Landlord and tenant — Occupier’s appeal against possession order for flat — Leases granted successively to limited companies with which the occupier had some association as daughter of managing director or as herself a director — Plea that the lettings to the companies were shams and that the occupier was protected under the Rent Act — Appeal from decision of assistant recorder in county court rejecting occupier’s claims — The leases to the companies were in fairly standard form and included a substantial number of tenants’ covenants — The rents were paid by the companies and there was no evidence that the amounts came out of the occupier’s pocket — The landlords’ policy was to let the flat only to limited companies in order to exclude security of tenure under the Rent Acts — After considering and distinguishing a number of authorities where transactions were alleged to be, or held to be, ‘shams’, the Court of Appeal agreed with the assistant recorder that there was no evidence upon which the present leases could be held to be otherwise than genuine — The company tenants fulfilled all the obligations under the leases — There was no common intention, as defined in Snook v London & West Riding Investments Ltd, ‘to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create’ — The fact that the lettings were made to companies with the avowed intention of preventing the security of tenure provisions of the Rent Acts from applying did not make the transactions shams — The companies here were genuine tenants and the appellant occupier was their licensee — Her claim to be a protected tenant was rightly rejected — Appeal dismissed
The following
cases are referred to in this report.
Conqueror
Property Trust Ltd v Barnes Corporation
[1944] KB 96
R v Plymouth City Council and Devon County Council, ex parte
Freeman (1987) The Times, April 23 1987
Samrose
Properties Ltd v Gibbard [1958] 1 WLR 235;
[1958] 1 All ER 502, CA
Snook v London & West Riding Investments Ltd [1967] 2 QB 786;
[1967] 2 WLR 1020; [1967] 1 All ER 518, CA
Street v Mountford [1985] AC 809; [1985] 2 WLR 877; [1985] 2 All ER
289; [1985] 1 EGLR 128; (1985) 274 EG 821, HL
This was an
appeal by Mrs Zorin Sachak from the decision of Mr Recorder Langan, at the West
London County Court, ordering that the plaintiff company, Estavest Investments
Ltd (the present respondents), recover possession of Flat 3, Egerton Mansions,
221 Old Brompton Road, London SW5, leased to the first defendants,
Commercial Express Travel Ltd, and occupied by the second defendant, Mrs
Sachak, the appellant.
M R Dencer
(instructed by Oliver O Fisher & Co) appeared on behalf of the appellant;
Miss J V Rayson (instructed by Lloyd & Co, of Whitcomb Street, London WC2)
represented the respondents.
Giving
judgment, STOCKER LJ said: This is an appeal on behalf of the second-named
defendant on appeal from so much of the order of Mr Recorder Langan made on
March 27 1987 in the West London County Court as ordered that the plaintiffs
recover possession of a flat, Flat 3 Egerton Mansions, 221 Old Brompton Road,
on or before April 24. Second, he ordered the second defendant to pay the
plaintiffs’ costs and refused a stay of execution. The second defendant seeks
an order on appeal to this court that those orders be set aside and that the
plaintiffs’ claim for possession against the second defendant be dismissed and
that the plaintiffs do pay the second defendant’s costs.
The premises
in question, as indicated in the notice of appeal, are a flat which, throughout
its relevant history, was occupied by the second defendant, Mrs Sachak. The
history of the matter, expressed very shortly, is that on May 30 1977 the
premises were let by a leasing agreement to Trading House International Ltd, of
which it seems the second defendant, Mrs Sachak, was either herself a director
or was perhaps additionally the daughter of the managing director of that
company. That lease came to an end in July 1983 and a second lease was entered
into with a different company, Commercial Express Travel Ltd. Of that company
Mrs Sachak, we are told, was the sole director. The position, therefore, was
that throughout the whole of the history of this flat from 1977 onwards Mrs
Sachak was the sole occupier, but the tenants in each case were limited
companies with which she had some association or another.
On August 28
1986 a notice to quit was served, and accordingly a judgment was entered for
possession against both defendants with a money judgment against the first
defendant for arrears of rent and, we believe, some judgment against the second
defendant for use and occupation thereafter.
