Hosebay Ltd v Day and another

  Her Honour Judge Hazel Marshall QC:   The claim This is a Claim made under Part 8 of the Civil Procedure Rules whereby the Claimant seeks a declaration that it was, at the relevant time (23 April 2007) entitled to acquire the freehold of each of three properties under the Leasehold Reform Act 1967 (“the 1967 Act”).       The Defendants disputes that entitlement on two grounds.  First they contend that the properties are not a “house” within the necessary definition in the Act.   Alternatively they say that the leases are business tenancies protected by the Part II of the Landlord and Tenant Act 1954 (“the 1954 Act”), and therefore excluded from the operation of the 1967 Act unless the tenant is resident at the property, which the Claimant, as a limited company, cannot be.      Facts The properties are Nos 29, 31 and 39 Rosary Gardens, South Kensington, London SW 7.    The Claimant (“Hosebay”) is a company wholly owned and controlled by a Mr Morris and his wife.  It holds each property on a long lease, the freehold of which is now held by the Defendants, as part of the Day Estate.       Nos 29 and 39 are each held on materially identical leases granted to a predecessor in title of Hosebay on 16th March 1966 for 57 years from 25th December 1963, thus terminating on 25th December 2020.    No 31 Rosary Gardens is held on a slightly different form of lease dated 1st April 1971 and terminating on 20 December 2030.     Hosebay acquired the leases in 1996.    The properties are units in a late Victorian terrace forming the western side of Rosary Gardens.  Each comprises basement, raised ground floor, three upper floors and a mezzanine/attic.    In respect of Nos 29 and 39, the relevant user clauses are sub-clauses of Clause 2, as follows: “(9)      …..to use the same as 16 high class residential flatlets  planned and situated in accordance with the drawing attached hereto …   (11)      To reside at the premises or to employ a suitable resident housekeeper, the lessee or such housekeeper to have the exclusive of use of one room in addition to the kitchen on the basement floor of the demised premises. …   (15)           To keep the appearance of the exterior of the demised premises as that of a private dwellinghouse   (16)           It shall not be lawful for the tenants of any of the said flatlets to take in lodgers or paying guests therein. …   (19)           To impose upon the occupiers of the said flatlets adequate regulations for the proper and orderly use and occupation of the said flatlets and use of the common parts of the demised premises.”   In respect of No 31, the relevant use clause is Clause 2 (10), which provides that without the landlord’s written consent (which the landlord shall be at liberty to give or withhold) the tenant will not   “….carry on or permit the carrying on on the demised premises or any part thereof any trade sale manufactory or business of any kind whatsoever but shall use the demised premises for one or other of the following purposes:-   (a)                as a single family residence   (b)               as a high class furnished property for accommodating not more than twenty persons, such number to be inclusive of the Lessees’ family On condition that the Lessees will personally reside on the premises or will employ a competent resident caretaker.”   It is common ground that those covenants are not being observed, as will appear when I describe the use of the premises.    However, no point on this has apparently been taken by the freeholder, and it is equally common ground that the present physical use of the premises, or something much the same, has now been going on since before Hosebay acquired the leases, and in fact from some time before 1981.    The premises are currently being used for the business of “Astons Apartments” which provides short term accommodation for tourists and other visitors to London.         There is a dispute between the parties as to whether the business is that of Hosebay, or whether it is genuinely that of another company, Hindmill Limited, (“Hindmill”) which is also owned by Mr and Mrs Morris, and which was set up in 2006/7 deliberately for the purpose of taking underleases of the three units from Hosebay, together with a transfer of the assets and undertaking of Astons Apartments, in order to enable Hosebay to be able to make a claim to enfranchise the properties under the 1967 Act.     I will return later to how that operates in law.      There is no dispute about the physical operation of the business of Astons Apartments, which I describe partly from written evidence and partly from an inspection made in the course of the trial.    The business operation covers all three properties, which have been fully adapted to provide individual rooms for letting out, apart from one room and a cloakroom at the rear of the ground floor of No 31 which is fitted out as an office and reception, and one room in the basement of No 31 below, which was once a manager’s office and is now a storage room.    There are storage cupboards off the halls and landings.    The vaults under the pavements at the front of the properties are used either as part of basement accommodation, or for storage of clean and soiled linen and as a small housekeeping office, restroom and laundry.        I have described the accommodation as “rooms” but I must record that Mr Morris takes issue with that description.  He insists that they should properly be described as “apartments”, and the business of “Astons Apartments” as being “the provision of serviced apartments” and not an “hotel”.   However to my mind, except arguably as regards three basement “executive quadruple” rooms, the term “apartment” conveys an exaggerated impression of the size and facilities of the accommodation, of which I was shown typical examples of each size.    I think that the term “room with self catering facilities” is the most apposite to describe the remainder of the accommodation.   There is a total of 54 rooms.  Without going into detail, each property has in the basement a four person room (the “executive quadruple” mentioned above, which has a separate kitchenette area and a shower/bathroom), together with one or two further double or single rooms.  There are then a number of rooms, mostly double but some single, on each of the ground and first to third floors and one on the mezzanine.  Typically, there are three doubles and one single room on each of the higher floors, but in No 39, the configuration permits five of the rooms to be triple rooms rather than doubles, and one room on the ground floor of No 31 is also a triple.   In the four person rooms there is a double bed with bedside tables, a double sofa-bed, a table with four upright dining chairs, a TV and some wardrobe space.  The compact adjacent kitchen area is fitted with basic appliances and utensils, and the separate shower/bathroom area is partly under the pavement vaults.     The single, double and triple rooms each have the relevant number of beds, a table with the relevant number of dining chairs and a TV.   They have no easy chairs, and very limited hanging and storage space.   The cooking facilities are contained in a cupboard which looks like a small wardrobe, but which opens up to reveal a fitment containing a small sink over a cupboard, under-counter refrigerator, microwave, kettle, and some high level cupboards containing utensils, crockery and space for food.    Into each room, there is incorporated a modular “wet room” shower room about 4 ft 6ins square, enclosing shower, washbasin and WC.   Each room has a telephone and a WiFi connection.       There are no personal laundry facilities; occupants are directed to a nearby launderette.     There is no resident caretaker in any property.     The staff comprises an overall general manager, three or four trainee junior managers or students, who operate the reception and may help guests with bags (there are no porters), and three or four cleaners/laundry women, under the supervision of a non-resident housekeeper.           There is literature provided in each room, including room tariffs, maps of London and transport and entertainment information.  Bed-linen is changed for each guest and otherwise not less than once every three days.  Rooms are cleaned. Guests are allowed to use internet access in the office if they are not on WiFi.   No other services are provided, and there are no communal areas.     Non-domestic rates are paid in respect of each property.    As regards planning, the premises operate under an established use, but are specifically registered, and thus licensed, for the provision of short term accommodation of 1 – 90 days, by Kensington & Chelsea Council.      