Landlord and Tenant Act 1954, Part II–Application for new lease opposed by landlords–Premises in King’s Road, Chelsea, in which a variety of licensees holding concessions sold articles from stands–Tenant company’s business concerned with the granting of licences to the concession holders–Question whether the tenant company or another company, both controlled by the same individual, actually carried on the business–Landlords claimed that the business was carried on by the other company, so that section 23(1) of the Act was not satisfied–Held that on the evidence the business was carried on by the tenant company and that it occupied the premises for that purpose
The plaintiffs
in this action were Ross Auto Wash Ltd, tenants of ground-floor premises at 85
King’s Road, London, whose application for a new lease was opposed by the
defendants, Diana Herbert and John Robert Turner, the landlords.
D Levy
(instructed by Amhurst, Brown, Martin & Nicholson) appeared on behalf of
the plaintiff company; R J S Thompson (instructed by Broughton & Co)
represented the defendants.
Giving
judgment, FOX J said: This is an application for a new lease of ground-floor
premises at 85 King’s Road, London, under Part II of the Landlord and Tenant
Act 1954. The only issue before me is whether the plaintiff is entitled to
apply for a new lease at all.
Section 23(1)
of the Landlord and Tenant Act 1954, which is in Part II of the Act, is in the
following terms:
Subject to
the provisions of this Act, this Part of this Act applies to any tenancy where
the property comprised in the tenancy is or includes premises which are
occupied by the tenant and are so occupied for the purposes of a business
carried on by him or for those and other purposes.
The
defendants, the landlords, contend that the premises are not occupied by the
plaintiff for the purpose of a business carried on by the plaintiff, and that,
therefore, the claim for a new lease fails in limine. Whether the
premises are occupied by the plaintiff for the purposes of a business which it
carries on is a question of fact, upon which I have heard oral evidence. It is
not in dispute that on the law and the authorities as they stand the activity
which is being carried on upon the premises is a business. The only question is
who is carrying it on. The defendants say that it is not the plaintiff, but a
company called Doranmoor.
By a lease of
June 21 1967, and made between the defendants of the first part and the
plaintiff of the second part and a Charles Cooper Ross of the third part, the
premises (together with other premises with which I am not concerned) were
demised to the plaintiff for seven years from September 29 1970. It appears to
have been contemplated at the time of the lease that the premises with which I
am concerned would be developed as a shopping precinct, and that, in fact, is
what happened.
Notice of the
termination of the tenancy on September 29 1977 was given by the defendants on
March 3 1977. The plaintiff gave a counternotice on March 11 1977 and the
originating summons was issued on June 10 1977.
The plaintiff
is a company controlled by a Mr Robin Sutherland. The other company with which
I am concerned, Doranmoor, is also controlled by Mr Sutherland. He acquired it
early in 1977, and prior to that it plays no part in the case, if indeed it had
been formed at all. On January 26 1977 the plaintiff sought consent from the
defendants to assign the lease to Doranmoor. The defendants, on February 2 1977
indicated their agreement in principle to the assignment, provided that they
were given a suitable guarantee against all the obligations under the lease. No
guarantee was offered, and the matter of the assignment went off.
On February 28
1977 a letter was written by the plaintiff to Doranmoor in the following terms:
I write to
confirm that we have appointed you Managers of our premises at 83 Kings Road,
London, as from today’s date.
You will
carry out on our behalf the management and servicing of the business, and in
particular you will collect the Concession Licensees’ fees and arrange for
payment of outgoings.
As agreed
your company has been appointed Manager only and full possession and control of
the premises remains with the company.
Since then
Doranmoor has undoubtedly played some part in relation to the business
activities conducted on the premises. The question is precisely what part
Doranmoor plays. That brings me to the matter of the activities themselves. The
plaintiff’s case is that at all times since about September 1970 the plaintiff
has carried on upon the premises the business of granting concession licences
to other persons to trade from stands thereon not used by the plaintiff. That
was certainly the position before Doranmoor became involved early in 1977.
There have, at
all material times, been stands on the premises from which persons have
conducted various businesses. There are at present about 22 stands from which
are carried on a variety of businesses–sales of oriental clothes, jeans,
records, bric-a-brac, shoes, handbags, as well as a hairdressing business and a
coffee bar. The coffee bar is an important means of attracting business to the
site; it is not, it seems, very profitable, and I find that the plaintiff has
had to take it over and run it some five or six times during the last five or
six years. The plaintiff is, in fact, running it now. The coffee bar is run by
the plaintiff and not by Doranmoor.
I have heard
oral evidence from Mr Sutherland, a director of both the plaintiff and
Doranmoor; he was examined and cross-examined before me. Mr Sutherland’s evidence
is that the negotiation and granting of licences are a matter that he deals
with himself, and that when doing so he always regards himself as acting on
behalf of the plaintiff. I accept Mr Sutherland’s evidence on this. I have no
doubt (and I find) that the licences are always granted on behalf of the
plaintiff and nobody else. For completeness, I mention here that it is conceded
by the defendants that the concession holders, the licensees are indeed
licensees and are not subtenants.
Mr Sutherland also
said that dealing with the licensees from day to day was one of the most
important matters in the whole enterprise. All sorts of problems arise. The
following are examples: licensees get behind in rent; problems arise as to the
mode of display of goods; there are problems of conflict of interest when
licensees deal with the same kind of goods; and there may be disputes as to the
user of space–these stalls being mobile. Some matters can be dealt with, as I
will mention later, by the manageress on the premises, but Mr Sutherland’s
evidence is that to deal with licensee problems he goes to the premises nearly
every day. He always regards himself as dealing with the licensees and their
problems as a director of the plaintiff. I accept that evidence.
