Landlord and tenant — Tenancy or licence — Nature of arrangements entered into by plaintiffs in regard to premises taken by them for the purpose of a market in which they would license stallholders to operate — Plaintiffs did not wish to commit themselves to a long lease until after a trial period — They first of all executed a document described as a licence for a year with an option to take a lease from the defendants for 30 years from the commencement of the licence term — This document granted the plaintiffs the right to occupy the premises for the purpose of their market, provided for licence fees, payment of rates and other outgoings and contained some covenants — However, the option to take a lease was not exercised during the year and notice was given to the plaintiffs to vacate the premises when the licence expired — Before then further negotiations resulted in a new agreement, subject to contract, for the grant of a licence to the plaintiffs to occupy for another year with an option to ask for ‘an extension of the occupancy’ — The owners could not refuse such extension but could elect whether to require the plaintiffs to take up the 30-year lease or to allow them a further licence on the same terms including the option — This new agreement was never in fact completed but the plaintiffs remained in occupation — After a time difficulties arose, the defendants complained that licence fees of over £5,000 were in arrear, and they gave notice to terminate the licence — The plaintiffs issued an originating summons asking the court to determine whether in the events which had happened they had been in occupation under a tenancy or a licence — It was common ground that if it were a tenancy it could be determined only under Part II of the Landlord and Tenant Act 1954 and this had not been done — If it were a licence it had been determined and the defendants were entitled to possession — A motion by the plaintiffs for an interlocutory injunction to restrain the defendants from taking possession pending the hearing of the summons was treated by consent as the trial of the action
plaintiffs claimed that the original agreement had created a tenancy,
satisfying the Street v Mountford criteria — Defendants contended that the agreement had
specifically reserved possession to the owners subject to the limited rights
created by the licence — They also submitted that even if exclusive possession
had been conferred the case was analogous to the exception mentioned by Lord
Templeman of occupancy by the purchaser under a contract for the sale of land
accepted the defendants’ argument that the original agreement did not create a
tenancy, whether or not it conferred exclusive possession, and that no tenancy
had been created by subsequent events when the plaintiffs remained in
occupation with an uncompleted agreement — However, the judge gave reasons for
holding that exclusive possession had not been conferred on the plaintiffs by
the original agreement — Plaintiffs’ motion dismissed
The following
cases are referred to in this report.
Delneed
Ltd v Chin [1987] 1 EGLR 75; (1986) 281 EG
531
Marcroft
Wagons Ltd v Smith [1951] 2 KB 496; [1951] 2
All ER 271
Street v Mountford [1985] AC 809; [1985] 2 WLR 877; [1985] 2 All ER
289; [1985] 1 EGLR 128; (1985) 274 EG 821, HL
University
of Reading v Johnson-Houghton [1985] 2 EGLR
113; (1985) 276 EG 1353
This was a
motion by the plaintiffs, Essex Plan Ltd, which by consent was treated as the
trial of the action. The plaintiffs had issued an originating summons which
sought a determination of the question whether they were tenants or licensees
in respect of a unit in the central shopping mall at the Basildon Laindon
Centre. The present motion was for an interlocutory injunction to prevent the
defendants, Broadminster Ltd, from retaking possession of the unit pending the
hearing of the summons.
William Rose
(instructed by Jennings Son & Ash, of Ilford) appeared on behalf of the
plaintiffs; Robert E Pearce (instructed by Stringer Saul, of London W1)
represented the defendants.
Giving
judgment, HOFFMANN J said: The issue in this action is whether the contractual
arrangements under which the plaintiff, Essex Plan, occupies a shop in Basildon
constitute a licence or a tenancy. In the spring of 1985 Essex Plan was looking
for premises in which to run a market by licensing traders to occupy stalls. It
entered into negotiations with a company called Derbyminster Ltd to take a
lease of a double unit in the central shopping mall of the Laindon Centre in
Basildon. Derbyminster was offering a 30-year full repairing lease with
five-yearly rent reviews, but Essex Plan wanted to occupy the premises for a
trial period of up to a year before committing itself to a long lease.
Derbyminster accepted this proposal, subject to contract, and instructed
solicitors to carry it into effect. There were obviously a number of ways in
which the arrangement could be structured. Derbyminster’s solicitors proposed
that there should be an agreement for a lease for 30 years from June 8 1985
under which Essex Plan would be entitled immediately to enter into occupation
but that the lease should not be granted until June 8 1986 and that Essex Plan
should, until that date, have an option to determine the agreement. Essex
Plan’s solicitors rejected this proposal and offered to take a licence for a year
with an option to take the lease for 30 years from the commencement of the
licence term. On June 5 1985 they wrote explaining:
Our Client’s
intention is quite simply to avoid having to take on more onerous
responsibilities that are imposed on a tenant than on a licensee.