The registration is under section 9 of the Greater London Council General Powers Act 1984, which requires registration of buildings used for   “(i)       the provision of sleeping accommodation in a building or any part thereof for payment in circumstance where the relationship of landlord and tenant is not thereby create, or (ii)        the provision of sleeping accommodation in a building or any part thereof for payment in circumstances where the relationship of landlord and tenant is thereby created but where the total duration of the letting creating such relationship is, or is expected to be, less than 90 consecutive days [unless for less than three persons]”   The registration form completed on behalf of the business, describes the use as “short term apartments”, but applies for registration on the basis that the building is used as an “Establishment offering sleeping accommodation providing individual cooking facilities in each unit and service”.     I was also told that the properties are registered as a “House in Multiple Occupation” but no evidence of this was disclosed or produced at the trial.   Typically, I was told, bookings of accommodation come via airlines, or agents such as Expedia Travel, and the booking is confirmed by “Astons Apartments”.     I was shown a copy Confirmation of Reservation/Invoice from the material time, in Spring 2007.     This requires payment on arrival (or 21 days in advance if by cheque) with cancellation charges for late cancellations, no-shows and “walkouts”.    A returnable deposit is also required on arrival, by way of “bond” against damage and/or telephone charges.     There are provisions about times for admission on arrival and departure.    It is also specifically stated that   “The accommodation is available only to bona fide visitors and tourists and is limited to the persons specified on the Reservation”.   The guest signs the form to confirm the reservation.   Returns to Expedia Travel at the relevant time show room rates to be of the order of £85, £95, and £135 per night (exclusive of VAT).  Stays, in this sample of about 85 reservations were between 1 and 11 nights, with most being 3-5 nights.  Although Mr Morris told me orally in evidence that guests might stay for three months, leave for a week and then return for two months, I could see no evidence at all of this., and, as mentioned below, I do not find Mr Morris’s evidence about the day to day detail of the running of his business to be reliable.   I am satisfied that the documentary evidence I was shown of the nature of the business and the length of stays is typical.   Summing all this up, I find that the use of these properties is tantamount to that of an hotel, and I think that the most accurate description of it would be along the lines of a “self catering hotel”.    I stress that this is a description of ordinary language, and not in terms of town planning classification.    I am aware that there are distinctions, in that context, between uses and Use Classes such as “residential”, “hotel”, “hostel”, etc.    None of these matters here because, whatever the actual use of the properties as a planning classification, it is a lawful established use.    It is also a properly registered use, as required.      I consider, though, that the registration form correctly described it as use for “sleeping accommodation”,  which is of course the kernel of hotel accommodation.  In reality, this is a hotel use, with the facility to eat in one’s room.     Calling the rooms “studios” or “apartments” is simply cosmetic.   History   I have already referred to Hosebay’s acquisition of the relevant leases in 1996.     As is well known, the Leasehold Reform Act 1967 was amended by the Commonhold and Leasehold Reform Act 2002, to relax some of the qualifying requirements for the long leasehold tenant of a house to be entitled to exercise the rights conferred by the Act to purchase the freehold.   Mr Morris’s very candid evidence to the court is that between 2005 and 2007, on legal advice, certain transactions were entered into by Hosebay to enable it to meet the new qualifying requirements.      First, Hindmill Limited was formed with the same structure as Hosebay, as a further vehicle for Mr Morris’s business ventures.    In September 2005, Hosebay’s solicitors informed the Defendants’ solicitors that Hosebay wished to create underleases of each of 29 and 39 Rosary Gardens to Hindmill.  The landlord’s prior written consent to the grant of any underlease (not to be unreasonably withheld) is required under Clause 2 (22) of each of those Leases.    No consent is required under the Lease of No 31, but the creation of a sub-lease must be subsequently notified to the landlord.     There were some initial rather desultory negotiations about the terms of a permission to underlet, and in January 2006, when four months had elapsed and no licence had been issued, Hosebay threatened proceedings.       At this point, the Defendants stated, in a letter of 2nd February 2006, that they were not prepared to give consent, and that this was reasonable because if they were to do so, Hosebay would cease to be a business tenant of each property, and would therefore gain the right to make a claim to purchase the freehold under the 1967 Act.   It was pointed out that avoiding the acquisition of such rights had previously been held to be reasonable grounds for a landlord to withhold consent to an assignment of a residential long lease.   Hosebay then issued proceedings in the West London County Court seeking a declaration that consent to the underleases had been unreasonably withheld.   For some reason (and I can see that the Defendants’ objection above might be the subject of debate in the circumstance of these particular leases) no defence was ever filed.  The proceedings were settled by a consent order under which the Defendants agreed to give a licence for the grant of the underleases.   On 1st November 2006, the Defendants gave licence to Hosebay to grant an underlease for one year to Hindmill (although the licences erroneously referred to “Hosebay” Limited) of each of Nos 29 and 39 Rosary Gardens.   On 26th January 2007, Underleases were entered into between Hosebay and Hindmill in respect of all three properties at rents (£60 pa in respect of Nos 29 and 39 and £120 pa in respect of No 31) reflecting the head rent in each case, payable by quarterly instalments in advance.   Each Underlease was expressed to be for one year, but, as business leases, they would in the normal course be continued until determined in accordance with Part II of the Landlord and Tenant Act 1954.    It has not been suggested that any change to the arrangements has in fact taken place since.   In his witness statement, Mr Morris says that Hosebay’s business was then transferred from Hosebay to Hindmill with effect from 1st February 2007, and that since then, Hosebay has had no customers or suppliers or employees and Hindmill has operated the business under a Franchise Agreement with Hosebay.       However, there is no record of any written agreement at the time.    There is a franchise agreement dated 4th November 2008, which claims to recite that such a transfer occurred on 1st February 2007, and that that document is intended to record the relevant terms.    It recites that the plant, machinery, furniture, fixtures and equipment of Hosebay’s business were sold to Hindmill on 1st February 2007 for £200,000 and the stock and stationery etc for £1, that a franchise fee of £40,000 per month was agreed to be payable to Hosebay by Hindmill from that time, and that the three Underleases had been granted to Hindmill, reserving a rent of £60 a year (although this is not accurate as the Underlease of No 31 reserves a rent of £120).      However, there is no contemporaneous evidence of any such payments ever having been made, nor of Hosebay’s accounting (as the 4th November 2008 agreement suggests it should have done) for VAT on either the premium paid for the business effects, or on the franchise fee, during the following months.     Accounts produced for Hosebay for the year ending 30th November 2007, and for Hindmill to the year end 31st January 2008, include reference to such payments during the relevant accounting years.   With VAT at the relevant rates, these sums would have exceeded £750,000.  However the accounts then record that at the end of the year, the inter-company balance due from Hosebay to Hindmill was £47,500.    When asked in cross-examination how such an enormous contra charge could have come about, Mr Morris at first said he had no idea.  Later he said that amongst his companies debts were simply paid by whichever company happened to have the cash, with his accountants performing the necessary reconciliations when preparing annual accounts, so that this statement would have reflected the fact that Hindmill would have made payments on behalf of Hosebay, such as for the interest due on Hosebay’s significant bank loans.  Hindmill had also entered into a mortgage debenture and guarantee in favour of Hosebay’s bankers, dated 24th/26th January 2007.     Hosebay’s accounts, however, record interest payable during the almost corresponding year as only £233,838, and whilst they show creditors under secured bank loans falling due after more than one year in the sum of £2,525,680, the notes suggest that this is artificial, because that amount is the total of loans taken jointly and severally by Hosebay and by Mr Morris’s other property investment company, Chedworth Morgan Limited, all of which has – for some reason – been attributed to Hosebay.       