To constitute a business tenancy under the Landlord and Tenant Act 1954 the tenant must occupy the property for the purpose of its business.
In R (on the application of Annington Property Ltd and others) v Secretary of State for Defence [2023] EWHC 1154 (Admin), the High Court has ruled that the defendant was not in business occupation of eight houses occupied by families of military personnel under the 1954 Act, and so not prevented from enfranchising them under the Leasehold Reform Act 1967 (click here for more discussion of this).
In 1996, in a deal now regarded as disastrous for taxpayers, the Ministry of Defence entered into a sale-and-leaseback arrangement with the claimant in relation to its family service accommodation (FSA) comprising 765 sites and more than 55,000 residential units. For each site the claimant was granted a 999-year headlease and the MoD took an underlease for a 200-year term. In an attempt to extract the maximum value for the estate the defendant sought to enfranchise two houses in Cranwell, Lincolnshire, and six houses in Bristol under the Leasehold Reform Act 1967.
The claimant challenged the validity of the notices, arguing that the underleases of the two sites were a business tenancy under the 1954 Act, and since the claimant had not occupied any of the houses as his only or main residence there was no right to enfranchise. The claimant needed to show that, at the time of service of each of the enfranchisement notices, the underleases included property occupied for the purposes of a government department under section 56.
Two parties holding different interests cannot both occupy property for business purposes: see Graysim Holdings Ltd v P&O Property Holdings Ltd [1996] AC 329 – the single business tenancy principle. Where a tenant sublets all or part of a holding, the business purpose ceases once those areas are excluded.
The defendant provided FSA for use by service personnel under licence but there was no general requirement that they live in FSA. Consequently, despite wording in the licences that occupation of the property was required for the better performance of the service, the arrangement was not a service occupancy. Despite their label, the licence provisions were consistent with the licensee having exclusive occupation of the houses as their private residence. None was occupied by the defendant and/or for the purposes of a government department.
The common parts of the Cranwell site were deliberately sublet by the defendant to a company it wholly owned and controlled to remove any business activity from its occupation under the underlease and enable it to serve enfranchisement notices in respect of the remaining FSA. Consequently, the defendant was not in occupation of the common parts for the purpose of the 1954 Act.
Louise Clark is a property law consultant and mediator
