Landlord and tenant — Business premises — Claim by plaintiffs, themselves underlessees of premises, against occupiers of part in respect of rent and service charges — Questions as to the defendants’ exact status, whether tenants or licensees — Whether defendants liable under collateral oral contract to pay rent and indemnify plaintiffs against service charges in relation to underlease or whether defendants were tenants — Whether Street v Mountford applied to business premises — The facts as to occupation were somewhat complex and confusing — The underlease to the plaintiffs was granted, but proposed subunderleases to the defendants and to other parties were never executed, a proposed assignment of a part was never effected, and proposed orders under section 38(4) of the Landlord and Tenant Act 1954 were never obtained — Eventually the arrangements broke down and there was a dispute as to the defendants’ liability for rent and service charge for a part of a year after the defendants had left the premises — Judge Paul Baker held that there was no evidence to support an oral contract of indemnity by the defendants’ collateral to the grant of the underlease — He held, however, that the defendants had at some stage become tenants of the plaintiffs, the three essential ingredients of a tenancy, as explained by Lord Templeman in Street v Mountford (which applied to business premises), being present — These were exclusive possession for a term at a rent — Plaintiffs were accordingly entitled to judgment
The following cases are referred to in this report.
Bretherton v Payton [1986] 1 EGLR 172; (1986) 278 EG 615, CA
Street v Mountford [1985] AC 809; [1985] 2 WLR 877; [1985] 2 All ER 289; [1985] 1 EGLR 128; (1985) 274 EG 821, HL
This was an action by which the plaintiffs, London & Associated Investment Trust plc, claimed against David Ferguson Calow and Simon James Ernest Easton, the defendants, solicitors practising in partnership, payment of certain rents and outgoings in relation to premises at 30 and 32 Ludgate Hill, London EC4, part of which had been occupied by the defendants.
Kirk Reynolds (instructed by Clifford-Turner) appeared on behalf of the plaintiffs; P J H Ralls (instructed by Calow Easton) represented the defendants.
Giving judgment, JUDGE PAUL BAKER said: In this action, London & Associated Investment Trust plc are claiming against David Ferguson Calow and Simon James Ernest Easton certain rents and outgoings in relation to property at 30 and 32 Ludgate Hill. The specific question I have to deal with is whether those defendants are liable to the plaintiffs for the rent and service charges in respect of the offices on the second floor of the premises I have mentioned for the period from January 1 1984 to November 29 1984 or some part of that period.
The plaintiffs are in the business of buying and selling and holding investments, particularly in commercial properties or in unlisted private companies. They are associated with another public company, called Beseachy Tin Co plc, which has substantial mining interests. That is a quoted company, but the plaintiffs hold 38% of the shareholding in that company, so they are a very substantial minority shareholder in it. The plaintiffs formerly also had a substantial interest, or some members of the plaintiffs had a substantial interest, in a firm of printers called Harrisons, who are printers of stamps, in a big way I understand. That is the plaintiffs and their business.
The defendants are solicitors in partnership. When the events begin with which I have to deal they were two of among quite a number of partners in a firm of solicitors called Birkbeck Montagu’s & Co. That firm was acting for Beseachy at one time, certainly in 1972, when that company had substantial dealings with the plaintiffs. The first defendant, Mr Calow, was the partner in that firm who specifically dealt with the Beseachy business.
While he was acting for Beseachy in its transactions with the plaintiffs, he impressed a Mr Michael Heller, who was at the time an executive director of the plaintiffs and who, on the plaintiffs’ side, was dealing with the matter. The upshot was that Mr Heller retained the services of the firm, and specifically those of Mr Calow, for the general legal business of the plaintiffs.
In 1977 Mr Heller became the chairman of the plaintiff company on the death of a previous chairman. That led to a vacancy on the board, and Mr Heller invited the first defendant to join the board as a director.
Now, I come to the more immediate events. In the summer of 1979, the defendants had it in mind to leave Birkbeck Montagu’s and set up on their own. They were looking round in a general sort of way as to how exactly they would carry that out, whether in London or in the provinces, and while they were so considering matters they discussed it with Mr Heller.
Also I should mention that a friend or acquaintance of the first defendant was a Mr Richard Fisher, who was a chartered accountant, and he, too, was thinking of setting up a business on his own and leaving the firm of chartered accountants in which he was currently employed. These parties, that is to say the defendants, Mr Fisher and Mr Heller, conceived the idea that they would set up some sort of consultancy in corporate finance and this would, at the same time, allow the defendants and Mr Fisher to develop their own respective practices as well as joining in this joint venture.