There is also no record of rent being paid under the Underleases until suddenly in November 2008, when there is a cheque for the arrears.     This, said Mr Morris, was of no significance, because the headlease rent was never in fact demanded either.   On the other side of the picture, it is apparent from documents that after 1st February 2007 Hindmill received the income from the properties, took over and entered into new employment contracts with staff, paid the buildings insurance, rates and utility bills, and accounted to HM Customs & Excise by way of VAT returns on its income, (though not deducting any VAT in relation to its liabilities to Hosebay).   Whilst I find that Mr Morris was a perfectly candid and honest witness about the transactions which he said had been carried out and their purpose, he appeared to me to know very little about either the implementation of these, or the practical day to day running of his businesses.  Mr Morris left the latter entirely to the Manager, Mr Patterson and his evidence about what was going on on a day to day basis was either report or surmise.    He left the former to his accountant and solicitor, accepting and following (although perhaps only after a fashion) whatever advice they gave him about what to do, or approve, or sign.    The reliability of his evidence is therefore limited.     Notices and commencement of proceedings   This is the context in which, on 23 April 2007, the Claimant served the relevant notices under s 8 of the 1967 Act, claiming to acquire the freeholds of each property.     By response letters dated 13th November 2007 (no point has been taken about the timing of these), the Defendant has disputed the validity of the notices, on two grounds, as mentioned at the outset.   First it denies that the relevant property in each case is a “house” within the meaning of s 2(1) of the Act.     It argues that it is neither a “building designed or adapted for living in” nor a “house … reasonably so-called”, both being requirements of the definition of “house” under that section.    I call this the “house” issue.   Second, it alleges that the relevant lease was in each case a lease to which Part II of the Landlord and Tenant Act 1954 applied, which in principle excludes a lease from falling under the 1967 Act.   This is argued to be either because Hosebay and Hindmill fall to be considered as one composite entity when viewing the occupation requirements which give protection under the 1954 Act, or because the transactions purporting to de-couple the business operations from the Lease were either a sham, or were ineffective at doing so in practice, so that the business occupation remained in reality that of Hosebay at the relevant time.   Whilst properties subject to business tenancies are excluded from the 1967 Act by s 1(1B) of the Act, there is an exception to this exclusion for business tenants who also reside at the property, but as Hosebay is a company, it cannot fulfil this qualification.    I call this the “business tenancy” issue.   These are the two issues which I have to decide and I pay tribute to the excellent and comprehensive skeleton and oral arguments of Mr Anthony Radevsky, appearing for the Claimant, and Mr Edwin Johnson QC representing the Defendants.     However, before turning to these arguments I should outline the legislative history.   Legislative history and framework   This Part of the 1967 Act was originally enacted to remedy the unfairness seen to exist, particularly with regard to relatively low value houses, when long leaseholds at a ground rent began to approach their expiry date, and became an acutely wasting asset.    Tenants in such situations saw the value of their homes fall, and their leases become unmortgageable, making it difficult to move.  They could be held to ransom by the freeholder as to the negotiation of a lease extension.       The Act was therefore aimed at protecting people from unfair loss or exploitation over the homes they lived in.  People’s homes have traditionally been regarded as an interest deserving special protection, and the policy was not meant to benefit investors or speculators in property, or businesses.   By the original s 1 of the 1967 Act, the right to enfranchise was conferred on   “the tenant of a leasehold house occupying the house as his residence…”   and by s 1(1)(b) a qualifying tenant had to be not merely the tenant under a long lease at a low rent, but also, at the relevant time, to have been   “occupying it as his residence for the last five years or for periods amounting to five years in the last ten years…”.   The effect of this residence requirement was, first and foremost, to prevent any company tenant from enfranchising, because it could never occupy property as a residence.     The policy underlying the 1967 Act was extended under the first reform of the Act in 1993, which applied the policy  to leasehold flats rather than just houses, relaxed the rateable value limits greatly, and reduced the residence requirement to three years.   Still, however, the interest given protection was a person’s interest in his home.   The Commonhold and Leasehold Reform Act 2002 (“the 2002 Act”) removed the residence requirement.    It did so by excising the italicised words in the first citation from s. 1 of the 1967 Act above, and substituting for the residence requirement in the second quotation merely a requirement that the tenant should have “been” the tenant for at least two years, ie an ownership requirement.      It was apparently thought unfair that people who were either not actually living in their properties, or whose homes were held in the names of companies should effectively be denied the benefits of enfranchisement.     However, the abolition of the residence requirement removed the previous insuperable obstacle for any limited company to be able to exercise enfranchisement rights.    The two year ownership test was apparently intended to meet the concern that this relaxation would enable speculators to cash in on a right which was intended to protect natural persons from loss or exploitation over the reducing value of their homes as a wasting asset.    It was apparently thought (although it may be questionable if this has proved to be justified) that a two year ownership period would be sufficient to deter the use of the Act by investors or speculators as a business opportunity.      The fact that the Act was not intended to benefit business operations or pure investors is still discernible in the retention, in two situations, of a residence qualification.  The first, with which I am not concerned, is that of a house which has been turned into flats.  Where there is a lease of a flat within such a house which lease would itself qualify for enfranchisement under the 1993 Act, a tenant of the whole house cannot take advantage of the 1967 Act unless he meets a two year residence qualification in respect of the house or a part of it: see  s 1 (1ZB).     The second situation is that relating to business tenancies.   By a new s 1 (1B) introduced by the 2002 Act   “(1B)   This part of this Act [ie the 1967 Act] shall not have effect to confer any right on the tenant of a house under a tenancy to which Part 2 of the Landlord and Tenant Act 1954 (business tenancies) applies unless, at the relevant time, the tenant has been occupying the house, or any part of it, as his only or main residence (whether or not he has been using it for other purposes)-   (a) for the last two years or (b) for periods amounting to two years in the last ten years.”     Against this background I turn to the issues in this case.     (1)  The “house” issue   By s 1(1) of the 1967 Act the right of enfranchisement is conferred (subject to certain qualifying conditions not here material) on the tenant of a long leasehold “house”.  The definition of a “house” is in s 2 of the Act and the material part is s 2 (1), which reads (emphasis added):   “(1)      For the purposes of this Part of this Act, “house” includes any building designed or adapted for living in and reasonably so called, notwithstanding that the building is not structurally detached, or was or is not solely designed or adapted for living in or is divided horizontally into flats or maisonettes: and –   (a)        where a building is divided horizontally the flats or other units into which it is so divided are not separate “houses” although the building as a whole may be; and   (b)        where a building is divided vertically the building as a whole is not a “house” though any of the units into which it is divided may be.”     I have emphasised the two basic requirements.  There is thus a dual test, and both elements must be satisfied at the date of service of the tenant’s notice, ie, in this case, 23rd April 2007.       Prior to 23 July 2002, the importance of this test was far less, because of the effects of the residence requirement.   This inevitably largely took care of the first element – the property would inevitably be being or have been lived in – so that in general only the second element provided scope for argument.  However, since the abolition of the residence requirement, both elements of this dual test have generated authority at the highest levels.   (a) “…designed or adapted for living in”   The first element, ie whether the property is “a building designed or adapted for living in” was recently considered by the House of Lords in Boss Holdings Ltd v Grosvenor West End Properties Ltd  [2008] 1 WLR 289, in which, coincidentally, Mr Johnson QC and Mr Radevsky  were also involved, but in reverse roles   In that case the House had to consider the status as at 2003 of a six storey terraced building, originally a single family house.  Since 1946 it had been used on the lower three floors for commercial use in connection with dressmaking and on the upper three floors, for residential use as flats.  The commercial use, which was covenanted to be kept invisible from outside, had in fact ceased entirely in about 1990.  The residential use had not only ceased by about 1995, but the accommodation had subsequently been largely stripped back to the structural elements, with much of the floor boards, ceilings and even plaster being removed.    The House of Lords came to the – perhaps at first sight surprising – conclusion that this building was nonetheless “designed or adapted for living in”, even though the only part of it which was meant for domestic occupation was currently empty and uninhabitable.   The judge at first instance concluded that such a building was not “designed or adapted for living in” because it was not physically fit for immediate residential occupation.  If that test had been passed, he would, though, have held that the building was a “house reasonably so called”, although it seems that this may well have been because of a concession by the freeholder that if the building was “designed or adapted for living in” then it could reasonably be called a “house”.    The Court of Appeal upheld this decision.     The House of Lords agreed that the property was a “house reasonably so called” in the light of Tandon v Trustees of Spurgeons Homes [1982] AC 755, to which I refer further below      However, they disagreed with the courts below on the issue whether the building was “designed or adapted for living in” within the meaning of section 2(1) of the 1967 Act, and they held that it was.    The only substantive speech was that of Lord Neuberger.  He stated that his conclusion was driven by ordinary considerations of language, reinforced by looking at other provisions of the sub-section, and supported by analysis of the original terms of Section 2(1) as well as considerations of practicality and policy (see [17]).      At [18] he held that the there was a two element test of purpose, which required one “…first to consider the property as it was initially built: for what purpose was it originally designed?  That is the natural meaning of the word “designed”, which is a past participle.  One then goes on to consider whether work has subsequently been done to the property so that the original “design” has been changed: has it been adapted for another purpose and if so what purpose?  When asking either question, one is ultimately concerned to decide whether the purpose for which the property had been designed or adapted was “for living in.”   At [19] he concluded that “designed” was historic, whilst “adapted” referred to the present, deriving this by inference in particular from the later words of the subsection “notwithstanding that the building ……was or is not solely designed or adapted for living in”   He held that these words were to be construed distributively, thus showing that the word “designed” referred to the past, and therefore to the original design, while the word “adapted” referred to the present, which would mean the most recent and therefore the current adaptation.   Grosvenor’s argument that there was no “design for living in” at the relevant time was thus rejected on the basis that the building had (it was common ground) originally been “designed for living in” and that    “nothing that has happened subsequently will have changed that.  ……its layout in terms of internal walls partitions and staircases has not changed much since the property was built.   In any event, the three upper floors have always been laid out for residential use” [17].     At first sight, it would seem that Lord Neuberger’s application of the “two element” test is a simple alternative test.   If the building was originally designed for “living in” (and partial design suffices) then it qualifies under the first limb and one need look no further.  If it was not originally designed for living in, then one must look at subsequent adaptations, and if the current adaptation is for “living in”, it qualifies under the second, alternative test.     This, of course, has the result that a building which was originally designed for living in but which has subsequently been adapted for some other purpose would remain enfranchiseable notwithstanding it was no longer used for living in.    It would also have the result that although the focus of all the qualifications under the Act seems to be on the situation at the date of the tenant’s notice, this particular qualification would have become fixed permanently in the long distant past.      However, whilst this result seems to be the almost inevitable conclusion of Lord Neuberger’s analysis and his very precisely chosen words at [18] cited above, he adds a comment at [26] which shows that, whilst he was obviously inclined to reach that conclusion, he did not wish to lay down a decision to that effect.       He refers specifically to the question whether a property would be a “house”   “if it had been designed for living in but had subsequently been adapted for another use”   and says   “As a matter of literal language such a property would be a house, because “designed” and “adapted” appear to be alternative qualifying requirements.  At least at first sight, such a conclusion seems surprising, so there is obvious attraction in implying a qualification that, if a property has been, and remains, adapted for a purpose other than living in, the tenant cannot rely upon the fact that it was originally designed for living in.   However, a term is not easily implied into a statute, and further reflection suggests that the literal meaning of the words is not as surprising as it may first appear, particularly bearing in mind the existence of the residence requirement in section 1(1) of the original Act.   It is unnecessary to decide this point, and, particularly as it was only touched on in argument, I do not think we ought to do so.”  (Emphasis added.)   Mr Radevsky’s argument for the tenant in the present case is based firmly on the substance of Lord Neuberger’s judgment.   He submits that the subject properties here are each “designed or adapted for living in” for one of three reasons:  (i)   they were originally designed for living in as a family home (as is common ground) and that alone suffices (ie following the opinion to which Lord Neuberger inclined at [26] of Boss); or   (ii) such adaptation work as has been done has not, as a matter of fact, been so substantial as to remove or change the admitted original “design… for living in” because the original structural walls and features remain; or alternatively   (iii) such adaptation work is correctly analysed as merely having changed the buildings to a different type of living accommodation, so that they continue to be “designed or adapted for living in” because that is the use to which they are being put.   For the freeholder, Mr Johnson argues first (as he must) that this test is not determined by the original design purpose of the building, and that a building designed for living in can lose that quality for the purpose of qualification under the Act by subsequent adaptation notwithstanding the apparent doubt expressed by Lord Neuberger in [26] of Boss.    Mr Johnson emphasises that this point was not argued in Boss and submits that the contrary view is opposed to the whole approach of the Act, that it is the time of the tenant’s s 8 Notice at which qualification for the right to enfranchise is to be determined, as indeed is recognised in [11] of Boss itself. His further submission is then that the work done to the properties has taken each of them out of the description of a building wholly or partially “designed or adapted for living in” within the meaning of s 2(1) of the Act because “living in”, in this context, connotes living in as a residence, ie with some degree of permanence.    It does not, he submits., connote or include the kind of short term occupation for which the units within the properties are now designed or adapted.  He submits that it is simply a misuse of language to describe the shifting population of “bona fide tourists and visitors” who stay in the units as “living in” them.          Mr Johnson argues that the true meaning of the words “living in” was and remains equivalent to that of “residence”, and that this is so notwithstanding the removal of the residence qualification from the Act.    