday July 29 and did not return.
3. That was
the chosen date for closure because his solicitors mistakenly thought that it
was the date he had to quit, being three months after they had applied to the
court for leave to withdraw his application for a new tenancy.
4. It is now
common ground that the application was only finally disposed of by the court’s
granting that leave on May 11, with the result that the date on which he was to
quit was Thursday August 11.
5. The
landlords held him to that later date and he remained liable under the terms of
the lease and for rent until then.
6.
Consequently the premises stood empty for 12 days before the proper date to
quit.
7. By clause
4(7) of the lease the parties had contracted out of the obligation to pay the
statutory compensation for disturbance, but that clause would be void if
section 38(2) of the Landlord and Tenant Act 1954 applied.
Issue
The question
in this appeal is, therefore, whether in the circumstances this is a case
where:
during the
whole of the five years immediately preceding the date on which the tenant
under a tenancy to which this Part of this Act applies is to quit the holding,
premises being or comprised in the holding have been occupied for the purposes
of a business carried on by the occupier or for those and other purposes.
That question
poses a dilemma for me. On the one hand, successfully to argue that quitting 12
days early has the effect of breathing life into what, as the decades rolled
by, must have seemed to be an increasingly moribund clause 4(7), is to achieve
the triumph of technicality over merit. On the other hand, there is a
remorseless compulsion to the literal construction of section 38(2) adopted by
the judge. I have not found it an altogether easy matter to decide.
My
approach
1. The purpose
of the statutory scheme provided by Part II of the Act was expressed by Ackner
LJ in Cardshops Ltd v John Lewis Properties Ltd [1983] QB 161* at
p179C to be:
*Editor’s note: Also reported at [1982] 2 EGLR53;
(1982) 263 EG 791
Parliament
intends that the tenant should be properly compensated for the disturbance in
having to vacate the premises …
This
disturbance is suffered equally when, as here, the tenant withdraws his
application for a new tenancy and a tenant in these circumstances is just as
much entitled to his compensation.
2. Section 38
operates to restrict the freedom of contract that would otherwise allow the
parties to agree that no such compensation shall be paid. It operates in favour
of the tenant and against the landlord. Its purpose is to ameliorate the
tenant’s position by imposing the statutory scheme of compensation on the
landlord once the tenant qualifies for relief through five years’ occupation
for business purposes. To give effect to that statutory purpose, the question
should be approached broadly rather than narrowly.
3. Reference
to the ‘whole of five years’ is an indication that continuous occupation for
that period is required.
4.
‘Immediately preceding’ indicates that the occupation must continue up to the
date of quitting.
5. In the wholly
different context where the court’s jurisdiction to grant a divorce is
dependant upon habitual residence for 12 months immediately preceding the
presentation of the petition, I would not find it difficult to decide that the
requisite period is 365 days, not 364 days, and that if the petitioner had
abandoned his residence 12 days before the presentation of the petition,
jurisdiction would not be established and it would not avail the petitioner to
pray in aid the 20 years’ previous residence. This was the judge’s approach and
I have already acknowledged the force of his reasoning.
6. It seems to
me that the case must turn upon the meaning to be given to the words ‘occupied
for the purposes of a business carried on by the occupier’.
7. None of the
decided cases is exactly on the point we have to decide. Department of the
Environment v Royal Insurance plc [1987] 1 EGLR 83 is closest. For
my part, I find it very difficult to accept Falconer J’s reasoning that in
circumstances where the lease was taken on August 23 but the builders were not
put into the premises until the 25th to begin the work everyone contemplated
was to be done before the tenant’s business could commence, it was appropriate
to find there was no intention to occupy the premises on the first day simply
because the builders began work on the second day.
8. The other
reported decisions all seem to be cases where the tenant was seeking a new
tenancy which gave rise to a question under section 23, whether or not the
premises were being occupied for the purposes of a business. Being in the same
part of the Act, the words in sections 23 and 38 should bear an allied meaning.