It is perhaps necessary
before going into the basis of this appeal to refer to the pleadings. The
particulars of claim are in reasonably standard form, reciting the letting and
reciting the arrears of rent and claiming possession and arrears of rent. The
defence of the first defendant was that by para 3:
the agreement
purportedly between the First Defendant and the Plaintiffs was a sham intended
to avoid the Rent Acts and as such was null and void.
A similar
defence on the part of the second defendant, Mrs Sachak, alleged that the
second defendant occupied the premises from May 1977 as a protected tenant and
also alleged that the agreement with the limited company, and in particular the
agreement with the first defendant, was a sham; and that was the basis upon
which the case was argued before the learned judge.
The grounds of
appeal are stated in this form. First:
The learned
Assistant Recorder failed to direct himself upon the evidence hereinafter set
forth that the letting to the First Defendant company of July 1 1983 was a sham
device and/or
an
artificial
transaction whose only object was to disguise the grant of a tenancy to the
Second Defendant personally and thus to evade the Rent Acts.
Second:
That the
learned Assistant Recorder . . . wrongly failed to hold that the Second
Defendant either was a contractual tenant under a Rent Act protected tenancy or
was a statutory tenant.
Third:
The evidence
. . . was: (a) That the Second Defendant had occupied the premises since 1977,
(b) That there had been two written tenancy agreements, one of May 30 1977 to
Trading House International Ltd and one of July 1 1983 to the First Defendant
company, (c) That (as was given in evidence by the proprietor of the Plaintiff
company) the sole object of the lettings to the companies was to avoid the
Second Defendant acquiring Rent Act security of tenure.
Throughout the
whole of this period the landlords had been Estavest Investments Ltd. That was
a company apparently owned or managed by a Mrs Stirland-Edwards and her husband
prior to his death. After the death of the husband Mrs Stirland-Edwards
personally acted for and on behalf of the plaintiff company.
The leases are
in fairly standard form. The lease of the first of the lettings in 1977 was, as
has already been indicated, to the company Trading House International Ltd. It
is included in the bundle of documents. It involved the payment of a £200
premium which was repayable upon a determination of the lease, and it includes
a very substantial number of tenants’ covenants, the first of which of course
being to pay the rent at the time and in the manner specified. It also required
the tenant to preserve the furniture and effects and imposed obligations with
regard to the decorative condition of the premises.
The second
lease to the first defendant, Commercial Express Travel Ltd, is in very similar
form. It also includes a very substantial number of tenant’s covenants,
including paying the rent and keeping the interior of the property and all fixtures
and fittings in good condition. Some of those covenants are of course fairly
onerous. There was also a covenant
not to
underlet charge part with or share possession or occupation of the Property or
any part thereof, save that the Tenant may permit the occupation of the demised
premises as a whole by any one employee of the Tenant on such terms only as
shall afford the occupier no statutory security of tenure against the Landlord
on the termination of the term hereby created.
It was really
common ground throughout that the plaintiff company, Estavest Investments Ltd,
through their proprietors, the Stirland-Edwardses, did intend only to let the
flat to a limited company for the very reason that a limited company is not
subject to the Rent Acts and thereby no statutory protected tenancy would be
created in favour of anybody who was in fact the occupier. That was the object
of the transaction in this form.
The learned
judge, having set out the history of the matter and having considered the cases
cited before him, to which reference will be made hereafter (they included Street
v Mountford, R v Plymouth City Council and Devon County Council, ex
parte Freeman, Conqueror Property Trust Ltd v Barnes Corporation,
and Samrose Properties Ltd v Gibbard [1958] 1 WLR 235), made the
following findings:
The present
case is entirely different:
(1) The companies here were genuinely the paying
occupants of the premises. There was not a shred of evidence to suggest that
rent came from the second defendant’s pocket. Mrs Stirland-Edwards received
cheques from the companies, and to some extent Mr Salim of the first defendant
confirms that.
(2) Throughout . . . dealings with Trading House
International Ltd the rent demands went to Trading House International Ltd and
correspondence about the flat was with Trading House International Ltd and not
Sachak.
After
Commercial Express Travel Ltd took over, the correspondence was to Commercial
Express Travel Ltd, or Sachak at Commercial Express Travel Ltd. It was only
when it was pretty plain that little or no money was forthcoming from
Commercial Express Travel Ltd that Mrs Stirland-Edwards began to bang on the
door of Mrs Sachak.
