Be on guard with licences and leases

Allyson Colby looks at a recent case involving the growing trend of property guardianship. Key points An occupier did not have a right to exclusive possession of premises shared with others Provisions allowing occupiers to move rooms and permitting changes to the extent of the living space were enforceable, even though such changes had never been made Therefore, the occupier had been granted a licence and not a tenancy In Street v Mountford [1985] 1 EGLR 128, Lord Templeman famously said that “the manufacture of a five-pronged implement for manual digging results in a fork, even if the manufacturer… insists that he intended to make and has made a spade”. But this beguilingly simple test is not always easy to apply when distinguishing between a lease and a licence. The distinction raised its head again recently in the context of property guardianship schemes. Guardianship agencies look after a wide variety of disused buildings – offices, hotels, police and fire stations, schools, care homes, hospitals, libraries, sports centres, pubs, churches and vicarages, to name but a few – often while owners seek planning permission for redevelopment. Instead of allowing them to sit empty, agencies arrange for individuals, who may be strangers to each other at the outset and who pay less than the market rent for occupation, to keep an eye on their condition and to reduce the potential for squatting and vandalism. However, vacant possession must be available quickly when an owner requires its property back. So guardianship agencies usually seek to grant licences to guardians and label their agreements accordingly. Lease or licence Are such agreements really licences? Street established that the effect of an agreement is more important than its label. In exceptional cases, the grant of exclusive possession, ie the right to exclude all persons, including the landlord, from premises, might be referable to a legal relationship other than a tenancy – for example, occupancy under a contract to sell land or a contract of employment. But, where residential accommodation is offered and accepted with exclusive possession for a term at a rent, the result is a tenancy, even though the parties have described their arrangement as a licence. Could it be argued that property guardians have exclusive possession of the premises that they occupy, thereby creating a tenancy? Previous county court decisions have been contradictory. Take, for example, Camelot Property Management Ltd v Roynon (Bristol County Court, 24 February 2017), in which the court drew on a comment made by Lord Oliver in AG Securities v Vaughan [1988] 2 EGLR 78, ruling that Roynon had an assured shorthold tenancy because his particular rooms were his exclusive domain, and had been identified as such with Camelot’s consent. The High Court was asked to opine in Camelot Guardian Management Ltd v Khoo [2018] EWHC 2296 (QB) earlier this year and, although each case will turn on its own particular facts, landowners and guardianship agencies will welcome the judgment that has just been published with open arms. Both a textual and contextual approach led to the conclusion that the guardian had a licence, and not a tenancy. Unitary right Khoo had been occupying rooms, together with other guardians, in an office building in London and was refusing to move out so that the property could be redeveloped. The county court judge who heard the case at first instance accepted that Khoo had exclusive possession, in fact and law, of one room and two storage rooms in the building, together with shared use of the living space that was not occupied by other guardians. Even so, he decided that the arrangement was a licence. The High Court took a different view. It ruled that Khoo did not have a right to exclusive possession in law. The guardianship agreement, which was personal to Khoo, stated that he was not being granted exclusive occupation or possession of any part of the property. It permitted him to share the living space with other guardians and stated that guardians were entitled to change rooms by agreement with each other. The agreement also provided that the guardianship agency could vary the extent of the living space, so long as there was at least one room for each guardian. But Butcher J did not interpret this proviso to mean that the guardian had exclusive possession. It meant only that there would never be more guardians in the property than there were rooms, and must be read in conjunction with the statement that Khoo did not have a right to use any specific room in the property. The agreement did not create two species of rights: one of exclusive possession of the guardian’s own rooms and another over the rest of the living space. It granted Khoo a unitary right to share occupation of the whole with other guardians. So this could not be a tenancy because Khoo’s rights were not exclusive. Matters of fact The factual matrix was also important. Khoo was shown a particular room, which he was asked to occupy, but that did not mean that the agreement should be interpreted differently. Furthermore, the nature of the property guardianship scheme was known to both parties, and its operation, commercial purpose and continued existence depended on whether the guardianship agreement meant what it said. The courts will look through devices whose object is to disguise the grant of a tenancy. But there was no dishonesty, sham or pretence here and, although Khoo may, in fact, have been permitted exclusive occupation of a room or rooms, that did not, in the case of this unusual arrangement, overcome the strong presumption that parties to transactions intend their terms to be effective. Have we have heard of the last on this subject? One suspects not, given the number of property guardianship arrangements reportedly in existence and the importance of the issues at stake in such cases. Main image © John Birdsall/Rex/Shutterstock Allyson Colby is a property law consultant