Landlord and tenant — Landlord and Tenant Act 1954 — Whether operator of market in ‘occupation’ for the purposes of a business — Whether entitled to protection of the 1954 Act
The appellant
landlord, P&O Property Holdings Ltd, was the owner of the freehold
reversion to an enclosed market hall. The respondent, Graysim Holdings Ltd,
carried on business as a markets operator and held a lease of the premises
dated April 2 1974 granted for a term of 21 years from September 21 1970. By a
notice dated November 28 1990 the landlord served Graysim with a notice to
terminate the lease on September 29 1990 stating that it would oppose any
application to the court for the grant of a new tenancy on the grounds
contained in section 30(1)(a) and (f) of the 1954 Act. Graysim
served a counternotice stating it would be unwilling to give up possession and
applied to the court for a new tenancy. It later gave up possession and sought
compensation under section 37 of the Landlord and Tenant Act 1954. The market
hall was partly fitted with 35 stalls, or units, each of which was secured by
the individual traders who occupied them and paid a weekly rent. Graysim
employed a superintendent and neither he nor Graysim had any rights of access
to the stalls. Graysim also provided certain common facilities. The Court of
Appeal allowed an appeal by Graysim and held that at the termination of its
tenancy, Graysim had been in occupation of the premises for the purposes of a
business: see [1994] 2 EGLR 78. The landlord appealed.
sublets part of the property to a business subtenant on terms which would have
the legal result that thereafter the sublet property would form the holding of
the subtenant’s business tenancy, the part sublet cannot remain part of the
holding of the tenant’s business tenancy. Although Graysim occupied the
retained parts of the premises, at the termination of its tenancy it was not in
occupation of the stall units; there was no holding in respect of which Graysim
could claim a tenancy or compensation. The traders’ subtenancies were business
tenancies and when the reversion to these vested on the termination of
Graysim’s lease in the landlord, Graysim’s business in the market ceased since
it did not carry out any business in the units. Intermediate landlords, not
themselves in occupation, are not within the class of persons the 1954 Act was
seeking to protect.
The following
cases are referred to in this report.
Bagettes
Ltd v GP Estates Ltd [1956] Ch 290; [1956] 2
WLR 773; [1956] 1 All ER 729; (1956) 167 EG 249, CA
Groveside
Properties Ltd v Westminster Medical School
(1983) 47 P&CR 507; [1983] 2 EGLR 68; 267 EG 593, CA
Hancock
& Willis v GMS Syndicate Ltd [1983] 1
EGLR 70; [1983] EGD 114; (1982) 265 EG 473, CA
Lee-Verhulst
(Investments) Ltd v Harwood Trust [1973] QB
204; [1972] 3 WLR 772; [1972] 3 All ER 619; (1972) 24 P&CR 346; [1973] EGD
467; 225 EG 793, CA
Trans-Britannia
Properties Ltd v Darby Properties Ltd [1986]
1 EGLR 151; (1986) 278 EG 1254, CA
Wandsworth
London Borough Council v Singh (1991) 62
P&CR 219; 89 LGR 729; [1991] 2 EGLR 75; [1991] 33 EG 90, CA
William
Boyer & Sons Ltd v Adams (1975) 32
P&CR 89
This was an
appeal by the appellant, P&O Property Holdings Ltd, from a decision of the
Court of Appeal ([1994] 2 EGLR 78), which had allowed an appeal by the
respondent, Graysim Holdings Ltd, from a decision of Mr Anthony Grabiner QC,
sitting as deputy judge of the Chancery Division, who decided three preliminary
questions in favour of the respondent in proceedings by the responded under the
Landlord and Tenant Act 1954: [1993] 1 EGLR 97.
David
Neuberger QC and Nicholas Harrison (instructed by Carter Lemon) appeared for
the appellant; Charles Sparrow QC and Patrick Powell (instructed by A Banks
& Co) represented the respondent.