9. The
authoritative decision is Graysim Holdings Ltd v P&O Property
Holdings Ltd [1996] 1 AC 329, from which I extract these propositions from
the speech of Lord Nicholls of Birkenhead. First, with my emphasis added [at
p334G]:
the concept
of occupation is not a legal term of art, with one single and precise meaning
applicable in all circumstances. Its meaning varies according to the subject
matter. Like most ordinary English words ‘occupied’, and corresponding
expressions such as occupier and occupation, have different shades of meaning
according to the context in which they are being used … the answer in
situations which are not so clear cut is affected by the purpose for which the
concept of occupation is being used. In such situations the purpose for which
the distinction between occupation and non-occupation is being drawn, and the
consequences flowing from the presence or absence of occupation, will throw
light on what sort of activities are or are not to be regarded as occupation in
the particular context. In Part II of the Act of 1954 ‘occupied’ and ‘occupied
for the purposes of a business carried on by him’ are expressions employed as
the means of identifying whether a tenancy is a business tenancy and whether
the property is part of the holding and qualifies for inclusion in the grant of
a new tenancy. In this context ‘occupied’ points to some business activity
by the tenant on the property in question. The Act seeks to protect the tenant
in his continuing use of the property for the purpose of that activity. Thus
the word carries a connotation of some physical use of the property by the
tenant for the purposes of his business.
There are,
however, important qualifications in his speech, which I again emphasise:
This
(physical use of the property by the tenant for the purposes of his business)
is a good starting point but it is not a test which will provide an answer
in all cases …
To look for a
clear line between these instances would be to seek the non-existent. The
difference between the two extremes is a difference of degree, not of kind … It
is, moreover, a question of fact in the sense that the answer depends upon the
facts of the particular case. The circumstances of two cases are never
identical, and seldom close enough to make comparisons of much value. The types
of property, and the possible uses of property, vary so widely that there can
be no hard and fast rules. The degree of presence and exclusion required to
constitute occupation, and the acts needed to evince presence and exclusion,
must always depend upon the nature of the premises, the use to which they are
being put, and the rights enjoyed or exercised by the persons in question.
Since the
question is one of degree, inevitably there will be doubt and difficulty over
cases in the grey area.
10. Earlier
decisions also give some helpful guidance. In I&H Caplan Ltd v Caplan
[1963] 1 WLR 1247, Cross J said [at p1260]:
I think it is
quite clear that a tenant does not lose the protection of this Act simply by
ceasing physically to occupy the premises. They may well continue to be
occupied for the purposes of the business although they are de facto empty for
some period of time … a mere intention to resume occupation if you get a new
tenancy will not preserve the continuity of business user if the thread has
once been definitely broken.
… the thread
of continuity … was not broken in this case.
In Morrisons
Holdings Ltd v Manders Property (Wolverhampton) Ltd [1976] 1 WLR 533
(the fire damage case) Scarman LJ said:
if events
over which he has no control had led him to absent himself from the premises,
(he must show he) continues to exert and claim his right to occupancy.
In Hancock
& Willis v GMS Syndicate Ltd [1983] 1 EGLR 70 Eveleigh LJ said
[at p72L]:
The words
with which we are concerned import, in my judgment, an element of control and
user and they involve the notion of physical occupation. That does not mean
physical occupation every minute of the day, provided the right to occupy
continues. But it is necessary for the judge trying the case to assess the
whole situation where the element of control and use may exist in variable
degrees. At the end of the day it is a question of fact for the tribunal to
decide …
In Wandsworth
London Borough Council v Singh [1991] 2 EGLR 75 Ralph Gibson LJ said
[at p78C]:
Thus if the
physical occupation is not continuous, the right to occupy must continue in
order for the continuity of occupation to be preserved for the purpose of
section 23.
Conclusions
When I draw
these strands together, it seems that I can properly arrive at the following
conclusions.
1. At the
heart of the problem is the need to establish business activity for the
requisite period of five years.
2. The decided
cases are useful as far as they go, but it must be remembered that these cases
(except DOE) were concerned with establishing a continuing business
activity in order to lay the foundation for a renewal of the tenancy. Here the
focus is different: here it has to centre on business activity that is now
being conducted with a view to discontinuing that business on those premises
and quitting them.
3. Just as the
business activity will be treated as continuous, notwithstanding seasonal
breaks or interruptions for the carrying out of repairs after fire damage, so
should the business activity be capable of being treated as continuous where
there is an interruption caused for the purpose of quitting the premises. The
thread of continuity has a degree of elasticity to it and it has that elastic
quality at the end as well as in the middle of the thread.
