Landlord and tenant — Licences or tenancy — Court of Appeal decide that three separate non-exclusive licence agreements represented the realities of the situation and were not to be treated as together constituting a joint tenancy — House of Lords decisions in A G Securities v Vaughan and Antoniades v Villiers considered — Present case ‘falls midway between the two’ — Some guidance given on matters to be looked for in considering into which category a transaction should finally be placed
which gave rise to this litigation was a flat in London W10 consisting of four
rooms furnished as two bedrooms, sitting-room and dining-room, the dining-room
being furnished later as an additional bedroom — There was also a kitchen and
bathroom/wc — There had been earlier licence agreements affecting the
occupation of the flat, but those before the court were agreements between the
appellant (the owner), each of the two respondents and a third occupier who had
left before the date of the trial — Each agreement was called a licence, each
expressly negated security of tenure, disclaimed the grant of exclusive
possession, reserved the right of the licensor to introduce other licensees to
share the accommodation, charged each licensee a sum which was a third of the
total required by the licensor, and provided for termination of the agreement
by 28 days’ notice — On the expiry of the relevant agreements the respondents
refused to quit, claiming that there was a joint tenancy protected by the Rent
Act — The assistant recorder in the county court, relying largely on the Court
of Appeal decision in A G Securities v Vaughan (the decision of the House of Lords
had not then been given), accepted this claim — Hence the present appeal
Appeal had no doubt that the assistant recorder had erred — As a pure matter of
construction it could not possibly be suggested that the three agreements
constituted a joint tenancy — The facts of fluctuating occupation, one occupier
being replaced from time to time by another, raised impossible difficulties —
Was there to be deemed a surrender followed by the grant of a new joint tenancy
each time the occupation changed? — Was there ‘some magical process’ at work to
create a joint tenancy in the remaining occupiers plus a newcomer? — In fact by
no process of ‘legal alchemy’ could the separate agreements be fitted into the
mould of a joint tenancy — On the contrary, the three licences were in
substance and reality exactly what they purported to be — The arrangement was a
sensible one which suited both the owner of the flat and a shifting population
of occupiers where a departing licensee would probably be replaced by a friend
or acquaintance of one of the others, thus making a selection by the owner
unnecessary — The court did not find any element of sham or pretence in the
arrangements — Appeal allowed
The following
cases are referred to in this report.
A G Securities v Vaughan; Antoniades
v Villiers [1988] 3 WLR 1205; [1988] 3 All ER 1058; [1988] 2 EGLR 78;
[1988] 47 EG 193, HL
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 the plaintiff, Nigel Gordon Stribling, from a decision of Mr
Assistant Recorder Harris, at Bloomsbury County Court, dismissing the
plaintiff’s claim to possession of a flat known as Garden Flat, 10a St Quintin
Avenue, London W10, occupied by the defendants (the present respondents), Tania
Diez and Brian McGill. A third defendant, N Wickham, had left the premises before
the trial.
K S Munro
(instructed by Sharpe Pritchard, agents for Insley & Partners, of
Bournemouth) appeared on behalf of the appellant; T Gallivan (instructed by
Carlos Dabezies of Kensington Citizens Advice Bureau Legal Service) represented
the respondents.
Giving the
first judgment at the invitation of Fox LJ, PARKER LJ said: The appellant, Mr
Nigel Stribling, is the freehold owner of a large flat known as Garden Flat,
10a St Quintin Avenue, London W10. On May 23 1987, by three separate agreements
each of which was in identical terms, he granted (or purported to grant) to
each of the two respondents and a Mr N Wickham a licence to use the premises on
a shared basis from May 24 1987 to April 23 1988 in consideration of the
payment by each of £1,254 by 11 instalments of £114, payable on May 24 1987 and
thereafter on the 24th of each month until March 24 1988.
The
respondents and Mr Wickham occupied the premises on a shared basis and duly
paid the amounts provided for by the agreements. On the expiry of the
agreements, despite the appellant’s demand, the respondents and Mr Wickham
refused to leave the premises and on May 16 1988 the appellant commenced
proceedings for possession against them in the Bloomsbury County Court.
The action was
tried in September 1988 by Mr Assistant Recorder Harris. By that time Mr
Wickham had left the premises and did not defend. The respondents resisted the
claim, contending that the three agreements, notwithstanding their terms, had
created a joint tenancy of the flat in the respondents and Mr Wickham, and that
they were accordingly entitled to protection under the Rent Act 1977.
It was, and
is, common ground that if the respondents’ contention is correct, the claim for
possession fails but that if the contention fails the claim for possession
succeeds.