In addition, Beseachy affairs were such that they wanted accommodation from time to time for the occasional use of their directors. They had such accommodation, apparently, in London, but it was thought to be a good idea that that should be brought under this umbrella. The plaintiffs, too, although they had offices elsewhere, could make use of accommodation in central London for occasional board meetings.
With that general idea, in September 1979 the parties found the premises in Ludgate Hill. At the time, what they were looking at, and what was on offer, was the second floor of the premises. I have seen plans of it. I do not think I need go into it in great detail. It is sufficient to say that the office block had a central core with the lifts and staircases which were common parts. The suite of offices on the second floor was in two sections, separated by the common parts. On one side there was a sort of general open-plan office and on the other side there were a number of partitioned rooms. There were two roughly equal areas on each side of the common parts. It was thought, initially, that that floor would be sufficient for the various uses that I have outlined, and there would be a general sharing.
While all that was in negotiation with the landlords, it emerged that Mr Heller would have to leave his existing offices. I am not particularly concerned with why that was so, but it was because he was going to sell out his interests in Harrisons, the printers, to Lonrho. He was currently accommodated in some offices belonging to Harrisons and he would necessarily have to leave those offices. So his requirements and the plaintiffs’ requirements were expanded from being occasional boardroom use to a permanent office for Mr Heller and his supporting staff.
This meant that the second floor would not be big enough. It conveniently appeared that the first floor was also available. The second floor was on offer for a term of five years; the first floor was on offer for a term of 10 years. The immediate landlords of these premises were a firm of money brokers, who were occupying other parts of the building they held under a lease. They evidently thought that in due course they might need the space for themselves that they were proposing to let, and consequently they were only willing to let it on the basis, first, that the proposed occupation continue to be bound by a common nexus and that any underlease should be excluded from|page:81| the security of tenure provisions of the Landlord and Tenant Act 1954. That necessitated an application to the court pursuant to section 38 of the Act.
So that was the state of negotiations in the autumn of 1979. They were conducted by the first defendant. Being a solicitor he was the best qualified person of this group to do it. Although some of the letters purport to be written and, indeed, were signed by Mr Heller, it is accepted that in fact they were all drafted by Mr Calow. He wished to keep, what I might call in the modern parlance, a low profile at this stage because he did not wish it to be known to his then existing partners that he was considering this move.
Agreement in principle was reached for the grant of an underlease comprising these two floors for those respective terms. All the interested parties needed to get in to do various decorations and alterations. The landlords negotiated through their solicitors, Bates, Wells & Braithwaite. I can start at a letter of November 7 1979. There was there stated the conditions on which the parties, the plaintiffs and defendants, might enter in order to prepare the premises for their occupation. In this letter the landlords’ solicitors write:
We enclose a new form of licence permitting your occupation of the above premises as from the 12th instant
so that is from November 12
and the basis on which our clients will allow yours into occupation of the first and second floors are as follows:
(a) our clients consent is
it says ‘irrevocable’ but that is a manifest slip for ‘revocable’
by them at any time without notice.
Then there is the provision for compensation at the rental rate, and there are long provisions about what they could and what they could not do there, and paragraph ‘(J)’:
The only purposes for which your clients are allowed occupation under the terms hereof are for redecoration of the first and second floors and the alterations shown in the plan supplied by your clients to ours and Collier & Madge
they were the letting agents.
The parties got on with the decorations and got to the point where they wanted to go in and start business on January 2 1980, although by that time no order of the court had been obtained and much less had there been any execution of the underlease. So the landlords were asked to extend the licence to cover beneficial occupation. We can see that in the letter from Mr Calow:
I wonder, with the passage of time, that on the basis that there is no difficulty in extending the existing licence for us to commence business on the 2nd January. If you would kindly confirm that you are maintaining insurance.
In the meantime a draft lease was travelling in the normal way to and fro between the solicitors. Also in the meantime a re-think was going on about the terms under which the various occupants should occupy. It was agreed that the plaintiff company should take the lease of the two floors, but it was not satisfactory to the landlords that they should just share with the other parties on some vague arrangement. So it was then agreed that the various parties, that is the defendants, Mr Fisher and Beseachy, should each enter into a subunderletting of the respective parts with the plaintiffs. That arrangement was come to on or about December 7. One sees it in a letter from the landlords’ solicitors, which says, in the third paragraph:
As I mentioned yesterday and as we both agreed, the best thing all round will be for separate subunderleases to be granted to your new firm, Mr Fisher and Beseachy, and you are letting me have copies of the leases as soon as possible so that we can lodge the same in the form of lease between my client and London & Associated for court approval as soon as possible.