In his speech,
Lord Nicholls of Birkenhead
said: This case concerns the statutory protection afforded to business tenants
by Part II of the Landlord and Tenant Act 1954. The primary object of this
legislation was to enable tenants occupying property for business purposes to
obtain new tenancies. The basic statutory structure is straightforward. Part II
of the Act applies to any tenancy where the demised property is, or includes,
premises ‘which are occupied by the tenant and are so occupied for the purposes
of a business carried on by him …’: section 23(1). Business is given a very
wide meaning.
Subject to
some exceptions, a business tenancy, by which I mean a tenancy to which Part II
of the Act applies, does not come to an end unless terminated in accordance
with the statutory provisions. A landlord may terminate a business tenancy by
giving the tenant a section 25 notice. If the landlord has given the tenant
such a notice, or if the tenant has served a section 26 notice requesting a new
tenancy, the tenant may apply to the court for a new tenancy.
On an
application for a new tenancy, if the landlord fails to establish any of the
section 30 grounds of opposition the court is required to make an order for the
grant of a new tenancy. The property comprised in the new tenancy, however,
will not necessarily include all the property comprised in the business
tenancy. The tenant is entitled only to a new tenancy of ‘the holding’: section
32(1). ‘The holding’ means, in short, all the property comprised in the
business tenancy except any part not ‘occupied’ by the tenant or his employees:
section 23(3).
If the
landlord makes good any of the section 30 grounds of opposition to the
satisfaction of the court, the application for a new tenancy will be dismissed.
If the tenant’s application fails on some of the section 30 grounds, for
instance, because the landlord intends to reconstruct the premises, then on
quitting the holding the tenant is
compensation is calculated according to a formula based on the rateable value
of the holding: section 37.
All this is
well known, but the distinction between the holding and the property comprised
in a business tenancy lies at the heart of this case. Although a business
tenancy may include property not occupied by the tenant, property not occupied
by him or his employees is excluded from the holding and, accordingly, it is
not property in respect of which the tenant is entitled to obtain a new tenancy
or to recover compensation.
Occupied
I shall have
to return to the distinction between the property comprised in a business
tenancy and the property comprised in the holding. But first I must consider a
feature central to the statutory structure: the requirement that the property
must be ‘occupied’ by the tenant. 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. Their
meaning in the context of the Rent Acts, for instance, is not in all respects
the same as in the context of the Occupiers’ Liability Act 1957.
This is not
surprising. 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 1954 Act ‘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 property is occupied or unoccupied. Wandsworth
London Borough Council v Singh (1991) 62 P&CR 219*, 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. This is because commonly there is more than one person
exercising or entitled to exercise rights over the same premises. In such cases
the prerequisite of some business activity by the tenant on the property may be
satisfied, but a further test has to be applied to decide which of the persons
is the occupier. Thus, in Groveside Properties Ltd v Westminster
Medical School (1983) 47 P&CR 507 the question was whether the medical
school occupied the flats used as study bedrooms by medical students. Both the
school and the students were ‘on’ the property. Again, in Hancock &
Willis v GMS Syndicate Ltd (1982) 265 EG 473† a firm of solicitors
continued to have limited rights to use a small part of the building which they
had permitted a printing company to use as its offices. The question was
whether the solicitors remained in occupation.
*Editor’s
note: Also reported at [1991] 2 EGLR 75.
†Editor’s
note: Also reported at [1983] 1 EGLR 70.
A further
element is introduced into the problem when the business of one person consists
of permitting others to use his property for their business purposes, so that
in the result both exercise rights over the same property for the purposes of
their own separate businesses. In some circumstances the landowner will remain
in occupation of the whole even though his business consists of permitting
others to come on to the property and use it temporarily for their business
purposes. Instances are an hotel company, which provides rooms and facilities
once a month for an antiques fair, or a farmer, who permits his fields to be
used periodically for a car boot sale. At the other extreme are cases where the
landowner permits another to enter and carry on his business there to the
exclusion of the landowner. An instance would be a person who carries on a
business of letting office accommodation. He acquires a lease of property,
which he sublets. Under the sublease he has the usual right as landlord to
enter the sublet property for various purposes, and he derives financial profit
from the property in the form of rent, but plainly he would not occupy the
property.