He relies, by analogy on authorities from other fields,  such as  Stuart Lever v Southwark [2009] EWHC 536 (Admin) (intermittent occupation not “resid[ence]” for  Council Tax purposes); Holmes Moorhouse v Richmond [2007] EWCA Civ 970 (a shared residence order does not mean that the child is “living with” one parent and “staying with” the other), and finally the Commonwealth case of Hughes v Hughes  [1941] SASR 281, in which Napier J said “… the natural meaning of the word “live” is to abide or reside with some degree of permanence, or for an indefinite period”. In short, these properties are, Mr Johnson argues, no longer designed or adapted for living in, but have lost this quality and are now designed or adapted for providing “short term”, or “sleeping” accommodation. Mr Radevsky’s first response is that “living in” carries no such connotation of uncertain permanence as Mr Johnson contends for, and the guests at the properties are perfectly naturally and reasonably described as “living in” them during their stays. If that were wrong, though, his further response is that s 2(1) of the Act is looking at whether a building is “designed or adapted for living in” by reference to its physical features and attributes rather than the use which is made of it.  This latter was the province of the residence qualification, but the removal of that qualification does not affect the thrust of s 2(1), and this test must be looked at on its own account, focussing on the physical attributes and configuration of the relevant property.     He therefore submits that the issue is whether the design of the building is such that it is capable of being lived in in the ordinary way.     Politely, he submitted that whilst many people maybe would not, or could not, contemplate living indefinitely in a unit of the size and facilities of some of those in the properties, many other people in fact did so.    The commonplace “bed-sitter” is quite properly regarded as a residence.    This is underlined by the fact that even hotels properly so-called can fairly be described as having “residents”, in appropriate circumstances, whether of the seaside “private hotel” variety, or the “suite at the Dorchester” variety.   (b)” house… reasonably so called” Before dealing with this point, I find it convenient to set out the arguments on the second limb of s 2(1), ie whether the properties are also a “house reasonably so called”, because there is obviously a connection between the two, and points of construction need to be considered in their whole context.   The interplay between those two elements therefore needs be borne in mind.   It is obvious, for example, that the first limb of the definition (ie a “building designed or adapted for living in”) is intended to set out the general characteristic of a “house” and the second limb (“…and reasonably so called”) then limits this by cutting out buildings which, even though now designed or adapted for living in, still cannot reasonably be called a “house”.   The application of the phrase “reasonably so called” was considered inTandon v Trustees of Spurgeons Homes  [1982] AC 755, already mentioned above. This case decided that a terraced unit in a parade, comprising a purpose built shop below with living accommodation above, was a “house” under the 1967 Act as originally drafted.  Lord Roskill there laid down (i) that this question was a matter of law, (ii) that the issue was whether it was reasonable to call the building a “house”, whether or not it could also reasonably be called something else, and (iii) that if the building was in fact designed or adapted for occupation as a residence this exclusion would operate only in exceptional circumstances (p 767C).   Exceptions therefore appeared to be narrow.  Authority shows that edifices such as barns, oasthouses, former shops and stables, if appropriately converted, were held to qualify.  However, this test was laid down during the time when it was not particularly crucial to the implementation of the apparent policy of the Act, because of the further qualification of actual residence by the tenant.  Since the latter’s abolition, it has come more to the fore. In Prospect Estates Ltd v Grosvernor Estate Belgravia [2009] 1 WLR 1313, the property was a unit in a Victorian terrace, which had retained many of its original design features including most of its main internal walls, but was being used as offices on the lower three floors, with a flat on the fourth floor, required under the lease to be occupied by a person connected with the company which occupied the offices.   The permitted use under the lease stipulated office use (except as above) and that the windows were to be dressed to give the appearance of a private dwelling house.    At first instance the case focussed on the issue of whether the building was a “house… reasonably so called”.   HH Judge Dight, after viewing the property, concluded that it had originally been designed for living in, that its design (ie its physical features) had remained virtually unchanged, and that the overwhelming impression of the building was that of a “house” so that it was reasonably so called.  In any event, even the 11.5% use of the building for living in was a “substantial” residential use of the building.  Whilst some people might describe the building as “offices” that was not the test; the test was whether it was reasonably called a “house”.   He concluded that it was. The case was appealed solely on the latter point, as the landlord accepted that the property had been “designed for living in” and there had been insufficient adaptation to change this.  However, the Court of Appeal reversed the trial judge.  It held that the test must take into account all the circumstances which affected the character of the building and not just purely physical ones.  The judge had not accorded sufficient weight to the terms of the lease, the actual use of the premises and the relative proportions of the mixed uses at the date of the claim;  if he had done so, he would have had to conclude that it was not then reasonable to call the building a “house” because the “overwhelming and decisive feature of this case” (per Mummery LJ) was the “prescribed and predominant office use in compliance with the lease” ([19]).  It was this exceptional circumstance which meant that it was “no longer reasonable to call the building a house within the 1967 Act”: see [20]. Mr Johnson submits that with the law as now stated in Prospect the test with regard to this second limb is now clearly a test of user.    By that test he submits that the position in the present case is obvious.  The buildings are each being used as an hotel, or (as Mr Morris would prefer to describe it) for the business of providing serviced apartments.  On neither basis is it reasonable to call the building a “house”.   Unlike Prospect, the premises are not merely predominantly used for commercial purposes; they are entirely used for commercial purposes.   Mr Johnson further submits that the adaptations which have been carried out since their original construction to enable the provision of short term accommodation mean they would now have to be gutted and re-designed to go back to providing a house or flats. Mr Radevsky for Hosebay puts down a marker as to whether a user test rather than a physical test really can apply to the definition of “house”, since it is his broad general submission that the definition of “house” is concerned with the physical attributes of the property, and user was the province of the earlier residence test,  which has now been abolished.  However, he of course accepts that I am bound by the decision in Prospect.    He argues that this is distinguishable. Mr Radevsky submits that the decisive point in Prospect was not whether the use of the premises was fairly described as “for living in”, but was the fact that a different use (office use) was prescribed by the lease so that the building could not lawfully be used for living in at all – or at least as to almost 90% of it.     He suggests that the kernel of the Court of Appeal’s decision is that a building of which you cannot lawfully live in 90%  cannot reasonably be called a “house”. This case is different because not only does the Lease describe each building as a “messuage or dwellinghouse” (emphasis added) but the use clauses, set out above, expressly authorise, and indeed prescribe, use as either “residential flatlets” (Nos 29 and 39) or as a “single family residence or high class furnished accommodation [for up to20 persons including the tenant’s family]” (No 31).    Thus, these buildings each look like a house, retain the physical features of the undoubted house originally designed, and are capable of  being (and are in fact being) used perfectly lawfully and generally in the manner of a “house” ie for living in.  It is therefore quite reasonable to call each of the buildings a “house”. Conclusion on the “house” issue In the end, and not without some hesitation I have come to the conclusion that Mr Radevsky’s arguments are correct, and that these buildings are “houses” within the definition of the 1967 Act.     I reach this conclusion as follows. Boss  and Prospect  (above) are the two authorities which presently define the state of the law on the definition of a “house” for the purposes of the 1967 Act, in the light of the changes effected to that Act by the 2002 Act. However, this is a point of construction of a part of s 2(1) of the 1967 Act which has not been amended, and its meaning must be judged in the context of the terms of the 1967 Act as originally enacted, despite the later abrogation of the residence condition,: see Boss  (above) at [13], citing Lord Diplock in  Suffolk County Council v Mason   [1979] 705 at 714.        