The characteristics that distinguish a lease from a licence were explained in Street v Mountford [1985] 1 EGLR 128; (1985) 274 EG 821. As a result, occupants who enjoy exclusive possession of premises for a fixed or periodic term are tenants. The effect of the arrangement is more important than whether the occupier pays rent or the label that the parties have attached to the arrangement and their intentions (unless they did not intend to create any legal relationship at all).
Mann Aviation Group (Engineering) Ltd (in administration) v Longmint Aviation Ltd [2011] EWHC 2238 (Ch); [2011] PLSCS 219 highlights how easy it is to create a tenancy and to allow an occupier to obtain security of tenure under of the Landlord and Tenant Act 1954, even though the owner and occupier are members of the same group of companies.
The arrangement between the companies was not formally documented. However, the terminology used in company records suggested that both parties believed that there was a tenancy. The occupier paid a full market rent for the premises and, because of the regulatory approvals required to carry on its business there, needed and did control of them.
The judge noted that the occupier had allocated a desk to an individual who provided services to all the companies in the group, so that she could work at the premises when required. However, he refused to allow this to affect his decision on the ground that the company could have excluded her, if it wished.
The evidence suggested that the parties had intended to create a landlord and tenant relationship. Consequently, the occupier had an implied periodic tenancy that was protected by the 1954 Act and, because it paid rent by reference to an annual period, was entitled to six months’ notice to determine its lease expiring at the end of the relevant yearly period. The landlord would also have to serve the requisite notice under the 1954 Act and establish one of the grounds laid down in the Act to recover possession.
It is interesting to note that the judge relied on what he believed the parties’ intentions were. He also noted that, if the subsidiary company’s occupation was precarious, so were its future revenues and business. This led him to conclude that the security of tenure conferred by the existence of a lease benefitted all parties because of the assurance it provided that the occupier’s business was both viable and secure.
The case highlights the dangers of allowing a business to occupy premises without documenting the arrangement (and contracting it out of the 1954 Act, where this is possible and has been agreed), even though the parties are members of the same group. Failure to do so may cause difficulties should one of the companies leave the group and could jeopardise the landlord’s position under any superior lease that prohibits it from entering into a landlord and tenant relationship with other group companies.
Allyson Colby is a property law consultant