So it is clear there that that was the arrangement at that stage.
The landlords’ solicitors saw no problem ‘in extending the existing licence to allow you to start business’ as mentioned; that is to say on January 2; that is to say for both the plaintiffs and the defendants to start their businesses, and the letter ends:
I hope that we will be able to get on with the court applications in the second half of next week, and the sooner you can let me know that the form of underlease is now approved the better.
On December 17 the subunderleases were sent to the landlords for their consideration and the letter notes, among other things, that:
We see also, as discussed on the telephone, that each of the subunderleases is terminable by either party on giving six months’ written notice, and they are also, of course, terminable pursuant to the conditions referred to in the underlease. For example, in the case of Calow/Easton if I cease to be a director of the plaintiffs we have also included a provision that the tenant in the subunderlease will enter into a direct covenant with any superior lessor to observe, so far as they are applicable, all the terms of the underlease.
So those drafts were sent to the landlords. The drafts that Mr Calow had prepared were also sent to Mr Heller and his attention is called to the main features of it. Mr Calow says:
We have tried to keep the subunderleases to comply as much as possible with the underlease and the document does look to be rather bulky. However, we feel from London Associated Investment Trust’s point of view the document should be one of substance and fully set out all the various covenants. In essence, however, the main thing is that either party can terminate the arrangement by giving six months’ notice, and therefore to this extent there is a high degree of flexibility.
As arranged, I will attend the board meeting of Beseachy Tin Co in order to explain the situation to you.
And, indeed, he did attend such a board meeting and explained it to them. I have the minute, but I do not think I need go into the details of it.
I think at that stage, that is to say by mid-December or the third week in December, both the form of the underlease and the subunderleases had been virtually agreed.
I go to the underlease. I can take it from the underlease as it was ultimately executed. It is between Charles Fulton & Co Ltd and London & Associated Investment Trust Ltd. There are various definitions, and then there are the two terms granted. As regards the first demised premises, that is to say the second floor, it is granted from December 1 1979 for a term expiring on November 30 1984, so that is the five years; and then, second, as regards the premises described in Part 2 of the First Schedule, that is to say the first floor, from December 1 1979 for a term expiring on November 30 1989, so that is for 10 years.
Of specific importance in this connection are the covenants against assignment and underletting. It is subclause 22 of the tenant’s covenants. There is a general absolute prohibition in clause 22 of all sorts of assignment and underletting and parting with possession, and so on and so forth, sharing and so forth, ‘save only as may be expressly authorised by subclause 23’.
Going to 23, there is the usual qualified covenant in relation to an assignment of the whole of the demised premises or the whole of one or other part; that is to say the first demised premises or the second, so they could be severed and assigned in part. And then, second, ‘Notwithstanding the foregoing provisions’, and so on, ‘the lessee may underlet parts of the premises as follows’, and then there is a list of possible underlettings and the conditions under which they may be underlet.
The first one, the most important one, is to ‘David F Calow and S J Easton and other qualified solicitors who Calow and Easton may after the date hereof take into partnership, for the purposes of carrying on a solicitors’ practice, but only so long as the said David F Calow shall be a director of the lessee’.
And then, second, to ‘Beseachy Tin Co for the use of the premises concerned as an administrative office only in connection with that company’s business, on the condition that such subunderlease shall terminate in the event that the lessee shall own less than a fifth of the equity capital of Beseachy Tin Co Ltd.’.
Third, to ‘R S Fisher and such other qualified chartered accountants with whom he may take into partnership as professional offices on the condition that such subunderlease shall terminate in the event that the said R S Fisher shall cease to be an accountant of the lessee’, that is to say the plaintiffs.
So those are the three underleases that are permitted, and then there are general conditions about them. First and most important:
All the subunderleases may only be granted if consent of the court to exclusion of the provisions of Part II of the Landlord and Tenant Act 1954 (as amended) protecting business tenancies shall have been obtained, and the rights of compensation under the said Act excluded.
Then there are certain restrictive conditions which the subunderleases must contain, and a covenant that it has to have, and then:
(7) None of the said subunderleases shall be capable of subsisting in the event of the termination or expiry of the respective terms created by this sublease by whatsoever means.
Then written consents are required but they are not to be unreasonably withheld.
That, I think, is all I need read of the clause in the lease. None of the subleases were executed although they were drafted. There is a full draft in the bundle of papers — that is to say the sublease to the|page:82| defendants — and I understand there were similar ones with the appropriate provisions to the other parties concerned. The term is to hold the premises from January 1 1980:
for a term subject always to the provisions of clause 4(2) and (3) hereof expiring on the 29th November, 1984.