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.
When a landowner permits another to use his property for business purposes, the
question whether the landowner is sufficiently excluded, and the other is
sufficiently present, for the latter to be regarded as the occupier in place of
the former is a question of degree. 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. Where the permission takes the form of the grant of a
tenancy, there will usually be little difficulty. Ordinarily the tenant,
entitled to exclusive possession of the offices or factory or shop, will be the
occupier, not the landlord. This will be so even though the lease reserves to
the landlord the usual rights to enter and inspect and repair, and even though
the lease contains a user covenant, strictly limiting the use which the tenant
may make of the demised property. In such cases the property is occupied by the
tenant because he has a degree of sole use of the property sufficient to enable
him to carry on his business there to the exclusion of everyone else.
Although there
will usually be little difficulty in landlord and tenant cases, this may not
always be so. I would not rule out the possibility that, exceptionally, the
rights reserved by a landlord might be so extensive that he would remain in
occupation of the demised property.
Where the
permission takes the form of a licence there will often be more room for
debate. The rights granted by a licence tend to be less extensive than those
comprised in a tenancy. In the nature of things, therefore, a licensor may have
an easier task in establishing that he still occupies. This should occasion no
surprise. The Act itself draws a distinction between tenants and licensees,
protecting the former but not the latter.
Dual
occupation
Although there
are no hard and fast rules about occupation, there is one question of principle
which calls for decision. It arises from the language and scheme of the Act.
The question is whether it is possible for a landlord and tenant both to occupy
the same property for the purposes of Part II at the same time. Mr Charles
Sparrow QC submitted this is possible, so that the same property may at the
same time form the holding of two business tenancies, each with statutory
protection.
I cannot
agree. I am unable to accept that a tenant of a business tenancy can sublet
part of the property to a business subtenant on terms which would have the
legal result that thereafter the sublet property
time, remain part of the holding of the tenant’s business tenancy. Although in
general there are no hard and fast rules regarding occupation, in my view, such
a result would not be consistent with the scheme of the Act.
The starting
point is the definition of the holding in section 23(3). This definition
excludes property not occupied by the tenant. This suggests that property which
is occupied by someone other than the tenant would thereby be excluded from the
tenant’s holding. One would not expect to find that two persons, other than
persons acting jointly, could each be in occupation of the same property for
this purpose.
This
impression is confirmed when one considers the consequences. If Mr Sparrow’s
submission were correct it would mean that in some cases both the tenant and
the subtenant would have a statutory entitlement to the grant of a new tenancy
from the same landlord. The landlord, it should be borne in mind, means the
landlord as defined in section 44. In accordance with this statutory definition
the landlord of the tenant and the landlord of the subtenant may well be the
same person. Take the case of a tenant of a business tenancy who sublets part
of the property for use for business purposes. After service of the appropriate
section 25 notice on the tenant, the landlord may well be the statutory
landlord of both the tenant and the subtenant. (That, indeed, is what happened
in the instant case.) If the sublet accommodation could form the whole or part
of the holding of both the tenant’s tenancy and the subtenant’s tenancy, it
would mean that, in the absence of a statutory ground of opposition, the tenant
and the subtenant would each be entitled to the grant of a new tenancy by the
landlord in respect of the same property. Further, if the landlord successfully
opposed the grant of a new tenancy on grounds (e), (f) or (g)
of section 30, both the tenant and the subtenant would be entitled to recover
compensation from him. The compensation payable to each would be calculated
according to the same formula. The formula makes no allowance for more than one
person being entitled to compensation in respect of the same property.
I can see no
good reason for interpreting the Act in a manner which would produce such
incongruous results.