Derbyminster
accepted this formula and drafts were prepared.
Essex Plan
went into occupation and commenced trading on June 8 1985. The licence and
option agreement was executed on November 27 1985. The option was not exercised
and Derbyminster gave Essex Plan notice to vacate the premises when the licence
expired on June 7 1986. Before that date arrived further negotiations began, as
a result of which it was agreed, subject to contract, that Essex Plan should be
granted a licence to occupy for another year with an option to ask for ‘an
extension to the occupancy’. The owners could not unreasonably refuse such
extension but could elect whether to require Essex Plan to take up the 30-year
lease or to allow them a further licence which would be on the same terms
including the option to ask for an extension. The new agreement and the
counterpart were engrossed and executed but never exchanged. Meanwhile, Essex
Plan continued in occupation.
In July 1987
Derbyminster conveyed its interest in the premises to the defendants in these
proceedings. Derbyminster’s solicitors continued to act for the defendants and
tried unsuccessfully to persuade Essex Plan to complete the licence agreement.
By the end of 1987 the licence agreement had still not been completed and the
defendants were complaining that over £5,000 of licence fees was in arrears. On
January 5 1988 they wrote giving notice to terminate the licence. On February 8
the plaintiff issued an originating summons asking the court to determine whether
in the events which had happened it was a licensee or a tenant. It is agreed
that if Essex Plan is a tenant its tenancy can be determined only in accordance
with Part II of the Landlord and Tenant Act 1954 and that this has not yet been
done. On the other hand it is also agreed that if Essex Plan was a licensee
that licence has been determined and the defendants are entitled to possession.
On February 10 1988 Essex Plan served notice of a motion for an interlocutory
injunction to restrain the defendants from retaking possession pending the
hearing of the originating summons. This motion also raises the question of
whether Essex Plan is a tenant or a licensee, and by consent the hearing of the
motion has been treated as a trial of the action.
The 1985
licence contains a grant by Derbyminster to Essex Plan of the right to use and
occupy the premises for the purposes of conducting its market. It provides for
a licence fee and the payment by Essex Plan of rates, taxes and other
outgoings. There is a covenant to keep the premises in repair and a prohibition
on assignment or the sublicensing of the premises or any part thereof. The
latter provision is curious in view of the fact that the purpose of the licence
was to enable Essex Plan to grant traders the use of stalls on the premises. In
practice, it appears to have been consistently waived. Clause 6 provides that
if Essex Plan serves a notice on Derbyminster not later than March 8 1986 that
it wishes to enter into a lease in the form annexed to the agreement, Essex
Plan will not be required to vacate the premises on determination of the
licence, but instead Derbyminster will grant the lease.
Clause 9 reads
as follows:
It is hereby
agreed between the parties that this agreement constitutes a licence which is
personal to Essex Plan and confers no tenancy upon Essex Plan and that
possession of the premises is retained by Derbyminster subject to the rights
created by this licence.
Apart from this
general retention of possession the licence contains no specific provisions
which entitle Derbyminster or its representatives to enter upon the premises.
In this respect it contrasts with the draft lease, which contains elaborate
reservations of rights of entry by the landlord in various circumstances. The
licence also contains a covenant by Essex Plan to comply with all directions
given by Derbyminster from time to time for the management of the centre.
Mr Rose
submitted on behalf of Essex Plan that despite the use of the word ‘licence’
and the provisions of clause 9, the rights created by the document exhibit the
features which Lord Templeman in Street v Mountford [1985] AC 809
said were the badges of a tenancy, namely a grant of exclusive possession for a
term certain in return for periodical payments. Mr Pearce on behalf of the
defendants did not concede that the agreement conferred exclusive possession,
but his primary submission was that even if it did, this was an exceptional
case in which a tenancy nevertheless had not been created. In Street v Mountford
Lord Templeman said:
Sometimes it
may apear from the surrounding circumstances that the right to exclusive
possession is referable to a legal relationship other than a tenancy. Legal
relationships to which the grant of exclusive possession might be referable and
which would or might negative the grant of an estate or interest in the land
include occupancy under a contract for sale of the land.
Earlier in his
speech, Lord Templeman had contrasted the case in which the relationship
between the parties was that of vendor and purchaser with an independent
grant of exclusive possession for a term at a rent.