The assistant
recorder upheld the contention and accordingly dismissed the claim. The
appellant now appeals to this court.
In recent
years there has been a number of cases in which the issue ‘licence or tenancy’
has fallen to be decided — the most recent being the decision of the House of
Lords in A G Securities v Vaughan and Antoniades v Villiers
[1988] 3 WLR 1205,* in which two appeals from this court were heard together.
Both were allowed. The appellant and the respondents both rely on their
lordships’ decisions, which had not been given at the time when the assistant
recorder gave judgment.
*Editor’s note: Also reported at [1988] 2
EGLR 78; [1988] 47 EG 193.
In the two
above-mentioned appeals, their lordships were dealing with two very different
factual situations described by Lord Oliver as being at different ends of the
scale. The present situation falls
speeches, if possible, what is the correct approach to the question under
consideration.
Lord Templeman
at p 1212C said:
In considering one or more documents for
the purpose of deciding whether a tenancy has been created, the court must consider
the surrounding circumstances including any relationship between the
prospective occupiers, the course of negotiations and the nature and extent of
the accommodation and the intended and actual mode of occupation of the
accommodation.
And at pp 1215-6:
In Street v Mountford
[1985] AC 809, 825, I said:
‘Although the Rent Acts must not be
allowed to alter or influence the construction of an agreement, the court
should, in my opinion, be astute to detect and frustrate sham devices and
artificial transactions whose only object is to disguise the grant of a tenancy
and to evade the Rent Acts.’
It would have been more accurate and less
liable to give rise to misunderstandings if I had substituted the word
‘pretence’ for the references to ‘sham devices’ and ‘artificial transactions’.
Lord Oliver
said at p 1219G:
The critical question, however, in every
case is not simply how the arrangement is presented to the outside world in the
relevant documentation, but what is the true nature of the arrangement.
Then at p 1221H he said:
Now to begin with, I do not, for my part,
read the notes of the judge’s judgment as showing that he construed the
agreement in the light of what the parties subsequently did. I agree entirely
with the Court of Appeal that if he did that he was in error. But though
subsequent conduct is irrelevant as an aid to construction, it is certainly
admissible as evidence on the question of whether the documents were or were
not genuine documents giving effect to the parties’ true intentions.
Lord Jauncey,
speaking of the Antoniades case, said at p 1227F:
What effect is then to be given to the
agreements? If they are construed solely
by reference to their terms and without regard to surrounding circumstances the
conclusion must be that there was no intention to confer exclusive possession
of the flat upon the two defendants. The narrative in the preamble so states
and clause 16 is unambiguous in its terms. However, it would not be right to
look at the agreements without regard to the circumstances which existed at the
time when they were entered into. Furthermore, the defendants maintain that so
far as they purport not to confer exclusive possession upon them they are a
sham. Accordingly, although the subsequent actings of the parties may not be
prayed in aid for the purposes of construing the agreements they may be looked
at for the purposes of determining whether or not parts of the agreements are a
sham in the sense that they were intended merely as ‘dressing up’ and not as
provisions to which any effect would be given.
Lord Bridge
and Lord Ackner delivered short speeches. Lord Bridge, referring to A G
Securities, said at p 1207G:
The four respondents acquired their
contractual rights to occupy the flat in question and undertook their relevant
obligations by separate agreements with the appellants made at different times
and on different terms. These rights and obligations having initially been
several, I do not understand by what legal alchemy they could ever become joint
. . .
The arrangement seems to have been a
sensible and realistic one to provide accommodation for a shifting population
of individuals who were genuinely prepared to share the flat with others
introduced from time to time who would, at least initially, be strangers to
them. There was no artificiality in the contracts concluded to give effect to
this arrangement. On the contrary, it seems to me, with respect to the majority
of the Court of Appeal, to require the highest degree of artificiality to force
these contracts into the mould of a joint tenancy.
Lord Ackner said, at p 1219C:
. . . it is apparent that the substance
and reality of the transaction was that each respondent achieved by virtue of
his agreement no more than a licence to share the flat and he must therefore
give up possession following the lawful termination of that licence.
In the second
appeal it is clear, when reality is brought to bear, that the agreements relied
upon by the respondent created a tenancy of the flat, although he sought
vigorously to disguise them as mere licences to occupy the flat.
Finally, I
refer to one further passage in Lord Oliver’s speech. Referring to the fact
that in A G Securities the four respondents, although they had initially
signed different agreements at different times, had ultimately signed new
agreements contemporaneously, he said, at p 1223B:
Speaking for myself, I cannot see how
this can make any difference to the terms upon which the individuals were in
occupation. If they were in as licensees in the first instance, the mere replacement
of their agreements by new agreements in similar form cannot convert them into
tenants, and the case has, in my judgment, to be approached on the footing that
agreements with the occupiers were entered into separately and individually.