I must mention
two authorities. In Lee-Verhulst (Investments) Ltd v Harwood Trust
[1973] QB 204 a tenant company of a house in Kensington carried on there the
business of letting furnished rooms with services. The company serviced the
rooms daily and exercised control over the way the occupancies were conducted
to a degree much beyond that usual when a flat is let to a tenant on a normal
lease. The Court of Appeal (Sachs, Karminski and Stamp LJJ) upheld the decision
of the judge in the county court that the company occupied the whole building
for the purposes of section 23. The decision, based on its own particular
facts, calls for no comment. However, in the course of his judgment Sachs LJ
said (at p215D-E) that if, contrary to his view, the occupants of the rooms
were subtenants, there would be a ‘shared’ occupation: the subtenants of the
rooms would have exclusive residential occupation and the tenant company would
have such occupation as was required for the purposes of the business.
In William
Boyer & Sons Ltd v Adams (1975) 32 P&CR 89 Mr Adams was a
tenant of a former farmhouse and outbuildings. He lived in the farmhouse and
sublet the outbuildings for use as light industrial units. Templeman J held
that Mr Adams was entitled to the protection of Part II of the Act of 1954 in
respect of the whole of the premises, including the sublet units. Mr Adams was
acting not so much as a landlord passively receiving rent but as the manager of
a business actively earning profits by providing accommodation, facilities and
services and by devoting time for this purpose. The judge, at p91, treated the Lee-Verhulst
decision as authority for the proposition that occupation of part of a property
by a tenant is not necessarily inconsistent with occupation of the whole,
including the part, by his landlord for the purposes of the landlord’s
business.
For the reason
I have given, I am unable to agree with this proposition, at any rate in a case
where the subletting is itself a business tenancy.
Where the
business involves parting with occupation
I must now
revert to the distinction between the property comprised in a business tenancy
and the property comprised in the ‘holding’. I can take some simple examples to
illustrate this and one of the problems arising on this appeal. Take the case
of a tenancy of an office building. The tenant occupies the whole building as
offices for the purposes of his business. Part II of the Act applies to the
tenancy and the holding includes all the property comprised in the tenancy.
Change the
facts slightly. The tenant no longer needs the whole building. He sublets the
top floor. The subtenant occupies the top floor as offices for his business.
The tenancy will remain a business tenancy, but the top floor will cease to be
part of the holding. It will not be part of the holding for so long as it is
not occupied by the tenant or his employees. However, the subtenancy will
itself be a business tenancy and the holding of that tenancy will comprise the
whole of the property demised by the subtenancy, that is, the top floor. The
subtenant will have statutory protection accordingly.
Change the
facts further. The tenant decides to move his offices elsewhere. He sublets the
rest of the building to one or more subtenants. There is no difficulty about
the sublet parts: they will no longer form part of the holding. But what about
the common parts of the building, the entrance hall, the staircases, the lifts
and so forth? The subtenants have been granted rights of access and rights of
user of these facilities, but these common parts were not included in their
subleases as part of the property demised to them. In the ordinary course,
therefore, the common parts are likely to remain in the occupation of the
tenant as the landlord of the subtenants. Do the common parts still constitute
a holding for the purposes of the Act? And what about the caretaker’s room on
the ground floor and the boiler room and the storage room in the basement,
which also were not included in any subletting?
Let me alter
the facts a little more, so as to bring them nearer the situation your
lordships have to consider in this case. Assume the tenant carries on a
business of letting office accommodation. He acquires the tenancy of a
building, sublets all the space usable as offices and retains only the common
parts and the necessary boiler rooms and other service accommodation. The
tenant remains in occupation of these retained parts of the building, for the
purposes of his office letting business.
This situation
was addressed by the Court of Appeal in Bagettes Ltd v GP Estates Ltd
[1956] Ch 290. There the sublettings were of unfurnished residential flats, but
the same principle is applicable to sublettings for business purposes. The
court held that in such a case the tenancy is not a business tenancy and,
accordingly, the tenant is not entitled to a new tenancy of the whole building
or of the retained parts.