Mr Pearce drew
attention to the fact that contracts for the sale of land commonly provide (for
example, in the National Conditions of Sale, 20th ed, condition 8) for the
purchaser to be allowed into occupation as a licensee pending completion on
terms that he is to pay all outgoings together with interest on the purchase
money and is to keep the premises in good repair. The purchaser’s possession is
ancillary and referable to his interest in the land created by his contractual
right to a conveyance and Lord Templeman acknowledges that such a relationship,
although exhibiting the ordinary badges of a tenancy, does not create one.
The fact that
the contract in this case provided for Essex Plan to acquire a long lease
rather than the freehold is not material. The difference between this case and
an ordinary sale under the National Conditions is that Essex Plan had an option
to take the lease but was not obliged to do so. In my judgment, this also does
not affect the application of the principle. The option gave Essex Plan the
right to call for the grant of the lease and therefore gave it in equity an
immediate interest in the land. Its entry into occupation pending the exercise
or expiry of the option was ancillary and referable to that interest. There is
therefore no need to infer the creation of a tenancy which would give Essex
Plan a different interest in the same land.
Mr Pearce
submitted that whatever may have been the effect of the 1985 licence agreement,
Essex Plan ceased to have any interest in the land under the new licence agreed
in late 1986. That document gave Essex Plan no right to call for a lease but
only to ask for an extension of its occupation which Derbyminster or their
successors could satisfy at their option offering either a lease or a
succession of licences. But the negotiations for the 1986 licence were subject
to contract and not intended to create legal relations until the engrossed
licence and counterpart had been exchanged. This never happened and the
continued acceptance of licence fees during the period of negotiations did not
in itself create legal relations either (see Marcroft Wagons v Smith
[1951] 2 KB 496 as explained in Street v Mountford). In this
respect the relationships between the defendants and Essex Plan after the
purchase by the former in July 1987 was no different from the previous
relationship between Derbyminster and Essex Plan.
I therefore
accept Mr Pearce’s submission that whether or not the 1985 licence agreement
conferred exclusive possession upon Essex Plan it did not create a tenancy and
that no tenancy has been created by subsequent events. It is therefore strictly
unnecessary for me to analyse the agreement to decide whether Essex Plan had
exclusive possession or not, but the point was argued and in case it may be
helpful if the case goes further, I shall say something about it.
Mr Rose asked
me to reject the express provision that Derbyminster was to retain possession
as a sham and he referred me to the very different case of Dellneed Ltd
v Chin (1986) 281 EG 531* in which Millett J rejected a similar
statement in a ‘management agreement’ of a Chinese restaurant in Gerrard
Street. He also cited University of Reading v Johnson-Houghton
(1985) 276 EG 1353† , which concerned an agreement for the use of gallops in
Berkshire. But each case must depend upon the precise terms of the agreement
and its surrounding circumstances. I do not think that on the special facts of
this case, taking into account the market use which was contemplated by the
parties, a retention of possession by the owner subject to the occupation
rights granted by Essex Plan can be ignored as a sham. I have already observed
that, apart from the general retention of possession, the licence contains no
express provision which entitles the representatives of Derbyminster to come
upon the premises and keep order or ensure the observance of the general
regulations which Derbyminster was entitled to make. As Lord Templeman said in Street
v Mountford, ‘A tenant armed with exclusive possession can keep out
strangers and keep out the landlord unless the landlord is exercising limited
rights reserved to him by the tenancy agreement to enter and view and
repair.’ I asked Mr Rose whether in this
case Essex Plan could have maintained an action for trespass against
Derbyminster if its representatives came upon the
said that a right of entry would be implied. But the agreement, if taken at
face value, already entitled Derbyminster to enter on to the premises by virtue
of its retention of possession subject only to not derogating from the rights
of use and occupation granted to Essex Plan. It is only if these provisions are
treated as a sham that a process of implication is needed to patch up what
would then appear to be a significant gap in the terms of the agreement. In my
judgment, there is no justification on these facts for knocking down the
agreement which the parties have actually made only in order to rebuild it in a
different way. If, therefore, I had been required to decide the point I would
have held that the 1985 licence agreement did not confer exclusive possession
and therefore did not create a tenancy.
*Editor’s
note: Also reported at [1987] 1 EGLR 75.
† Also
reported at [1985] 2 EGLR 113.
The
plaintiffs’ motion was dismissed and the questions in the originating summons
answered in favour of the defendants.