So that was the sublease for the whole term with a purely nominal one-day reversion, but it is subject to clause 4(2) and (3).
Turning to the provisos, clause 4(2) provides:
That if the said David Ferguson Calow, being one of the partners of the tenants, shall cease to be a director of the landlord then the said term shall cease and determine on such cessation but without prejudice to the rights of either party in respect of any antecedent claim, and provided that at least six months’ notice shall be given to the said David Ferguson Calow by the landlord if it so desires him to cease to be a director;
and
4(3) The landlord or the tenants may determine the term hereby created on the giving to the other of at least six months’ previous notice in writing of their intention so to do and on the expiration of such notice the said term shall immediately cease and determine without prejudice to the rights of either party
— in respect of antecedent claims. That was what was proposed in relation to the term and the sublease to the defendants.
The parties did go in, as I said, on January 2, and on February 8 1980 an order of the court was obtained in relation to the underlease from Fulton’s to the plaintiffs of the whole premises, and following that, on April 3 1980, the underlease was completed. Thereby the plaintiffs became the lessees of Fulton’s of the entirety of the premises which I have mentioned. The subunderleases of the various parts were never executed, for reasons which I will now examine. No orders were obtained from the court excluding the provisions of the security of tenure provisions in the 1954 Act.
I have said that occupation for business began from January 1980. The first thing that happened was that Mr Fisher dropped out, and, indeed, he seems never to have come on the premises at all. He was to have had a presence on both floors. His main office, I think, was to be on the first floor, but some person who used to work for him was to be present on the second. It was finally clear, I think by about May, that he was not coming, for reasons that I am not concerned with.
The effect of that was to leave the defendants in the sole occupation of the second floor, with the following exceptions. First, there was the reception area. As one came up the common parts and went into one side of the offices there was, as one might expect in any sort of solicitor’s office, a reception area. Now, at the outset that reception area also served as a reception place for those coming to visit the other parties, and notably the plaintiffs, who were on the first floor. I gather there was not much use made of it, but it was available for that purpose, and it was agreed that a member of the defendants’ staff who manned the reception area should also deal with visitors coming to see the plaintiffs — Mr Heller’s visitors — and indeed that happened.
Second, there was the use of some of the office machinery — a copying machine and a telex machine by Mr Heller and his staff. These machines were in the other section of the second-floor offices.
Third, there was the occasional use of Mr Calow’s office as a conference room or board room by the plaintiffs, and I think on occasion by Beseachy. This was always by arrangement with Mr Calow. He was given prior notice when the room was required, and Mr Calow allowed his room to be so used. It was furnished suitably for such a meeting.
That was how it started off. At a later stage, after about two years, the plaintiffs arranged their own reception area on the first floor and ceased to require the services of the defendant’s receptionist or the use of the waiting area there.
I should say at this point that those uses by the plaintiffs, to my mind, do not amount to any sharing of the possession by the plaintiffs of the second floor of the premises. They, in no way, in my judgment, detract from the quality of exclusive possession enjoyed by the defendants. It was not a sharing of possession in any sense. It was an arrangement for specific and well-defined limited purposes under which Mr Heller, and particularly his staff, had access to certain facilities on the defendants’ floor. As I find it, throughout, even when the reception area was used and a fortiori, of course, when it had ceased to be used for the reception of visitors for the plaintiffs, the defendants were in exclusive possession of the second floor.
Although the occupation started in January 1980, no money was paid to the landlords, as I understand it, until the lease was executed, and thereafter payments of the arrears were made and ongoing payments were made as and when they were due on a quarterly basis under the underlease. The defendants, in their turn, paid the full share of the rent and service charges and other outgoings applicable to the second floor. They paid those to the plaintiffs, and then the plaintiffs, in due course, paid them over, together with their own shares and the shares of other parties, to the landlords. They were accepted by the landlords as rent under the underlease.
For the limited facilities that I have mentioned, the defendants invoiced the plaintiffs for a share of the expense of those facilities. That way of dealing with the matter is one of the factors I have taken into account in determining that the exclusive possession was with the defendants of the second floor. There is an example of such a charge among the correspondence showing that in the particular period one third of the outgoings for those facilities was charged to the plaintiffs.
That was how the matter stood in April and May 1980 when the underlease was granted and when Mr Fisher departed from the scene, and it continued — as far as the rent payments, and so forth — for getting on for four years until October 1983.
