Business premises – Periodic tenancy – Forfeiture – Claimant company occupying premises under purported periodic tenancy – First defendant acquiring lease of premises on change of ownership – Whether claimant retaining rights of occupation as tenant under implied periodic tenancy – Judgment for claimant
In 1990, the freeholder of an airport granted a lease of land to FHL, which was part of a group of companies (the AM group). The claimant company was incorporated in 1992 as part of the AM group. From August 1997, FHL granted to another company in the group (FAL) an underlease of the land. FAL was in practical terms the parent of the group.
The airport was run by operating subsidiaries of FAL, including the claimant. In November 2000, the claimant took over the group’s aircraft maintenance, repair and adaptation functions. It also took occupation of three aircraft hangers and related buildings in place of other companies in the same group. The sums paid in respect of the claimant’s occupation were described as rent in its audited accounts after November 2000.
In July 2007, companies in or related to the L group acquired the airport and the companies in the AM group (including the claimant) and a lease of the land and premises was granted to the first defendant. The lease provided that the first defendant might share occupation of the property with a member of the same group provided the arrangement did not establish a relationship of landlord and tenant. The claimant subsequently went into administration and the joint administrators rejected the first defendant’s offer to purchase its business in favour of an offer by the second defendant.
A dispute arose as to whether the claimant was entitled to allow the second defendant into possession of the premises on the basis that it continued to enjoy rights of occupation as a tenant. The first defendant argued that the claimant had surrendered its periodic tenancy of the premises at the time when the first defendant was granted a lease in 2007. The claimant’s joint administrators argued that, by virtue of the Land Registration Acts of 1925 and 2002, a periodic tenancy had been granted by FAL to the claimant, which was an overriding interest. Therefore the claimant’s rights in relation to the premises were governed by that tenancy and were not qualified, limited or reduced by any term in the first defendant’s lease.
Held: Judgment was given in favour of the claimant.
It was to be inferred that the relationship between FAL and the claimant was intended to be and was one of landlord and tenant, with the attendant protection that the claimant would thereby derive as a business tenant from the Landlord and Tenant Act 1954. The claimant’s protection under the 1954 Act in respect of its right of occupation would have been valuable not only for the claimant but also for FAL and the AM Group, since it provided further assurance for trade creditors and bank lenders that the claimant’s business was secure and viable, and that the claimant would continue to be able to operate at the premises and thereby generate business revenues to allow it to pay its debts.
In circumstances where the landowner and the party that occupied that land intended their relationship to be one of landlord and tenant (rather than landowner and licensee) and substantial periodic rental payments were made, a periodic tenancy would arise by implication. The position was the same whether there was occupation of a residential property or commercial property: Street v Mountford [1985] 1 EGLR 128; (1985) 274 EG 821 and London & Associated Investment Trust plc v Calow [1986] 2 EGLR 80; (1986) 280 EG 1252 applied.
The claimant controlled of the premises from November 2000 and intended to exercise its control on its own behalf and benefit. It paid periodic rent at full value and intended to create legal relations with FAL. The intention to be inferred from the circumstances as to whether the tenancy was a tenancy at will or a periodic tenancy was that the parties wanted it to be a periodic tenancy. They did not intend that the claimant should have only a precarious right of occupancy. The inference was also supported by the way in which the rent was calculated and paid, that is, as a yearly rent payable in quarterly instalments: JA Pye (Oxford) Ltd v Graham [2002] UKHL 30; [2002] 3 All ER 865 followed.
The claimant had not indicated that it had surrendered its existing rights under the periodic tenancy it enjoyed up to July 2007 and its conduct did not at any time amount to an acceptance that the tenancy had terminated. It was an implied term of the claimant’s tenancy that it should pay rent, and that if rent failed to be paid, the first defendant could forfeit the tenancy. However, there was no such breach by the claimant in this case: QFS Scaffolding Ltd v Sable [2010] EWCA Civ 682; [2010] PLSCS 161 considered.
The claimant paid rent by making entries on the inter-company account between it and the first defendant. After the appointment of the joint administrators, the latter had given credit to the first defendant for certain sums in respect of rent shown on the nominal ledger between the claimant and the first defendant and had not asserted that the claimant had a right to occupy the premises rent-free. The joint administrators had accepted that the appropriate credits should be made on the inter-company account in favour of the first defendant to reflect rent due from the claimant. Moreover, since the joint administrators were entitled to reverse a debit entry against the claimant on its inter-company account with the first defendant, the claimant could provide substantial value to the first defendant when it credited future rent payments due to the first defendant against the sum due from it to the claimant on that account.
The claimant continued to have a right to occupy the premises under an implied annual tenancy that commenced in November 2000. The tenancy was a business tenancy protected under Part II of the 1954 Act. The first defendant had not given notice to end the claimant’s tenancy, and injunctive relief was appropriate to protect the claimant’s rights.
Andrew Sutcliffe QC and George McPherson (instructed by Berg Legal, of Manchester) appeared for the claimant; Timothy Sisley (instructed by Juliet Bellis & Co, of Isfield) appeared for the first defendant; the second defendant did not appear and was not represented.
Eileen O’Grady, barrister