The only questions are those of the effect of each agreement vis-a-vis
the individual licensee and whether the agreements collectively had the effect
of creating a joint tenancy among the occupants of the premises for the time
being by virtue of their having between them exclusive possession of the
premises.
I conclude
from the foregoing that in determining whether a number of agreements, each
purporting to grant a mere individual licence, collectively create a joint
tenancy:
(a) The court must construe the agreements in the
light of the surrounding circumstances which will include any relationship
between the prospective occupiers, the course of negotiations, the nature and
extent of the accommodation and the intended and actual mode of occupation of
the accommodation.
(b) The actual mode of accommodation may not be
used as a guide to construction of the documents but may be used as an aid to
determining whether any parts of the agreements should be ignored when
determining upon their construction, as being parts which were never intended
to be acted upon but which were put in solely for the purpose of disguising the
grant of tenancy.
(c) The task of the court is to determine the
true nature (Lord Oliver) or substance and reality (Lord Ackner) of the
transaction.
(d) There will be many factors which will assist
in the determination of the nature of the transaction and of the question
whether any and which provisions of the agreement were never intended to be
acted upon, some of which are specified in the passages which I have quoted and
others of which may be found in other parts of their lordships’ speeches which
I do not quote because to do so would unnecessarily lengthen this judgment.
What appears to me to be clear is that their lordships were not purporting to
set out an exhaustive list of such factors but were merely stating the
particular factors which in the particular cases had led them to reach their
conclusion.
(e) The fact that the agreements under
consideration by the court were all entered into at one time by way of
replacement of earlier agreements will not be significant if the earlier
agreements were entered into separately.
With this
preliminary, I turn to consider the nature of the accommodation and the
relevant history of the occupation of that accommodation.
The history
begins in October/November 1984. At that time Mr Stribling’s father was the
freehold owner and the premises were vacant. They consist of four rooms,
kitchen and bathroom/wc. The four rooms were then furnished as two bedrooms,
sitting-room and dining-room. The then owner instructed a Mrs Carneiro of a
concern known as Viaduct Accommodation Bureau to make arrangements for its
accommodation on a basis which would ensure that he would be able to obtain
vacant possession when he wished. Mrs Carneiro had a form of agreement which
she had obtained from solicitors from whom she had sought advice on behalf of
other clients who also wished to ensure that they could obtain vacant
possession of their property when they wished but in the meantime to secure an
income from its occupation. She recommended to the owner that he should make
use of this form of agreement, and he accepted her recommendation. She then
advertised the premises as possibly suiting sharers.
Among those
who responded were Mr Wickham and two friends of his, Kate Swan and James
Mavor. They wished to share the premises — Mr Wickham and Kate Swan occupying
one of the bedrooms and James Mavor the other.
On November 24
agreements were entered into with each of them in the forms which I have
mentioned. Those agreements, save as to period, are in the same terms as the
agreements before the court.
Each is headed
‘Licence’ and describes the owner as the licensor and the other party as
licensee. There are three recitals in the following terms:
WHEREAS the Licensor is not willing to
grant the Licensee exclusive possession of any part of the premises hereinafter
referred to in the Schedule AND WHEREAS the Licensee is anxious to secure the
use of the premises notwithstanding that such use be in common with the
Licensor and such other licensees or invitees as the Licensor may permit from
time to time to use the said premises. AND WHEREAS this Licence is entered into
by the Licensor and the Licensee solely upon the above basis.
The recitals
are followed by the grant to the licensee of a licence ‘to use (but not
exclusively)’ the flat together with the use of the common parts of the
building and the furniture, fixtures and effects then in the flat from November
24 1984 to May 23 1985 for the sum of £684 on the terms thereafter set out.
By clause 1
the licensee agrees to pay the sum of £684 by monthly instalments of £114. By
clause 2 the licensee agrees to pay for all gas, electric light and power
supplied in or to the premises during his occupation and the amount of all
telephone charges so far as relates to his use of the same.
Clause 3
provides:
The Licensee shall use his best
endeavours amicably and peaceably to share the use of the Premises with the
Licensor and with such other licensees or invitees whom the Licensor shall from
time to time permit to use the Premises and shall not interfere with or
otherwise obstruct such shared occupation in any way whatsoever.
There follow,
from clauses 4-9, positive and negative covenants by the licensee. They include
positive covenants, inter alia, to keep the interior of the premises in
good repair and condition, to preserve the furniture and effects from being
destroyed or damaged; on the expiration or sooner determination of the licence,
to leave the furniture and effects in their original positions and to pay for
the washing of all counterpanes, blankets and curtains which have become soiled
during his occupation. Such covenants, unlike clause 3, are not limited to the
licensee’s user of the flat.