The reasoning
can be summarised as follows. The tenant is not in occupation of the sublet
flats, so he is not entitled to a new tenancy of the flats. In consequence he
will cease to be the landlord of the subtenants when his tenancy comes to an
end. Thereafter the reversion to the residential lettings will be vested in the
head landlord. The flats will be gone, so far as the tenant is concerned. As to
the retained parts of the building, the tenant remains in occupation of these.
But a new tenancy of the retained parts could not be used by the tenant to
carry on a business of managing and servicing the sublet accommodation because the
tenant will have ceased to be the landlord of the subtenants. He will no longer
be entitled to receive their rents. Once the flats are gone, the business for
the purpose of which the tenant occupied the retained parts will be gone also.
In the Bagettes
case the court held it was implicit in the statutory provisions that the
business for the purposes of which a tenant occupies premises of which he
claims a new tenancy must not be of such a character that it is necessarily
brought to an end by the very process of the ascertainment of the holding and
the ordering and granting of a new tenancy of the holding as ascertained, with
the result that the tenant is presented with a holding which, though occupied
by him, is not so occupied for the purposes of any business: see Jenkins LJ, at
p301. Jenkins LJ, at p302, spelled out some practical implications:
There can be
no business carried on by the tenant of providing hot water for the sublet
flats, or of cleaning the common parts of the premises for the benefit of the
tenants of those flats, or of providing those tenants with means of access to
and from those flats, once the sublet flats are ruled out of consideration as
disqualified from inclusion in the holding to which any new tenancy granted
must be confined.
The same
result, that the tenant is not entitled to a new tenancy of the whole building
or even of the retained parts, may be arrived at by a slightly different route.
In Bagettes the court held that the tenancy was not a business tenancy.
The alternative route, not adverted to in the judgments in the Bagettes
decision, is to recognise that at the time when the contractual term is due to
expire the tenant is occupying the retained parts for the purposes of a
business carried on by him and, hence, that the tenancy is a business tenancy
terminable only in accordance with the statutory provisions. However, when the
court makes an order for the grant of a new tenancy the holding is to be
identified by reference to the circumstances existing at the date of the order:
section 32(1). If at that date, because of the exclusion of the sublet
accommodation from the holding, the tenant can no longer carry on any business
on the retained parts, it must follow that there has ceased to be a holding for
the statutory purposes. Section 23 envisages that the holding of which the
tenant remains in occupation will be occupied by him for the purposes of his
business.
These two
routes do not lead to a wholly identical result. The differences are not
material on this appeal. Accordingly, it is unnecessary to decide which is the
correct route. Suffice to say, in such a case the tenant is not entitled to a
new tenancy, or to recover compensation, in respect of the retained parts.
Present
proceedings
I now turn to
apply these principles in the present case. The appellant, P&O Property
Holdings Ltd, is the freehold owner of an enclosed market hall at Wallasey, in
the Wirral, known as Wallasey Market. The hall is part of the Liscard shopping
centre. The respondent, Graysim Holdings Ltd, carries on business as a markets
operator, running more than 20 markets throughout the country. Graysim was
P&O’s tenant under a lease of Wallasey Market dated April 2 1974, and it
remained so throughout the term of the lease. All the individual lock-up retail
units within the market were sublet by Graysim to individual traders.
On November 28
1990 P&O served a section 25 notice on Graysim terminating Graysim’s
tenancy on the contractual termination date, September 29 1991. The notice
stated that P&O would oppose the grant of a new tenancy on ground (f)
(intention to redevelop). Graysim served a counternotice and on March 22 1991
applied for a new tenancy. On July 28 1992, in response to some preliminary
issues directed by the master, Mr Anthony Grabiner QC, sitting as a deputy High
Court judge of the Chancery Division, decided [1993] 1 EGLR 96: (1) that
Graysim’s tenancy was not a business tenancy; (2) that there was no ‘holding’;
and (3) that P&O was entitled to oppose the grant of a new tenancy on
ground (f).