(3) Mrs Sachak was genuinely employed by Trading
House International Ltd and, equally importantly, was a director and
shareholder of Commercial Express Travel Ltd.
He concluded:
I quite see
that some company lets are artificial and would be caught by Street
that is to say,
the case of Street v Mountford.
An example is
of a person with no company, where the landlord or tenant takes off the shelf a
£100 company to be no more than a conduit. That would be a case of true
artificiality. This is a case of entire genuineness.
In reaching
those conclusions the learned judge had had referred to him a number of cases.
The first and principal one is the case of Street v Mountford
[1985] AC 809. It was a case quite different on its facts. It was a case where
the transaction between the landlord and the occupier of the premises had been
expressed in the relevant agreement to be a licence, but examination of the
reality of the situation indicated that ‘licence’ was simply giving a different
legal title to what was in fact and in truth a letting or tenancy. Lord
Templeman, in giving the judgment of the court, said:
Although the
Rent Acts must not be allowed to alter or influence the construction of an
agreement, the court should, in my opinion, be astute to detect and frustrate
sham devices and artificial transactions whose only object is to disguise the
grant of a tenancy and to evade the Rent Acts.
Then he goes on
to other matters. That is the passage upon which Mr Dencer particularly relies,
and it is the essential part of the judgment which was considered by the
learned judge.
We have had
referred to us, and cited by Mr Dencer, another case which was also cited
before the learned judge. It is the case of R v Plymouth City
Council, ex parte Freeman (1986) 18 HLR 243. Again it was a case wholly
different on its facts. It was an application to the Divisional Court for
judicial review where the question arose upon the right of a tenant to purchase
a flat at a time prior to the introduction of the relevant legislation, and the
passage relied upon
Hodgson J sitting as the single judge of that court, and the passage relied on
reads as follows:
It seems to
me that Mr Scrivener is right when he submits that these ‘sham’ cases fall into
two groups. The first is where the formalities conceal the true intention of
the parties as where a loan agreement is dressed up in hire purchase clothes,
or, one might
add, where a lease is concealed under the title ‘licence’
The second is
where the parties have attempted to avoid the impact of existing legislation by
entering into genuine binding agreements which however have the sole purpose of
avoiding the impact of existing legislation; this group is exemplified by the
Rent Act cases to which I have referred.
The cases to
which reference was in fact made included Snook v London & West
Riding Investments Ltd [1967] 2 QB 786, where Diplock LJ said (at p 802):
I apprehend
that, if it has any meaning in law, it means acts done or documents executed by
the parties to the ‘sham’ which are intended by them to give to third parties
or to the court the appearance of creating between the parties legal rights and
obligations different from the actual legal rights and obligations (if any)
which the parties intend to create. But one thing, I think, is clear in legal
principle, morality and the authorities . . ., that for acts or documents to be
a ‘sham’, with whatever legal consequences follow from this, all the parties
thereto must have a common intention that the acts or documents are not to
create the legal rights and obligations which they give the appearance of
creating. No unexpressed intentions of a ‘shammer’ affect the rights of a party
whom he deceived.
I pause to
observe there that in this case the obligations imposed by each of the tenancy
agreements were comparatively onerous. I also observe that in each case the
limited companies in question, that is to say, originally Trading House
International Ltd and subsequently Commercial Express Travel Ltd, paid the rent
throughout. In the case of Trading House International Ltd, not only did they
pay the rent but they paid the deposit and they paid a substantial sum in
excess of £1,200 for redecoration of the flat. Moreover, when that letting came
to an end, they received back the £200 deposit. It seems to me that there is,
to say the very least, ample evidence, and I think I would go so far as to say
overwhelming evidence, that the position of Trading House International Ltd was
certainly not a sham: they carried out and performed all the obligations under
the lease and expended substantial sums of money. The fact is, of course, that
Mrs Sachak was a director of that company or, in so far as at the time she may
not have been the director, was the daughter of the managing director of it;
and it is perfectly plain that she was the person who was in actual occupation
throughout.