The definition of “house” must be analysed in the original form of the Act, and the words “living in” and “house… reasonably so called” will take their meaning from a context including the concept of the residence test and its application. Construed in their full context, I find that the words “living in” do bear the meaning which Mr Johnson urges upon me, ie they connote occupation for living in with some degree of permanence, and not merely as a transient occupier.   In effect, they mean using the property as some kind of a “home”, as contrasted with merely a convenient place to meet an immediate human need for shelter and sleep.     HH Judge Cowell in Boss at first instance described the concept as being “somewhere to sleep, to cook, to wash, and simply to be when one is not at work or out otherwise and,  depending on the size of the place, that is commonly provided by a bedroom, a bathroom and WC and maybe a living room of some kind”.   This was cited with apparent approval by Lord Neuberger in Boss at [16]. The removal of the residence test has simply removed the requirement of the Act for a personal qualifying condition to be met by an applicant.   That removal does not change or affect the nature of property which qualifies to be the subject of rights under the Act.   Whilst non-residents, and even investors or speculators, may now be able to take advantage of rights conferred by the Act, their investment or speculation still has to be in properties which are “residences” or “homes” in themselves.     If the test for “designed or adapted for living in” were indeed a simple alternative test, ie of original design or current adaptation, then plainly each of the buildings must qualify, regardless of their current use or physical state, as each was plainly, originally, a building “designed or adapted for living in” as a large Victorian family house.   On that basis, Mr Radevsky would succeed. However, I am not bound by Lord Neuberger in Boss so to hold and I therefore consider the position on the basis that a building which was designed for living in can lose that status by subsequent works which change its character sufficiently.  Given the obvious focus of the processes of the Act on the current position at the time when a s 8 Notice is served, and which the original requirement of a five year residence at that time even emphasises, I would myself prefer the conclusion that the Act did envisage that a building which was originally a “house” qualifying under the Act might become disqualified by a sufficient change of physical character, subsequently. The question is then whether the adaptation works which have in fact been carried out to each building have caused it no longer to be “a building which is designed or adapted for living in” in the sense which I have found above, ie living in with some degree of permanence.      As I have said, Mr Johnson submits that they have.   The building is no longer used for “living in” in the necessary sense but effectively as an hotel, and the occupants of it do not “live in” it in any reasonable sense of the word, they merely stay in it.     The buildings have been adapted for that purpose, which is not for “living in”. Mr Radevsky submits that they have not.  Focussing on the physical works themselves, he argues that they are visibly too minor to have deprived the buildings of their original, admitted design for “living in”.  Alternatively, if that is wrong, he submits that the nature of the occupation for which they have been adapted is merely another type of “living”. In the end, I prefer Mr Radevsky’s proposition, but perhaps not for the reasons he advances.    It will already be apparent that I do not accept Mr Radevsky’s submission that the actual occupation and use of the buildings at the moment is “living in” in the required sense.   I also reject his proposition based on a narrow approach to the physical works to the buildings as not having altered their original design so that they cannot have altered this as a “design … for living in”.    I do not consider that “design” means merely structural elements of the fabric of the building.    In my judgment, the works plainly have altered that original design, albeit that may well have occurred substantially before the grants in 1966 and 1971 of the actual leases in this case.    The physical works are adaptations, and are, in my judgment, material if and insofar as they affect the use for which the building is apparently intended and available. However, whilst I accept Mr Johnson’s point that these buildings are in fact used for the purpose of providing short term sleeping accommodation akin to an “hotel” and have been adapted to provide features for that use, it does not inevitably follow, in my judgment, that the buildings are not “designed or adapted for living in” within the meaning of the Act as I have found it to be.   I accept Mr Radevsky’s point, that the configuration of the interior of the buildings is quite appropriate and usable for “living in” in the sense described by HH Judge Cowell.  What currently renders them inappropriate for “living in” is not their configuration (ie the adaptations which have been made to the fabric of the building) but the furnishings which have been installed.   It is those which are suitable only for “staying in” and not for “living in”.   There are no easy chairs, nor furniture making it comfortable to “simply to be [there] when one is not …[otherwise] out”.   However, this is because those things are not needed for use for a visit or tourist trip, even when self-catering.    If the rooms were equipped with appropriate furniture for living, such as a sofa-bed or pull down bed and armchair(s), and some furniture providing a little storage space, they would, I am satisfied, provide sufficient facilities for bed-sit living – albeit probably not for as many individuals as it is possible to squeeze into them on the temporary basis accepted by visitors or tourists.   The definition in the Act is not, however, concerned with the equipping or furnishing of the building, but with the design or adaptation of the building itself, ie its intrinsic physical construction and layout, and the use or purpose at which that is aimed, viewed objectively. I conclude, therefore, that the qualifying feature of the definition is design or adaptation which is sensibly capable of use as a home or residence.  I further conclude that, notwithstanding the changes made to the fabric of each subject building, and notwithstanding the use to which each building is actually being put, it is either by origin or by its current adaptation, “designed or adapted for living in” within the meaning of the Act.     For completeness, I should add that I have considered whether the words “living in” must be taken to refer to occupation with any greater degree of permanence than merely contrast with transient occupation.   I have done so because the focus of the original 1967 Act was on providing relief for residential lessees of long leasehold houses who had occupied their premises for periods measured in years,. and I think this could fairly be described as “settled residence”.     I have found that these buildings are adapted for “living in” as bedsitters or studio flatlets, but as such I think it overwhelmingly likely that they would be occupied only on short term residential tenancies.  Whilst they would still be “home” for any such tenants, this would be a significantly less settled state than the kind of stable permanent residence which the original Act was in fact protecting.      In the end, however, I have come to the view that there is no justification for doing so.   The provisions importing this degree of settled residence operated in the original Act with a force independent of the definition of “house”.    With that having been abolished,  I am taking them into account merely as context for the meaning of “living in”, and their weight and force as context alone is not sufficient, in my judgment, to give those words any more subtle meaning than that which I have found them to bear naturally, in general terms.        I turn next, therefore, to the question whether the buildings are each a “house reasonably so called”, having regard to the authority of Prospect and of Tandon (above).   In the light of my conclusion that each building is “adapted for living in”, it would take, on the authority of Lord Roskill’s third proposition in Tandon  exceptional circumstances before I could conclude that each building was not a “house reasonably  so called”.   That is probably enough on its own to dispose of the issue, as I can see no exceptional circumstances.   Mr Johnson relies on the decision in Prospect as now importing a test of user and not just the appearance of the building, and he submits that the use of these buildings, being so obviously appropriately described as “hotel” or something akin to this (but definitely not “house”), it falls within the ambit of the Prospect decision.    