Graysim
thereupon gave up possession, but it appealed against the judge’s decision on
the first two issues. Success on these issues would entitle Graysim to
compensation under section 37. Graysim’s appeal to the Court of Appeal was
upheld by Nourse and Henry LJJ and Sir John May on February 17 1994 [1994] 1
WLR 992*. They decided that Graysim’s tenancy was a business tenancy and that
the holding consisted of the entire premises. Against this decision P&O
appealed to your lordships’ House.
*Editor’s
note: Also reported at [1994] 2 EGLR 78.
Wallasey
Market
The layout and
operation of Wallasey Market can be summarised as follows. About three-fifths
of the floor area of the market hall was taken up with 35 stalls, or units, of
fixed wooden construction. A typical unit was about 14 ft by 9 ft in size,
having walls up to the ceiling of the hall. The units were secured by the
individual traders who occupied them, each trader locking his unit with his own
padlock and key.
Graysim
employed a market superintendent, himself a trader for much of the time he was
employed. He made use of a small room in a corner of the market in which the
gas heating controls for the market were located. He was responsible for
opening the market hall in the morning and locking it at night. Traders had no
access to their units outside trading hours unless accompanied by the
superintendent.
Neither the
superintendent nor anyone else acting for Graysim had any right of access to
the units, nor did they have keys or means of access. Nor did Graysim, through
the superintendent or otherwise, in fact ever enter any of the units, save on
one or two isolated occasions with the permission of the trader or, on one
occasion, to forfeit the trader’s tenancy.
Graysim
provided certain facilities in the market hall for the use of traders, such as
lavatories, bin-rooms for the disposal of rubbish and lighting and heating for
the market hall. Each unit had its own electricity supply, for which the trader
was responsible. The superintendent cleaned the lavatories and performed small
maintenance services in the hall. He kept an eye on the stalls and dealt with
complaints about traders who were or might be in breach of the arrangements
designed to ensure that the traders between them provided a full range of goods
for the public. He was also supposed to ensure that the market regulations were
adhered to.
Although the
traders occupied their units under several different forms of contractual
documentation, some described as tenancies and some not, all traders had
exclusive possession of their units. They paid regular weekly amounts to
Graysim. Each was a subtenant in respect of his unit.
Graysim’s
difficulty
The
fundamental difficulty confronting Graysim can be stated shortly. It is common
ground that the traders’ tenancies were business tenancies. In other words, and
writ large, each unit was occupied by the trader and occupied by him for the
purposes of his business. For the reason given earlier, I do not see how,
consistently with this, the units can also be occupied by Graysim for the
purposes of its business.
This cannot be
brushed aside as an unimportant technicality. If Graysim had sought to bring
the traders’ tenancies to an end, it could only have done so in accordance with
the statutory provisions. Unless Graysim could establish one of the section 30
grounds, a trader would have been entitled to a new tenancy, with ancillary
rights over the common parts of the hall. It would be remarkable if, vis-à-vis
its own landlord, Graysim could say: ‘Although each trader occupies his unit
for the purposes of his business, and I as his landlord can neither
enter the unit nor remove him, so far as you are concerned it is I who occupy
each unit for the purposes of my business’.
If it is
correct that at the termination of its tenancy Graysim was not in occupation of
the units, the conclusion which must follow inescapably is that, although
Graysim occupied the retained parts, there was no holding in respect of which
Graysim could claim a new tenancy or compensation. That must follow because,
once the units are excluded from its tenancy, Graysim can no longer carry on
its business of operating Wallasey Market.
This latter
conclusion does not depend upon the court making a commercial assessment on the
viability of a business confined to the aisles between the units, the
superintendent’s office, the lavatories and the refuse rooms. The conclusion
follows ineluctably from the facts:
(1) that the
business conducted by Graysim on the retained parts consisted of making
accommodation and facilities available to the traders in return for rents for
use of the units; and
(2) that when
the reversion to the units vested in P&O, Graysim would no longer receive
any rents. Thenceforth the traders would pay their rent to P&O, not
Graysim. In order to carry on its business of running Wallasey Market, Graysim
needed both the reversion to the traders’ tenancies and the retained parts of
the hall. The latter, by themselves, were useless to Graysim. Once the
reversions went, their business in this market had gone.