Clauses 21 and
22 provide:
21. THIS
Licence is personal to the Licensee and shall not permit the use of the
Premises by any other person whatsoever.
22. UPON the
Licensee being in breach of any of the conditions referred to above this
Licence shall immediately determine without prejudice to any other remedies of
the Licensor and the Licensee shall immediately cease his use of the Premises
and the Building as permitted hereunder.
Following 22
numbered clauses, the agreement contains further provisions, nos 1-9, under the
heading ‘IT IS HEREBY AGREED AND DECLARED’ of which I set out nos 1-5, 7 and 8:
(1) THIS Licence is not intended to provide
security of tenure as provided in the Rent Act 1977, any successor thereof or
any similar enactment
(2) THE Licensee shall not allow the shared
premises to be occupied by any person other than those selected by the Licensor
(3) AT all times the Licensor reserves the right
to place other Licensees in the premises at the Licensor’s complete discretion
and the Licensee shall raise no objection thereto
(4) THAT the occupancy permitted by this Licence
is a non-exclusive right to share the premises and confers upon the Licensee no
greater rights than a mere right to occupy the premises in conjunction with
such other Licensees as is hereby provided and the absence of other Licensees
whether permanent or otherwise shall in no circumstances be construed as the
grant or creation of any exclusive right or occupation nor shall the presence
of the Licensees or any other Licensees on the premises in any circumstances
whatsoever be so interpreted as to create the presumption of a tenancy and it
is hereby particularly agreed and declared that such construction and
interpretation is directly contrary to the intentions of the parties hereto
(5) THIS licence shall be terminable on Twenty
Eight days notice given by either party
. . .
(7) THE Licensor retains full control over the
use of the premises at all times
(8) THIS Licence to share is personal to the
Licensee and shall not permit the use of the rooms by any other person
whatsoever.
The three
agreements having been entered into, Mr Wickham, Kate Swan and James Mavor went
into occupation of the flat and each agreement was renewed for six months
without change in May 1985, November 1985 and May 1986. During the currency of
the six-month period then granted, Kate Swan left the flat. Mrs Carneiro was
asked whether the second respondent, B McGill, could replace Kate Swan.
References were taken up by her and proved satisfactory. Mrs Carneiro interviewed
him briefly, and he then entered into an agreement in the same form as the
others in respect of the period from signature to November 23, when their
agreements were due to expire. At this time the dining-room was converted into
a bedroom so that each of the occupants might have a separate bedroom.
On November 24
1986 all three occupants entered into fresh agreements to expire on May 23
1987. On March 19 1987 James Mavor wrote to Mrs Carneiro as follows:
. . . I hereby give you 28 days notice
that I shall be leaving the flat at 10a St Quentin Avenue SW10 . . .
I apologise for the abruptness of this
and hope it doesn’t cause too much inconvenience for yourself, Mr Stribling and
Nick and Brian.
It seems easiest if I pay the full
month’s rent on 24.3.87 (up till 24.4.87).
However, I would like to point out that I
shall be leaving the flat and indeed the country on 28.3.87.
As I mentioned, we have a mutual
acquaintance who is eager to move into my room and take up responsibilities for
the rent, bills and to pay the month’s rent deposit of £114. Her name is Tania
Dios . . . She can provide the necessary references, deposit and month’s rent
in advance . . .
Naturally, I’d be grateful if my deposit
could be returned before I leave but I appreciate that I have 28 days’ worth of
notice to run. Would it perhaps be possible for you to meet Tania (if Mr
Stribling is agreeable in principle to her moving in — which would minimise the
hassle all round) before I leave and to discuss with us the transfer of
licences, deposits, etcetera . . .
On March 31
Miss Dios met Mrs Carneiro, paid a deposit and provided a bank reference. She
was given a receipt stating that the deposit was received subject to bank
references.
As had been the
case with McGill, she, too, entered into an agreement in the same terms as all
the others, save for a period which ran from April 7, when she paid in respect
of the period from April 7 to 24 some £61, to May 23, when the agreements of
Messrs Wickham and McGill were due to expire.
On their
expiry there were entered into the agreements presently before the court. This
completes the history.
It is not, and
could not be, suggested that each agreement constituted a tenancy of a
particular room together with a right to share living-room, kitchen and
bathroom. The contest is between three individual licences and a joint tenancy.