But, going back to 1980, the April and May, when, as I say, Mr Fisher had departed, Mr Calow came to the realisation that there really was not, as regards the second floor, any point in going on with the idea of the sublease. He thought the better way would be for him to take an assignment of the term relating to the second floor. He wrote in those terms to Mr Heller on July 2 1980:
On the basis that our firm is now taking responsibility for the entire second floor, subject of course to sharing the reception arrangements, I confirm our request that we feel in all the circumstances it would be advisable from everybody’s point of view if the lease relating to the second floor be assigned by
the plaintiffs to the defendants.
That was obviously acceptable to Mr Heller, because the next event, later that month, on July 14, a formal application was made to the landlords’ solicitors for consent to such an assignment, and references were included. That matter did not proceed, though it is not that the landlords — as I read the correspondence — were averse to it. Indeed, they would not appear to have had any grounds to refuse it. It seems, however, there were disputes going on about the lift, and the common parts and things of that sort. So the idea of the assignment apparently got shelved. The landlords wrote in the following March 1981 to Mr Heller, their tenant, and said:
I wonder if you can now be so good as to confirm the position clarified by correspondence by our solicitor to Mr Calow so that everybody can know where they are. Do I take it that you still want to proceed with the proposed assignment?
To which, on the advice of Mr Calow, apparently, Mr Heller made no reply. There is a note which the evidence shows was made by Mr Heller’s secretary — no one has disputed its accuracy — to this effect:
On the 13th March, Hugh
that is to say Mr Heller
asked Mr Calow, ‘How do we reply to their letter?’ and he replied ‘I thought it better to leave this for the time being’. I believe Fulton’s mentioned their letter of March 7 in a later letter which I do not have on the file. We haven’t answered it.
Well, that is where the matter stood in March 1981. The plaintiffs and the defendants were conducting their respective businesses in this office; the defendants, in particular, were carrying on their practice as solicitors, doing a good deal of work as the solicitors for the plaintiffs, among other clients, and Mr Calow was acting as a director of the plaintiff company. Some time in the middle of July 1983, he, indeed, was re-elected a director of the plaintiff company for a further term.
Matters came to a head, though, on October 24 1983, when Mr Calow resigned his directorship. Again, I am not, I think, concerned here with the reasons why he did that. It has been gone into in the evidence, but I do not propose to canvass that. No one has suggested that he could not resign at the time or that he did not have power to resign. Mr Heller told me it came as a bolt from the blue and I accept his evidence on that; he was taken totally by surprise and, furthermore, he did not immediately read the letter of resignation. Mr Calow came in with it and handed it to Mr Heller. But immediately after Mr Calow had departed, leaving his letter of resignation, Mr Heller dictated a note as to what had happened on the occasion of the resignation. It is, I think, accepted — and anyway I
find — that it is an accurate note of what occurred at the time. It says that Mr Calow came to see him while he was dictating, and he broke off from his dictation. Then Mr Calow announced he wished to resign from the board forthwith, and said that he was in disagreement as to business philosophy, and then there is a more important matter:
I then said to him that under the leases with Fulton’s, Calow Easton and LAIT
the plaintiffs
his resignation would trigger off the six months’ notice which would then leave a gap for which LAIT would have to pay the rent and I hope he was not going to let us down. He stated he did not wish to discuss the lease as he had not given it any thought. I then handed him back his sealed letter of resignation which he had placed on my desk and I said that I would discuss his resignation when he was clearer as to the situation under the leases. He said if I did not accept that letter he would send me a registered letter.
In fact, the resignation was accepted, and immediately Mr Heller consulted other solicitors as to his position, and correspondence started up between his new solicitors, Clifford-Turner, and Mr Calow.
In the course of this correspondence Mr Calow said:
We believe we have no alternative but to leave and we will effect our departure as soon as possible
and, in fact, he and Mr Easton did leave the premises on December 31 1983 and gave up the keys, which were accepted by the plaintiffs or their solicitors on the basis stated:
Would you please deliver the keys to our clients when you leave the premises as they obviously wish to ensure that the premises are kept secure. The acceptance of the keys to the premises will be without prejudice to our clients’ rights against yourselves.
There is no suggestion that the plaintiffs accepted a surrender by taking those keys or in any other way accepted a surrender of any term which there might be in the defendants, either on December 31 or at any other time. There is no suggestion that Mr Calow and Mr Easton gave any sort of notice which could be a notice to give up possession under the general law of landlord and tenant or under the 1954 Act. It would seem that they chose the time to go. When they had found offices to go to they just announced the date that they were going. As I say, there is no suggestion of any sort of agreement that they could go on that date or any negotiation about which date they should go. The defendants simply found a date that was convenient to them and they went. They paid the rent and outgoings up to the time that they went, but they have not paid any outgoings for the rest of the term which, as we have seen, ended in the following November.
