Defendant moving into premises – Parties entering into lease – Company owned by defendant named as tenant for tax purposes – Application for possession on expiry of lease – Whether defendant a statutory tenant – Whether lease a sham – County court holding defendant entitled to statutory protection – Appeal allowed
The claimant landlord owned a 99-year lease of a property at 33a Kinnerton Street, London SW1, which was occupied by W. In 1978 the defendant made an agreement with W, with the full knowledge of the landlord, whereby W moved out of the property upon the payment of £6,000. In March 1979 the defendant duly moved into the property and occupied it as his residence, paying the rent due to the landlord for the following quarter.
By an underlease dated August 1979, the landlord granted to Greylane Ltd, a company 75% owned by the defendant, a 20-year term of the property from June 1979 to June 1999. The defendant guaranteed the obligations of Greylane under the underlease. When the term in the underlease expired, the landlord issued proceedings for possession. The defendant resisted the application, submitting that it had been the parties’ intention to grant the underlease to the defendant, with the company taking it in name only in order to obtain the benefit of setting the costs of refurbishment of the property against corporation tax. It was contended that the underlease was a sham and that it should be applied as a lease between the landlord and the defendant, in which case the defendant was a statutory tenant of the property pursuant to section 2 of the Rent Act 1977. It was common ground that if the company was the tenant of the property, it could not claim statutory protection. The county court held that it had been the parties’ common intention that the defendant was the true tenant, and that he was, therefore, entitled to statutory protection. The landlord appealed.
The High Court allowed the appeal, holding that although the defendant might have been a statutory tenant when he first moved into the property, any protection ceased when Greylane entered into the underlease with the landlord. The defendant appealed.
Held: The appeal was dismissed.
The only question that arose was whether the lease of August 1979, making the company the apparent tenant, was to be treated as a “sham”. A sham was where the acts done, or documents executed, were intended by the parties to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from those the parties had in fact intended to create: see Snook v London & West Riding Investments Ltd [1967] 2 QB 786. The defendant had not claimed that the transaction was a sham in the sense of not being intended to create the legal relations that it had. The lease had been taken in the company’s name so that the company could apply to the Inland Revenue to allow the expenditure incurred by it in refurbishing the property to be set against corporation tax. The lease was, therefore, deemed to be intended by those party to it to take the effect apparent from its face. Accordingly, the company was the tenant: Hilton v Plustitle Ltd [1989] 1 EGLR 119 considered.
Clive Blackwood (instructed by Shoosmiths, of Reading) appeared for the claimant; Philip Jones (instructed by Boodle Hatfield) appeared for the defendant.
Thomas Elliot, barrister