As a matter of
pure construction, it could not, in my view, possibly be suggested that, taken
together, the agreements created a joint tenancy. One has therefore to see if
any, and if so which, parts of the agreement should be regarded as a pretence
or a sham or window dressing, the purpose of which was to disguise the grant of
a tenancy.
If there were
a joint tenancy, or rather a series of joint tenancies, a remarkable situation
arises. One begins with a joint tenancy between Wickham, Swan and Mavor before
the expiry of which Swan goes and McGill appears on the scene. What
happened? Did he become a joint tenant
with the original three until their agreements expired, or must the events be
seen in some way as a surrender of the joint tenancy of the three, followed by
a grant of a new joint tenancy to the original two and McGill for the short
period to November 23? Again, when Mavor
left, what happened? He gave 28 days’
notice, which did not expire until April 16, but before its expiry Tania Dios
had received a grant of something and moved in. Of what was it a grant? Can it have been a grant of joint tenancy
with the existing three, none of whom took part in it, and one of whom had
already gone? Was there then, after a
short period, a new joint tenancy of Wickham, Dios and McGill only? How can one achieve this, or indeed any of
it?
In my view,
one cannot. The flat was suitable for use by a multiple but shifting population
and was so used. Each occupant was given a specific right to terminate on 28
days’ notice, and James Mavor specifically did so. His letter makes it plain
that he considered that he was intending to terminate his own rights and
obligations only, and that the positions of the other two would be unaffected.
The owner was given a specific right against each to terminate on notice, and
each agreement was expressed to terminate automatically if the ‘licensee’ were
in breach. Each licensee had a specific obligation to pay the amount reserved
by his agreement only.
In my
judgment, there is no process of ‘legal alchemy’ by which the agreements can be
placed into the mould of a tenancy. They represent the realities of the
transaction and a genuine and sensible arrangement for the benefit of both
sides.
True it is
that the original three agreements were entered into at the same time, as were
renewals, but each of the three defendants first entered into his agreement at
a different time and in different circumstances. True it is that all were
friends, but there is nothing odd in friends sharing on a licence basis which
leaves each of them free to leave on short notice, which imposes on each the
duty to pay only a share of the total amount which the landlord wishes to
receive, which enables the owner to remove one who had become unsatisfactory
and, if necessary, to put in his own selected sharer or sharers. No doubt he
would not exercise the reserved right if the occupants tendered someone
compatible to them and acceptable to him, for harmony is clearly best achieved
if all occupants know and like each other. An owner with two satisfactory
occupants would therefore welcome, subject to financial references a new
occupant put forward by existing occupants not only because harmony would be
likely but also because it would save him from searching for a replacement and,
until he provides one, from being able to recover only part of the income he
wishes to obtain from his property.
In my judgment
the assistant recorder erred. This was no fault of his, for at that time A G
Securities v Vaughan, upon which he plainly relied heavily, was
still good law.
The three
licences were in substance and reality just what they purported to be. The
right, specifically given under each of
was responsible only for a specific sum which was in fact one-third of the
total required by the landlord, are wholly inconsistent with a joint tenancy.
That they were intended to operate is clear from events. They cannot be ignored
nor can they, in my judgment, be converted by any legitimate process into a
joint obligation to pay the whole rent or a form of authority to each occupant
by the others to terminate a joint tenancy on notice by him, but by some
magical process to re-create on the instant a joint tenancy in the remaining
two until expiry of the current agreements.
I would allow
this appeal, set aside the judgment and order that judgment for possession
should be entered against the respondents.
Agreeing, SIR
DENYS BUCKLEY said: I only want to add very few words in relation to the
passage in the speech of Lord Templeman in Street v Mountford
[1985] AC 809 at p 825, where he refers to the court being astute to detect and
frustrate sham devices. Of course a court should always be astute to give
effect to the intention of Parliament, although the word ‘astute’ may be a
rather emotive one to use in such a context. This does not mean that the court
should lean in favour of any particular approach to construction, or any
particular inference from the facts of the case.
The question
whether there is a sham device, an artificial transaction or a pretence
involved in the transaction under consideration must be approached
even-handedly. Only if an even-handed approach to all the relevant
considerations leads to the conclusion that some feature of the transaction in
question is in fact a pretence can the court proceed to consider whether that
constitutes a ground for holding that that feature amounts to an attempt to
evade the Rent Acts. I am satisfied that Lord Templeman did not intend to imply
anything other than this in the passage to which I have referred.
FOX LJ agreed
with both judgments and did not add anything.
The appeal was allowed with costs against
respondents, not to be enforced without leave. Legal aid taxation of
respondents’ costs was ordered. Leave to appeal the the House of Lords was
refused. A stay of possession was granted on terms, with liberty to apply.