The
proposition that the learned judge was in error when he found that that letting
was a case of entire genuineness seems to me to fail in limine. The
evidence that that was a genuine transaction, with whatever motive, seems to me
to be overwhelming.
The second
case which was cited to the court in R v Plymouth City Council was
Conqueror Property Trust Ltd v Barnes Corporation [1944] KB 96.
There was a letting to a limited company with the sole object of fixing a
higher rent than the real rent, and part of the judgment reads:
It is
difficult to imagine any tenant entering into a transaction from which he
derived no benefit and taking a flat of which he had no intention of making any
use. In those circumstances quarter sessions came to a correct conclusion and
the conviction of the landlords must be upheld.
In my view,
there again the facts of that case are wholly different from the instant case,
and accordingly the Rent Act cases considered by the Divisional Court in the Plymouth
City Council case do not really bear on the question which this court now
has to answer.
As I have
already indicated, the first letting which existed from 1977 right through to
1983 was, in my view, beyond argument a perfectly genuine transaction for the
reasons I have already indicated. The second letting to Commercial Express
Travel Ltd in July 1983 may present a slightly less obvious case. In that case
the demands for rent, although directed to Commercial Express Travel Ltd, were
addressed to their business address to Mrs Sachak, but, as Mrs Sachak was the
sole director of the company, there is not anything particularly surprising
about that. The court is told (and it is plain from the correspondence) that
again throughout the whole of that period, from 1983 right through to the last
payments of rent which were made, the rent was paid by the limited company and
not by Mrs Sachak. Indeed, it is conceded by Mr Dencer that throughout the
whole of the eight years — more than eight years — in which Mrs Sachak was
resident in this flat, she never on any occasion paid the rent. There is no
evidence that on any occasion did she personally expend expenditure, except perhaps
the payment at a fairly late date of the electricity bills.
Accordingly, I
would find it impossible to say that the learned judge’s finding that this was
a case of entire genuineness can possibly be upset on the evidence. For my
part, I would not wish to express any view in this case as to what the
situation might be under the Rent Acts where there is a letting in which the
company does not perform genuinely the obligations under the lease and in which
a company had been put in as tenant solely as a cloak to avoid the operation of
the Rent Acts which would otherwise apply. There may well be such cases, but in
my view, on the learned judge’s findings of fact, this is not such a case and
it would therefore be both wrong and pointless to express any views as to what
the situation might be where there was established to the satisfaction of the
court the proposition that the letting of the limited company was in fact
nothing but a sham to conceal the true nature of the transaction. That does not
arise in this case, for the reasons that I hope I have already adequately
indicated. This was not a sham. The limited companies in each case performed
all the obligations under the lease. Mrs Sachak, the licensee from those
companies, performed none of them, and accordingly in my view the fact that it
may have been the motive of the landlord to let only to limited companies, in
order to avoid the Rent Act provisions binding upon the letting, is not in
point. These were genuine transactions as the learned judge found on evidence
which in my view is unassailable.
Accordingly,
and for these reasons, I would dismiss this appeal.
Agreeing,
RUSSELL LJ said: On the facts of this case (and I emphasise the phrase ‘on the
facts of this case’), I find it difficult to understand how a successful attack
can be launched upon the relationship between the plaintiffs and the first
defendants so as to stigmatise that relationship either as a sham or as
artificial. There was no evidence before the assistant recorder that the second
defendant, Mrs Sachak, had ever done anything or said anything which was
inconsistent with her being the licensee of the first defendants, as opposed to
a protected tenant of the plaintiffs. The second defendant, be it observed,
elected not to give evidence at the hearing, though she was available to do so.
In my
judgment, there was no evidence here that the contract between the plaintiffs
and the first defendants was in reality anything other than what it expressed
itself to be. The fact that the creation of the contract had as its purpose the
avoidance of the Rent Acts is on any view not to the point. The learned
assistant recorder was therefore fully justified in making the findings that he
did.
I agree with
Stocker LJ. I cannot find fault with the assistant recorder’s approach to the
evidence, his assessment of the evidence or his rulings upon it. In law and in
fact I would uphold his findings. I, too, would dismiss the appeal.
The appeal
was dismissed with costs. The usual order nisi was made against the legal aid
fund.