That, I think, is the main outline of the matter except for certain issues of fact which I have now to deal with. The first ground on which the plaintiffs say that they are entitled to this rent and outgoings is in para 5 of the statement of claim:
In or around October 1979 the plaintiffs, acting through their chairman, Mr M A Heller, orally agreed with the first defendant on behalf of the defendants that the plaintiffs should become lessees of the first and second floors and that the second floor should be occupied by the defendants. It was further orally agreed that whilst the plaintiffs were lessees of the second floor the defendant should pay to the plaintiffs a rent which was calculated as a rateable proportion of the rents paid by the plaintiffs and further indemnify the plaintiffs against the service charges and outgoings payable by the plaintiffs under the proposed lease to the plaintiffs in respect of the said second floor.
That paragraph was admitted in the defence, and continued to remain admitted during Mr Reynolds’ opening on behalf of the plaintiffs, but on the second day of this trial an application was made — which I granted — to put that in issue, and the reamended defence is that the defendants now deny the second sentence relating to the oral agreement to pay the rent. They now deny that, and consequently that is an issue of fact which I have had to try, that is whether there was an oral agreement that the defendants should pay the rent and other outgoings while the plaintiffs were the lessees of the second floor.
Mr Heller, in his evidence to me in relation to an early letter — and I recall that the pleading puts it in October 1979 — puts the agreement in or about October. Mr Heller told me:
I understood we were going to be indemnified throughout the lease for the percentage which was attributable to the law firm. It was made clear throughout there was an express oral discussion. When we said we could not share the second floor, Mr Calow said that the first floor was available. I said we could be interested,
and then it goes into the details of that which I have already mentioned.
There was no way in which we would have taken the lease for the five years for another
and that is to say Calow
without a clear understanding that the outgoings would be paid.
Then he said — and this seems right — that Mr Calow told him that Fulton’s would not permit occupation by Beseachy and himself and Mr Calow and the accountant unless there were subleases with the provisions that I have mentioned.
Then later in his evidence, discussing these requirements of Fulton’s, he said:
Mr Calow said there’s nothing to worry about; I am with you all the way. The landlords insisted on these specific underleases and we understood the wording.
He was cross-examined, but he maintained that there was an initial discussion and later discussions at meetings, at which it was understood that there would be an indemnity for this from the defendants in relation to the rent.
The defendants’ position on this is that there is a flat denial of any conversation concerning the gap. Mr Calow said in evidence:
I do not accept that I agreed to an indemnity for the whole term of the underlease. I did not give any form of indemnity,
and he specifically denied certain expressions that Mr Heller said he had used, such as ‘this whole package’, and things of that sort. It was, quite simply, that no conversation of the sort ever occurred.
Now, as to this, I accept that there was some discussion as to the danger. I prefer Mr Heller’s view that the point was raised; that he was concerned at the position, from the point of view of the plaintiff company — that his recollection is to be preferred. But I have to recognise that the whole position at that stage was very fluid; that is why I have gone through it. At one time there were going to be no subleases at all, and then there were to be subleases, and then the Fisher position changed as I described.
If I am to accept the discussions that Mr Heller says he had to the extent claimed, it would involve that there was some form of collateral oral contract that these outgoings would be paid, and it was in consideration of that that the plaintiffs went ahead and took a lease of, inter alia, the second floor of these premises. I am unable to accept that that is what the conversations amounted to, that the parties ever became ad idem in that way; that there was a contract, and having got that contract the plaintiffs then went ahead. It is very unusual, though it can happen, of course, but it is very unusual for there to be a collateral term in relation to the grant of a lease, and I think one has to view quite carefully any evidence which is put forward in support of such a collateral term. It seems to me that these exchanges never got beyond negotiation. What has reinforced the view I have taken about that is the complete absence in the documentation of any reference to it and, further, that no one has been able to point to any specific reference to it until very late on. The first time it was raised in a document was well after the dispute had arisen. This was on December 20 1983 by Clifford-Turner.
But more than that, there are documents where one would have expected to find it mentioned and one does not. For example, on December 17 1979 — this is a letter I have already mentioned from Mr Calow to Mr Heller — Mr Calow draws specific attention to the fact that either party can terminate the arrangement on six months’ notice, so that one could get out of it. The six months’ notice by the landlords would lead to difficulties of itself; it would be very strange if there was this indemnity, but yet the landlords could break the lease. Mr Reynolds was constrained to submit there that, well, there must have been some implied term in it that if the landlords break it they could not rely on the indemnity, and one would expect Mr Heller to have responded, or Mr Calow to have mentioned ‘But, of course, their indemnity . . .’. ‘Do you remember the indemnity?’, or something of that sort.