The services
which are provided to the licensees are as follows:
(a) the provision of heating and lighting for
the premises;
(b) payment of rates, taxes and other outgoings
relating to the premises;
(c) toilet facilities;
(d) a sound system and records to be played on
the premises;
(e) counters, stalls and display units and cash
tills;
(f) advertising;
(g) coin-operated telephone;
(h) the handling of payment by credit card;
(i) cleaning and decorating;
(j) the running of a licensee’s stall for short
periods in a day if the licensee has to leave the premises;
(k) insurance and burglary alarm;
(l) the opening up and shutting up of the
premises.
As to those
matters I find the following additional facts:
(i) The cost of the heating and lighting, and the
rates, taxes and other outgoings are paid by the plaintiff.
(ii) As regards the sound system and records, the
cost of the equipment is paid by the plaintiff. The cost of the records is
shared between the plaintiff and the stallholder, who sells records.
(iii) The actual stalls are supplied by the
plaintiff. The plaintiff leases the stalls themselves and subleases them to the
licensees.
(iv) Advertising. This is of two kinds: first,
press advertising. That is of fairly small amount, and is mostly about
Christmas time. It is arranged by the plaintiff. The cost is shared between the
licensees and the plaintiff. Second, a display case at the front of the
premises. The licensees can display goods on a rota system. The plaintiff
organises that and pays for the window dressing.
(v) Credit cards. Some licensees are too small
for the credit card companies to give facilities to them. Accordingly, an
overall arrangement was negotiated with the credit card companies, of which the
licensees can avail themselves. The negotiation of that arrangement was handled
by Mr Sutherland in the name of Doranmoor.
(vi) Insurance and burglar alarms. Insurance is
effected by the plaintiff. The burglar alarm contract was made by Doranmoor on
behalf of the plaintiff.
(vii) The premises are open from 10 am to 6 pm for
six days a week. There has, for the one and a half years or so, been a
full-time manageress. She occupies an office in the premises and is employed by
the plaintiff. If a stallholder has to leave his stall for a period during the
day the manageress will normally look after it during his absence. She will
also deal with day-to-day problems which arise. Many of those problems,
however, are such that she cannot deal with, and they are, therefore, dealt
with by Mr Sutherland himself, as I have already mentioned.
I come now to
the position of Doranmoor. As I have mentioned, it was acquired by Mr
Sutherland early in 1977. Mr Sutherland’s evidence is that Doranmoor was
acquired initially on accountant’s advice in order to have a separate company
for management of part of the premises. In 1977, however, Mr Sutherland was
examining the possibility of introducing, in effect, what he called a ‘partner’
into the business to provide further capital, and it was thought that Doranmoor
might be a useful vehicle in connection with that. Application was made to
transfer the lease to Doranmoor, but in view of the insistence upon a guarantor
the idea was dropped. Mr Sutherland says, and I accept his evidence, that the
idea of a transfer of the lease to Doranmoor having been abandoned, Doranmoor
continued purely as a management company and nothing else.
I find that
Doranmoor receives some of the licensees’ fees and pays some of the outgoings,
in particular the cost of decorations. Most of the fees, I find, are in fact
collected by the plaintiff and not by Doranmoor. No final decision has been
made as to what amount Doranmoor is actually to keep. Mr Sutherland says that
will depend upon his accountants’ advice. The accounts of Doranmoor have not
yet been drawn up, and no accounts of the plaintiff for the last three years
have yet been drawn up.
Mr Thompson,
on behalf of the defendants, put it firmly to Mr Sutherland in
cross-examination that the ‘management’ letter of February 28 1977 is just a
sham, and that the consent to transfer of the lease having been refused in the
absence of the guarantor, the business was de facto taken over by
Doranmoor in the guise of a manager. At the highest, it was said by Mr Thompson
that the business was being carried on by both the plaintiff and Doranmoor.
Those
suggestions were rejected by Mr Sutherland. He said that the plaintiff conducts
the business, and Doranmoor merely assists the plaintiff. I accept Mr
Sutherland’s evidence as to that. In my judgment the business, from first to
last, has been the business of the plaintiff and nobody else. I so find.
The business
is a business of granting licences. Those licences, I have found, are granted
by the plaintiff. The important matter of dealing with the problems of the
licensees is conducted by Mr Sutherland as a director of the plaintiff, in so
far as the manageress, who is, in fact, employed by the plaintiff, is unable to
deal with them. The bulk of the services are provided directly by the
plaintiff. The management letter itself makes it plain that Doranmoor is a
manager only, and that full possession and control of the premises remains in
the plaintiff. It is, of course, open to the defendants to demonstrate that
that statement is a sham and is simply designed to mislead. (See Teasdale
v Walker [1958] 3 All ER 307, to which Mr Thompson referred me.) But in my judgment no such state of affairs
is demonstrated here at all.
In my judgment
the other facts substantially support the reality of the position as stated in
the management letter. I do not accept the suggestion that the management
letter entitles Doranmoor to retain the net moneys in its hands. As a matter of
construction, consistently with the terms of the letter that Doranmoor is a
manager only, it seems to me that Doranmoor must hold the balance for its
principal, the plaintiff.
Of course, it
may very well be that, for tax reasons, it will suit Mr Sutherland that
Doranmoor should receive part of the profits of the business as remuneration
for its services. But neither that fact nor the fact that the companies have
been slow in preparing accounts leads me to the conclusion that anybody but the
plaintiff is carrying on the business.
Accordingly I
find that the premises are, and have been, occupied by the plaintiff for the
purposes of a business carried on by the plaintiff.