4. What is
necessary in the section 23-type case is the intention to return, or at least
the intention to continue to exert and claim the right to occupy. Having regard
to the different nature of business activity that is involved in running down a
business in order to remove from the premises, there must be an associated
intention not so much to return, but rather to quit on the proper date, as that
date is defined in the Act, and to remain responsible under the tenancy till
then.
5. To insist,
as the application of DOE would require, that there be precise
coincidence of time between cessation of all activity and the moment when the
obligation to quit arises, will produce commercial absurdity. It is an affront
to common sense to require a pot and pan to be left on the premises till the
clock strikes midnight on the last day. Common sense surely dictates that there
be an allowance for reasonable leeway.
6. Once it is
established on the particular facts of the case that leaving the premises
unattended is associated with cessation of business activity for the purpose of
quitting pursuant to the statutory scheme, then it is a matter of degree
whether the period of inactivity is reasonably incidental to the commercial
decision to cease trading from those premises.
7. Thus it
seems to me that the proper approach requires answers to questions like these:
(a) What was
the purpose of leaving the premises unattended? Was it linked to or part and
parcel of the business activity that was then necessarily geared to winding
down preparatory to vacating for good? I find it was.
(b) What was
the intention lying behind the decision to leave the premises unattended? Was
it total abandonment not only of the premises but also of the accruing right to
compensation, or was it to quit in orderly fashion in order to comply with the
statutory obligation to do so? I find it was the latter.
(c) As a
matter of fact and degree, was the period of non-activity reasonably incidental
to the winding down for the purpose of ending all business activity on the day
the tenant was required to quit? I find it was.
(d) Bearing in
mind the elasticity of the thread of continuity, does the thread stretch from
the commencement of the business to the quitting of the premises looking at it
as a coherent whole? Changing the metaphor, is there an unbroken link between
the beginning and the end? I find there was.
8.
Consequently, I am satisfied that section 38 does operate so as to render
clause 4(7) void because, in my judgment, during the whole of the five years
immediately preceding the date on which the tenant was to quit the holding, the
premises were being occupied for the purposes of a business carried out by the
occupier. I therefore agree with my lords that the appeal should be allowed.
ALSO AGREEING,
MOORE-Bick J said: In Graysim Holdings Ltd v P&O
Property Holdings Ltd [1996] 1 AC 329 Lord Nicholls emphasised that the
words ‘occupation’, ‘occupied’ and corresponding expressions used in Part II of
the Landlord and Tenant Act 1954 are not legal terms of art, but are ordinary
English words that bear different shades of meaning according to the context in
which they are used. As Simon Brown LJ has pointed out, all but one of the
authorities cited to us were concerned with the position of a tenant who wished
to continue his existing business and was seeking a new tenancy for that purpose.
In none of them was the court concerned with the situation that arises at the
end of the contractual term when the court is precluded from granting a new
tenancy. In such cases there can be no continuing occupation in the future
under the provisions of the Act and the business will no longer be carried on
from those premises.
As Mr Denehan
pointed out, the tenant under these circumstances is obliged to give vacant
possession at the conclusion of the term. He is not entitled to hold over
beyond that date in order to wind down his business and clear out his
possessions. It is inevitable, therefore, that he will have to cease trading
from the premises some time before the contractual term comes to an end and
will remain in occupation merely in order to make preparations for giving
possession. The likelihood is that a prudent businessman will ensure that the
arrangements he makes for the removal of stock and equipment will result in the
premises being substantially vacated before the very last day of the term.
Unless he leaves some possessions in the premises for purely symbolic purposes,
therefore, it is unlikely that he will remain in physical occupation until the
last moment, although he will continue to have a right of access and to be
responsible for safety of the premises as well as for outgoings such as rent,
rates, insurance and so on. This is the practical business context in which
sections 37 and 38 of the Act have to be construed.
The relevant
part of section 38(2)(a) refers to the position where:
premises being
or comprised in the holding have been occupied for the purposes of a
business carried on by the occupier or for those and other purposes …
(Emphasis
added.)