There is a memorandum setting out the legal position, describing the subunderleases to Mr Heller which had been prepared in Mr Calow’s office. There is no mention of the indemnity in there where you might expect it if there were some collateral term. There is also a file note. Valiant efforts were made there to say, ‘well, that file note refers to it, particularly the sentence that it would then leave a gap when LAIT would then have to pay the rent, and I hope he was not going to let us down.’
As I would see that, Mr Heller realised that he might be left holding the lease, having to pay the rent on it, and would be looking to Mr Calow, but not as a matter of obligation. He is not saying there that|page:83| he had always promised that he was going to do this. He is saying there that it is only a moral obligation on his part to do something about it. That is how I would read that note. It seems to me quite inconsistent with there having been a concluded agreement before they ever got into this transaction that Mr Calow and his partner would indemnify the plaintiffs in relation to those rents.
That brings me on to the status of the defendants. The next point taken by the defendants is that they were always licensees and therefore they could determine the relationship and go as they chose, and which is what they did. Were the defendants licensees as they claim, or were they tenants of the plaintiffs? We start with this, that their occupancy had all the indicia of a tenancy; they had exclusive possession, as I have found, of the parts of the property occupied by them. I have found that that included the reception area. Yet even if this reception area had been shared I would still have found that they had exclusive possession of the remainder. They had taken the floor for a defined period or a term. They had paid rent, and they clearly intended to enter into legal relations with the plaintiffs. There is no question of any family arrangement, or anything of that sort here. This was a business arrangement between the plaintiffs and the defendants, and that had continued for several years.
I was referred, naturally, to the well-known case, as it has become, of Street v Mountford [1985] AC 809* and particularly to the statement at the end of Lord Templeman’s speech at p 826. He said:
The only intention which is relevant is the intention demonstrated by the agreement to grant exclusive possession for a term at a rent. Sometimes it may be difficult to discover whether, on the true construction of an agreement, exclusive possession is conferred. Sometimes it may appear from the surrounding circumstances that there was no intention to create legal relationships. Sometimes it may appear from the surrounding circumstances that the right to exclusive possession is referable to a legal relationship other than a tenancy. Legal relationships to which the grant of exclusive possession might be referable and which would or might negative the grant of an estate or interest in the land include occupancy under a contract for the sale of land, occupancy pursuant to a contract of employment or occupancy referable to the holding of an office. But where, as in the present case, the only circumstances are that residential accommodation is offered and accepted with exclusive possession for a term at a rent the result is a tenancy.
*Editor’s note: Reported also at (1985) 1 EGLR 128; (1985) 274 EG 821.
Mr Ralls, in his address to me, stressed the fact that Lord Templeman was dealing with residences, and this doctrine might not apply in the case of other premises, but I am unable to accept that suggestion. Certainly it seems to me that self-contained business offices stand in just the same case as do residential properties. Lord Templeman mentioned residence because that was the actual case that he was dealing with there. It was not meant to lay down a separate doctrine for residential properties as opposed to business properties. There might be special cases of some sort of trading properties, areas in shops and so forth, or stalls in markets, and there might be difficulties with agricultural properties, where licences are frequent, but I cannot see any differentiation for this purpose between a residence on the one hand and a solicitor’s office on the other.
Mr Ralls called attention especially to the words ‘Legal relationships to which the grant of exclusive possession might be referable . . . occupancy under a contract for the sale of land.’ And I was referred to the case of Bretherton v Payton,† where the appellant did enter into some land in expectation that she would arrive at a contract to purchase it, but there was no contract at the time and never was a contract. They were negotiating but never got even to fixing the price. In the meantime she had been allowed in and was paying, among other things, a sum of £1.20 a week to the respondent, and this was held to be a tenancy, following the decision of Street v Mountford
† Editor’s note: Reported at [1986] 1 EGLR 172; (1986) 278 EG 615.
I do not, myself, read the judgments in that case as in any way qualifying the principle that Lord Templeman enunciated, despite the suggestions of Mr Ralls.
Looking at this case, it is right that the defendants, and the plaintiffs for that matter, entered these premises as licensees of Fulton’s pending the obtaining of an order of the court before the execution of the sublease. It could be argued even at that time that having then paid some money to the landlords — if they paid some money — they became tenants under the principle of Street v Mountford, but I am certainly not deciding any such point and, it seems to me, formidable arguments can be raised against it. But thereafter the lease was granted and therefore so far as Fulton’s are concerned they became landlords and the plaintiffs became tenants in the full sense of the word. It was never a question thereafter of any licence as regards them.