However, I do not read Prospect in that way.    I accept Mr Radevsky’s argument that the crucial point in Prospect was that it was not lawful under the Lease to use almost 90% of the building for residential purposes at all.   It was that – exceptional – situation which the Court of Appeal found to produce the result that a building which might look like a house,, and be largely laid out like a house, could nonetheless not reasonably be called a “house”.   In this case, not only do the buildings look like houses and contain all the facilities  which houses would be expected to have, but none of the Leases prohibits their being used for residential use, and they prescribe it.      For Mr Johnson’s submission to succeed, it would be necessary to hold that “house” could not be a reasonable description of the property solely because of its actual use.  The decision in Prospect is a warning against giving too much weight to a particular characteristic of the property (there, its physical appearance), and dismissing others, such as its lawful use under the lease.    In my judgment Mr Johnson’s submission invites me to fall into exactly the error of giving too much weight to one circumstance, namely the actual use of the property, and not enough to others, such as its physical appearance, character and lawful use under the Lease.    I conclude, therefore, that the properties each pass the second test, and each is a “house ….reasonably so called”.   The overall result is that each of these properties is a “house” as required by the 1967 Act and capable of being the subject of this enfranchisement claim accordingly. As a final point, the fact that the units for living in are individual rooms or studios, several to a floor, does not affect the position.    Neither counsel so contended, and the fact that the Act expressly does, or may, apply to a “house” which is divided horizontally into “flats” supports this.   I also note that in Lake v Bennett [1970] 1 QB 663, Lord Denning MR commented that one of the four combined terraced units comprising the building with 88 rooms let off as furnished rooms which was considered in Luganda v Service Hotels Limited [1969] 2 Ch 209 might well be a “house” for the purpose of the Leasehold Reform Act 1967, even though the whole building probably would not be, because of the further requirement of being a “house …. reasonably so called”.    Also the concept of a “House in Multiple Occupation” implies that it is still reasonable to call a residential building where individual rooms are lived in by different occupants a “house”.    (2) The “business tenancy” issue.   The Defendants’ second argument is that, even if each property was a “house” Hosebay’s Lease was a lease to which Part 2 of the Landlord and Tenant Act 1954 applied.      I have referred above to the new s 1 (1B) of the Act, introduced in 2002, which provides:   “(1B)   This part of this Act shall not have effect to confer any right on the tenant of a house under a tenancy to which Part II of the Landlord and Tenant Act 1954 (business tenancies) applies unless, at the relevant time, the tenant has been occupying the house, or any part of it, as his only or main residence (whether or not he has been using it for other purposes)-   (a)        for the last two years or (b)        for periods amounting to two years in the last ten years.”   and to the fact that this sub-section, and that relating to houses divided into flats, retains a residence test.  In each of those cases, the headlessee may enfranchise the property only if he resides in at least part of it.     Mr Johnson argues that s 1(1B) applies here, and plainly if it does, Hosebay cannot satisfy a residence test.    The essential question is therefore whether each relevant Lease (the considerations are the same in each case) is within Part 2 of the 1954 Act at all.      I should record that whilst business user is an outright breach of the terms of the Lease of No 31, no point has been taken on this by the Defendants.  They have presumably accepted (as Mr Radevsky submitted in his skeleton argument) that they have acquiesced in business use, sufficient to enable the 1954 Act to apply in principle.    For the 1954 Act to apply the tenant under the relevant lease must be “in occupation of the premises for the purposes of a business carried on by him or for those and other purposes.” (s 23 (4)).   Apart from the transactions between Hosebay and Hindmill described above, Hosebay, as tenant, would have been in occupation of the premises for the purposes of a business being carried on by it, namely that of Astons Apartments.    The question is therefore whether those transactions have been (or more accurately, had been as at 23rd April 2007) effective to change this situation, so that s 23(4) of the 1954 Act then no longer applied.   What had purportedly occurred is that (i) Hosebay had granted an Underlease of each building to Hindmill in January 2007, (ii) Hosebay had sold the business of Astons Apartments to Hindmill in February 2007 and (iii) Hindmill had taken over the operation of the business from that time and run it on its own account.     If these transactions are effective at face value, therefore, Hosebay was no longer in occupation of any of the properties at all at the date of the s 8 Notices, let alone for the purpose of any business carried on by it.  Hindmill was in occupation, and the business being carried on at each property was that of Hindmill, who was not the relevant tenant, and not that of Hosebay, who is.  However, Mr Johnson argues that the transactions which have taken place are not effective to remove Hosebay’s lease from the application of the 1954 Act on two alternative grounds.   First he argues that the transactions are not to be taken at their face value at all.    He submits that the evidence shows that nothing of actual substance occurred regarding the supposed transfer of the business from Hosebay to Hindmill – or indeed in relation to giving effect to the underleases – at the relevant time.     None of the payments for the elements of the business, or the supposed franchise fee, were made at the due time (or even later except as notional book entries).  None of the consequent accounting procedures, such as in respect of VAT, in fact took place.  No payment was made under the underleases until November 2008, when the outstanding rent was hurriedly paid.   Mr Johnson submits, therefore, that whilst the relevant transactions may have been notionally set up, this was merely superficial appearance and the actual facts show that there was no intention to act on them.   Whilst Hindmill nominally took over the running of the business (taking bookings and money, raising bills, employing staff, etc) Mr Johnson argues that the reality at the relevant time was that Hindmill was operating Hosebay’s business from the properties, in effect as an agent or manager.      On that basis, it was not Hindmill but Hosebay who was in occupation, either because it had never given up occupation, or because it remained there through Hindmill as its agent.  It was therefore in occupation for the purpose of a business being carried on by it, through its agent or manager, at the date of the s 8 Notices.   Mr Johnson cites Parkes v Westminster Diocese Trustee [1978] 2 EGLR 50, at p 51 H-M, in support of this analysis.   He further submits that the court can and should have regard to the reality of the situation, and will not simply take the purported effect of a document at face value where the reality is plainly at odds with its terms.  He cited, as examples, Walsh v Griffiths-Jones [1978 2 All ER 1002 (see especially p 1009b -1010e) and AG Securities v Vaughan 1990 1 AC 417 (see especially at pp 463 – 464), where, in each case, the court rejected the purported terms of a written agreement as being a “sham”.    By analogy, he argues, the court can and should disregard the terms of the – apparently merely oral – agreements purportedly made between Hosebay and Hindmill about the business in January/February 2007, and submits that on that basis even the grants of the relevant Underleases (which it is not suggested have been backdated) fall away, as not representing the reality of the relations between those parties.   Mr Johnson’s second argument is that even if the transactions do have to be taken at face value, they were not effective to avoid the operation of s 23 (4) because Hindmill and Hosebay are associated companies within the provisions of s 42 (1) of the Landlord and Tenant Act 1954.  Consequently, he argues that under s 42 (2) of the Act the business occupation of Hindmill falls to be treated as the business occupation of Hosebay Ltd.   I can dispose of this latter point immediately because I accept Mr Radevsky’s submission that it rests on a misconception and elision of the terms of s 42(2) of the Act.   What s 42 (2) says is that where there are associated companies, within the terms of s 42 (1), and the tenancy is held by one member of the relevant “group”, then   “occupation by another member of the group and the carrying on of a business by another member of the group shall be treated for the purposes of s 23(4) of the Act as equivalent to the occupation or carrying on of a business by the member of the group holding the tenancy….”