The question
facing the court, therefore, is whether in the circumstances that existed in
the present case the appellant was occupying the premises for the purposes of
his business within the meaning of this section. In the ordinary way, the fact
that the tenant has ceased trading from the premises is likely to lead to the
conclusion that he is no longer in occupation of them for the purposes of a
business, particularly if he has not retained any physical presence in the form
of furniture, equipment or stock. In Aspinall Finance Ltd v Viscount
Chelsea [1989] 1 EGLR 103* the premises in question had been used as a
gaming club. About five years before the term expired the tenant obtained more
favourable premises, for which it was able to obtain a licence only by agreeing
to give up its licence on the original premises. It therefore closed down the
original premises and transferred its business to the new premises. The tenant
retained its lease on the original premises and hoped, and indeed intended, to
resume operations there if it could obtain a fresh licence, but the Gaming
Board refused to grant a new licence until a new tenancy had been obtained. The
court had to decide whether the tenant was still in occupation of the original
premises for the purposes of a business carried on by it. The judge recognised
that a business does not have to be carried on 24 hours of the day, or even 52
weeks of the year, for the tenant to be in continuous occupation. He said [at
p104J]:
*Editor’s note: Also reported at [1989] 09 EG 77
The mere fact
that the tenant is not occupying at the relevant date is not conclusive.
Tenants do not have to occupy and carry on business for every hour of every
day. Some breaks are inevitable. At the smallest level, the premises may be
closed for the night for business. They may be closed for a longer period while
repairs can be carried out. They may be closed in order that the tenant and his
staff can have a holiday. They may be closed because the business is a seasonal
one. So one gets businesses that are only open in the summer months and are
closed throughout all the winter months.
In all those
types of case it can be said that the tenants are occupying for business
purposes, even though when the application is made or when the lease ends, or
both, falls within a period of closure.
On the other
hand, it is not enough that the tenant is still entitled to occupy the premises
and is responsible for their upkeep. In that case
purposes of their business because, having a clear choice either to continue in
the old premises or to go to the new premises, they had elected of their own
choice to go to the new premises. That, with respect, seems correct as a matter
of common sense, even though the tenant retained the right to occupy the
premises and remained responsible for the outgoings. Similarly, if in the
present case the appellant had closed the restaurant and vacated the premises
six months before his tenancy expired because it was losing money, or because
his health was deteriorating or because the chef had left, I think it would be
difficult for him to say that he had remained in occupation for the purposes of
a business right up to the end of the term.
Here, however,
the closure of the restaurant and the removal of all the appellant’s
possessions were a direct consequence of the expiry of his tenancy. In many
cases it must be difficult for a tenant to give vacant possession without having
cleared the premises a few days before the tenancy expires, but if Mr Stead is
right, the tenant would in such cases invariably lose the protection of section
38(2) (and for that matter the benefit in an appropriate case of the enhanced
level of compensation provided for in section 37(3)) however long he had been
in occupation before the business closed. I find it difficult to accept that
that is what parliament intended.
If the
premises remain empty and unused for a brief period of time after closure of
the business due to the impending expiry of the tenancy, I think that should
ordinarily be regarded as a normal aspect of carrying on the business at those
premises, and as a matter of ordinary usage I think the tenant can properly be
said to continue in occupation during that period for the purposes of the
business. The fact that he overestimates the time needed to clear the building,
or makes a mistake of a few days about the date on which he must give
possession, or simply decides to clear the premises a little earlier than he
need do so in order to suit his own convenience, does not, in my view, detract
from that, provided that the expiry of the tenancy is the real cause of the
closure of the business and the vacating of the premises. I agree with Simon
Brown LJ that a similar approach ought to be taken to a period of delay in
moving into the premises at the commencement of the tenancy where that is
directly attributable to arrangements that have to be made to enable the
premises to be used for the business purposes of the tenant. Here again the
context plays an important part and requires one to give a rather broader
meaning to the word ‘occupy’ and corresponding expressions than might be
appropriate under section 23. In Department of the Environment v Royal
Insurance plc [1987] 1 EGLR 83 Falconer J held that the tenant had not been
in occupation during the whole of the 14 years immediately preceding the
termination of its tenancy, because the contractors who were to carry out work
on the premises prior to its use by the tenant did not begin work of any kind
until the second day of the 14-year term. I agree that the case was wrongly
decided. With all respect to the learned judge, I think he was persuaded to pay
too much attention to cases concerned with the application of section 23 and so
failed to consider whether, as a matter of ordinary usage, the tenant could
properly be said to have been in occupation of the premises as from the first
day of the tenancy. Had he done so, I think he would have been bound to
conclude that it was.
For these
reasons and for the reasons given by Simon Brown LJ, I too would allow the
appeal.
Appeal
allowed.