As regards the others, the situation later changed, as I have indicated. What I attach great weight to is that the defendants themselves abandoned any idea of a sublease, and they were looking for an assignment, though there was never any concluded contract for such an assignment. They, therefore, fostered the uncertainty which continued to surround the transaction. In my judgment, certainly from the middle of 1980 they could not be said to be in there as prospective sublessees of the plaintiffs, and they were not licensees in any sense of Fulton’s. By that time they were holding off the plaintiffs without any clear arrangement as to what was to happen vis-a-vis the plaintiffs, whether they were to take an assignment or whether they were to be sublessees.
In my judgment, the case comes fairly within the passage of Lord Templeman’s speech. Here we have a case where there is exclusive possession, payment of a rent and total uncertainty as to any other legal relationship to which the intention can be attributed. There is no other relationship to which the exclusive possession might be referable. That went on right up until the autumn of 1983.
I must now consider upon what terms the defendants hold as tenants of the plaintiffs. The defendants must be in either under the terms of the sublease or under some form of periodic tenancy. In the correspondence there are admissions leading to the former inference. One sees it in Clifford-Turner’s first letter:
We would be grateful, however, if you could confirm to us how you view your firm’s position in this respect. It is our understanding that although this lease was never formally executed these terms were mutually agreed between yourself and our clients and that it was upon this basis that your firm took up occupation.
The reply is:
It is quite correct that the terms of the subunderlease between LAIT and Calow Easton were never formally executed, but we are mutually agreed, and our Mr Calow and Mr Easton agree, to be bound by those terms.
From this, one can infer that the tenancy is upon the terms and conditions of the draft underlease. The term was either the original term to November 29 1984, but determinable on Mr Calow’s ceasing to be a director, or a periodic tenancy. As to the latter, I accept Mr Reynolds’ submission on that; it would be an annual tenancy with terms to be taken from the sublease so far as they are consistent with such a periodic tenancy. Whatever the term, it would, in my judgment, continue pursuant to section 24 of the Landlord and Tenant Act 1954, despite its purported termination by the resignation of Mr Calow as director or by the departure of the defendants in December 1983. There are various ways in which such a continuing tenancy can be terminated under the Act, but it has not been suggested to me that it was terminated by any of those ways before it expired in November 1984. I do not have to consider any continuation after that date. What has been submitted to me is that the plaintiffs are estopped from alleging that the tenancy continued. In the reamended defence it is said that:
Insofar as the plaintiffs allege that the defendants occupied on the basis of the draft underlease such draft underlease provided inter alia by clauses 4, 2 and 3 that if David Ferguson Calow should cease to be a director the said term would thereupon cease and determine, and further that if sections 24 to 28 of the Landlord and Tenant Act should be excluded the defendants will aver that the plaintiffs are thereby estopped and precluded from alleging that the provisions of the Landlord and Tenant Act 1954 apply and/or that the defendants occupy the premises on a yearly or periodic tenancy.
Mr Ralls argued in support of that part of the defence that, on the basis on which this was agreed, there was an agreement to exclude the 1954 Act. This seems to me to be quite untenable. In the first place, I do not think there was any such agreement as between the plaintiffs and the defendants. This was something which the head landlords had required. Second, it is not possible to contract out of the Act save by the method indicated in section 38. As regards estoppel, as I would see it, there has to be some representation on the part of the plaintiff that there is no need to apply to the court, and on that representation the defendants have acted. This is a case where the defendant was responsible for getting the proper order of the court, and it does seem to me to come very ill from the defendants, whose duty it was to protect the interests of the plaintiffs, to seek to set up the absence of obtaining this order.
But be that as it may, I think the proposition that Mr Reynolds put to me is well founded. This is not one of those exceptional cases –|page:84| where you can contract out of or be estopped from setting up some provision for your protection which is conferred by an Act of Parliament, for the simple reason, as Mr Reynolds put it to me, that here there is a positive prohibition against contracting out, which is only relaxed in certain ways indicated in the section. Given that there is a positive prohibition against contracting out in the section, there is no need to inquire for whose benefit that has been provided.
Given that express statutory prohibition against contracting out, there is no room for estoppel in this field.
The result is that I shall not make the declaration that the defendants are obliged to indemnify the plaintiffs, but I shall make a declaration that the defendants remained the plaintiffs’ tenants after October 24 1983 until the expiry of the lease in November 1984.
Judgment was given for the plaintiffs with costs.