.   That section is, therefore, dealing with the situation where one group company holds the property, but it is another group company which occupies the premises by reason of its relationship as an associated company, ie as a licensee of the actual tenant company.     This principle does not apply to cases where there is a formally constituted relationship of landlord and tenant (sub-tenant) between the two associated companies, and the occupying company occupies in right of the sub-tenancy, see Reynolds and Clark Renewal of Business Tenancies  3rd Edition Para 1-102 (and compare Frish Ltd v Barclays Bank Ltd [1955] 2 QB 541 on the analogous provisions of s 41 relating to trustee and beneficiary).     In other words, the relevant occupation must be qua associated company to engage s 42 (2) and not qua sub-tenant.  I accept this analysis and I therefore reject Mr Johnson’s second argument..   As to Mr Johnson’s his first and main argument Mr Radevsky submits that it confuses the concept of “sham” with that of an “artificial arrangement”.  The former is a transaction under which the rights of the parties are never intended to be what they purport to be on the face of the agreement, such as the purported shared occupation transactions in cases like Street v Mountford  [1985] AC 809 cited in AG Securities v Vaughan  (above).     There, the transactions are never intended to take effect according to their purported terms at all, in reality. Here, on the contrary, the transactions were intended to take effect absolutely according to their purported terms, so as to achieve the desired effect of “de-coupling” the business occupation of the properties from Hosebay’s Leases.    The transactions might be artificial in the sense that they were only entered into for a particular artificial purpose, but that motive does not prevent their being effective.    Mr Radevsky referred to Belvedere Court Management Ltd v Frogmore Developments Ltd [1997] QB 858, where transactions openly entered into, but designed to achieve a particular purpose and defeat another party’s rights, were nonetheless held to be effective: see at p 876 per Sir Thomas Bingham MR.       He referred also to National Westminster Bank plc v Jones (2001) 1 BCLC 98, where Neuberger J discussed the principles of a “sham” at paras [36] – [38], and where a lease granted at full market rent was held to be an artificial transaction but not a sham, even though no rent was in fact paid.          In my judgment, Mr Radevsky is correct.    I am satisfied on the evidence that these transactions were indeed intended by Mr Morris – albeit following advice from his professional advisers without, perhaps, understanding all the technical reasons for it, and consequently not following through all aspects of their actual implementation as carefully as he might have been wise to do – to take effect exactly according to the terms decided on and proposed to be implemented, and of which evidence was given.     There was no pretence or secrecy about them, and they were not shams.  They were embarked on precisely in order to achieve the relationships which they purported to effect.         There are therefore only two questions:     (i)                 were those arrangements, if implemented according to their terms, effective to achieve the intended result as a matter of law? and   (ii)               if so, were they implemented in fact so that at the relevant date that result had been achieved?   As to (i), in my judgment, the intended arrangements between Hosebay and Hindmill were potentially effective, as a matter of law, to achieve the desired decoupling of the business occupation of the property into Hindmill and to separate it from Hosebay’s own Leases.       Their implementation would leave the subject Leases vested in Hosebay, but the occupation of the properties at the relevant date would be Hindmill’s under the Underleases, and the business being operated therein at the relevant date would be Hindmill’s pursuant to the transfer arrangements.       As to (ii), I am satisfied, on the evidence, that notwithstanding the absence of any actual payments having been made between Hosebay and Hindmill at the relevant date – 23rd April 2007 – or indeed for some time later, those arrangements had been sufficiently implemented in fact to achieve the relevant position.    There is sufficient evidence to satisfy me that,  after 1st February 2007, the business which was being carried on in the properties was being carried on as Hindmill’s, and not as Hosebay’s.    All relevant acts were done in the name of Hindmill, and Hindmill was the entity which implemented all the usual transactions necessary to run the business.  I appreciate that the personnel involved did not change, and that Mr Morris remained the guiding mind (albeit from something of a distance) of the business, as before.   However, that was simply the result of Hindmill’s being a clone of Hosebay, and therefore inevitably being run by the same persons in an identical manner.    That does not prevent its being a legally distinct entity.  I am, moreover, satisfied that Mr Morris was sufficiently aware of the necessary processes for achieving the result which had been advised, that he quite genuinely directed that from 1st February 2007 the business must be run in the name of Hindmill and actually be its business, rather than Hosebay’s.   It is the grant of the Underleases, though, which seem to me to be effectively fatal to Mr Johnson’s contention.    Once those grants were effective as grants of an estate in each property, as they were in January 2007, the only basis on which it could be contended that Hosebay nonetheless remained in occupation of the premises would be either that the facts showed that it had not itself actually given up possession to Hindmill at all, or some kind of analysis that Hindmill had licensed Hosebay to occupy the premises for the purpose of Hosebay’s own business being carried on by Hindmill on its behalf.       The facts to do not support either analysis, and the latter is so tortuous that it could not, I my judgment be justified as mere inference, without some direct factual support.  There is none.    Once it is clear on the evidence (as I find it is) that after January 2007, Hindmill was operating the business in the premises, in its own name and under tenancy agreements granted to it, it must follow that Hindmill was in occupation of the premises, and not Hosebay.   I therefore reject Mr Johnson’s main submission as a matter of law, and on the facts.   Final result   In the event, therefore, I conclude that the Claimant, Hosebay Limited, was, at the time of service of its three Notices served under s 8 of the 1967 Act, entitled to acquire the relevant freeholds, and I will so declare.   Postscript   I have reached the above conclusion with reluctance.     It seems to me to be clear that the 1967 Act, even as amended, was not intended to confer the benefit of a right to expropriate the freehold of a building on a commercial enterprise unless that enterprise was being run under a sufficiently long lease (see s 1 (1ZC)) and by an occupier who was residing in the property as his home.   Such occupiers are necessarily natural persons.       The present case seems to me to fly in the face of that basic policy.   However, whilst my unhappiness with the conclusion to which I have been driven remains, I am at least satisfied that it arises from an unusual combination of circumstances.     First, it is the consequence of this tenant’s ingenuity in successfully “decoupling” the business use and occupation from the relevant tenancy by means of the grant of a sub-lease and transfer of the business to a clone company.    This is, not surprisingly, an avoidance device which those who framed the legislation might well not have been expected to foresee, despite the well-known issues regarding businesses which comprise the letting out of accommodation which arose initially under Part 2 of the 1954 Act itself.   Second, this device is limited to the situation in which the relevant business user is that of providing accommodation capable of being used for living in, within a building which is reasonably described as a “house” because it is lawful for it to be used as a residence, even if it is not being so used ,and that situation is not likely to be commonplace.   Third, the device was only available in this case because the freeholder had not enforced the lessee’s obligations under the Leases, at least, to employ a resident caretaker, which would have prevented an underletting of the whole.    (I do not add, in the case of Nos 29 and 39 failure to resist the grant of the relevant underleases, because there may have been reasons to think such objection would not be successful, in the circumstances of these particular Leases.)   This combination of circumstances appears to me to be exceptional, and  I therefore comfort myself that the effects of this decision are likely, in practice, to be confined to its peculiar facts. HHJ Hazel Marshall QC