There are
features about Wallasey Market which cause one to look closely at the
conclusion that it was the traders, and not Graysim, who occupied the trading
units. The units were comparatively modest wooden structures, akin to kiosks or
stalls rather than shops. For the most part shoppers did not step inside the
units. They stood in the aisles and bought goods across the counters. Thus a
trader did not conduct his business entirely inside his unit. In these respects
Wallasey Market differed from a typical shopping arcade which is locked at
night.
Against this,
the units were of fixed construction and the traders had exclusive possession.
They carried on their businesses on the units, to the exclusion of Graysim.
Graysim was not entitled to enter the units, nor did it do so. The parts of the
market retained by Graysim were vital to the traders’ businesses for more than
access, but the fact that the traders had greater rather than lesser rights
over the retained parts does not help to show that Graysim occupied any of the
units. Overall the unchallenged conclusion, that the traders had business
tenancies in respect of their units, is not as exceptional as it might seem at
first sight.
Graysim sought
to place some reliance on the covenant in its lease that the demised property
would not be used or occupied otherwise than as a general market and that it,
Graysim, would use and ‘occupy’ the property during the term of the lease. This
does not assist. The lease permitted subletting with the lessor’s consent. The
covenant obliged Graysim to see that the premises were used and occupied as a
general market, rather than requiring Graysim itself to remain in occupation of
the whole at all times.
In the Court
of Appeal Nourse LJ, [1994] 1 WLR 992 at p999D, rightly stated that Graysim
exercised over the premises as a whole ‘the extensive management and control
necessitated by the business it carried on’. To the same effect Henry LJ said,
at p1002D-E, that the accommodation, control, supervision, facilities and
services provided by Graysim were for the purpose of fostering the success of
the market. Graysim was much more than a landlord passively receiving rents from
its tenants. To achieve optimum rents it was concerned to supervise what went
on in the market. Customers needed to be attracted if, in turn, traders were to
be attracted.
This does not
carry Graysim any distance. As already discussed and as Slade LJ observed in Trans-Britannia
Properties Ltd v Darby Properties Ltd [1986] 1 EGLR 151 at p154, the
very nature of some businesses involves the owner parting with the occupation
of his land. Graysim’s business was such a business. It sublet parts of the
market hall. The use of the parts retailed by Graysim was ancillary to the
traders’ use of the sublet units, providing access and other facilities for the
traders and their potential customers. Part II of the 1954 Act is concerned to
protect tenants in their occupation of property for the purposes of their
business. But Graysim itself did nothing on the units. Graysim did not itself
carry on business in the units. It let the units for others to do business
there. Its income from Wallasey Market consisted solely of rents from these
lettings. The Act is not concerned to give protection to tenants in respect of
such income. The Act looks through to the occupying tenants, here the traders,
and affords them statutory protection, not their landlord. Intermediate
landlords, not themselves in occupation, are not within the class of persons
the Act was seeking to protect.
I would allow
this appeal. The Court of Appeal fell into error in not taking into account the
inter-relation of subsections (1) and (3) in section 23 and in not attributing
the proper legal significance to the trading units themselves being the subject
of business tenancies with statutory protection. In fairness to the Court of
Appeal, I should note that on these points that court did not have the benefit
of the full argument presented to your lordships’ House. I would set aside the
order of the Court of Appeal, make a declaration that Graysim is not entitled
to recover compensation under section 37 and dismiss the originating summons.
Graysim must pay the costs of P&O in your lordships’ House and in the
courts below.
Lords Mackay of Clashfern lc,
Goff of Chieveley, Jauncey of Tullichettle and Lloyd
of Berwick agreed with
the speech of Lord Nicholls of Birkenhead and the reasons given in it and did
not add any observations of their own.
Appeal
allowed.
