Business premises – Operation agreement — Tenancy – Appellant entering into agreement with respondent council to manage camping and caravan park – Appellant seeking new tenancy of park – County court refusing to grant new tenancy on basis that appellant not tenant of park – Whether agreements between parties constituting sham – Whether appellant acting as agent of respondents — Appeal dismissed
The appellant had been employed by the respondents’ predecessors to perform cleaning and caretaking duties at a camping and caravan park. He was later appointed as warden and lived in a bungalow in the park. He received a basic salary plus commission on lettings and other fees.
His employment was subsequently transferred to the respondent county council and he entered into a new arrangement with them comprising three separate agreements: (1) an operator agreement under which the appellant undertook to manage the park for a period of two years and to pay to the respondents the sum of £32,890 in the first year payable in four instalments (the payment for the second year to be agreed); (2) a bungalow occupancy agreement under which the appellant would to occupy the warden’s bungalow on the site for the better performance of his duties at a rent of £1,000 pa; and (3) a service agreement under which the appellant was to act as a security guard for the park at an annual salary of £1,000, which set off his obligation to pay rent.
Some years later the respondents notified the appellant that they intended to terminate their agreements with him. The appellant served a notice on the respondents pursuant to section 26 of the Landlord and Tenant Act 1954 requesting a new business tenancy. The respondents opposed the application for a new tenancy on the ground, inter alia, that the appellant was not the tenant of the premises. The county court held that the appellant had managed the business on the respondents’ behalf and was not entitled to a business tenancy.
The appellant appealed, contending that he had a tenancy of the park by reason of the operation agreement and that the bungalow agreement and the service agreement were both shams; the bungalow agreement had been drawn up by the local authority to prevent the appellant from acquiring the right to buy the bungalow under the Housing Act 1985.
Held: The appeal was dismissed.
(1) The test for determining whether an agreement was a sham was whether the parties to it had a common intention that the acts done or documents executed would give to third parties or the court the appearance of creating legal rights and obligations different from the actual legal rights and obligations, if any, which they had intended. In considering whether an agreement was a sham and in ascertaining the parties’ true intention, it was permissible to examine external evidence, including the parties’ explanations and circumstantial evidence such as evidence of the subsequent conduct of the parties: Snook v London and West Riding Investments Ltd [1967] 2 QB 786 and Stone v Hitch [2001] EWCA Civ 63 applied.
In the instant case, the court was not persuaded that the parties had entered into the bungalow and service agreements with a common intention that the documents they had executed were not to create the legal rights and obligations that they gave the appearance of creating. Although the respondents had structured the agreements in the way they did to prevent the appellant from acquiring a right to buy the bungalow under the right to buy provisions of the Housing Act 1985, it was perfectly legitimate for the parties to enter into agreements the substance of which was designed to prevent that legislation from applying. That was different from producing documents that did not reflect the true intention of the parties in entering into an agreement in order to conceal the reality of the transaction. The fact that the parties might have been motivated by the desire to avoid the right to buy did not demonstrate that the documents were not intended to take effect in accordance with their terms.
(2) There were many features of the operator agreement that pointed strongly to the conclusion that the appellant carried on the business on behalf of the respondents, the cumulative effect of which led to the clear conclusion that the appellant had undertaken to manage the park as the agent of the respondents. On the facts, the intensity of control retained by the respondents over the business could not be explained by the fact that it was contemplated that the business would revert to the respondents. The operator agreement formed one part of a single transaction given effect by three agreements. If the operator agreement had transferred the business to the appellant so as to give him exclusive possession of the site, there would have been no need for the bungalow agreement. Further, if the operator agreement had resulted in the appellant operating his own business on the park, he would have been responsible for the security of the park and there would have been no reason for the respondents to enter into a further agreement under which the appellant was employed as a part-time security man.
Leslie Blohm QC (instructed by Bevans) appeared for the appellant; Graham Walters (instructed by the legal department of Powys County Council) appeared for the respondents.
Eileen O’Grady, barrister
