Landlord and tenant — Landlord and Tenant Act 1954 — Occupation for purposes of a business — Tenant in business of subletting flats — Provision of services — Whether flats let under tenancies — Whether tenant having sufficient degree of control over flats — Whether tenant occupying within meaning of section 23 of 1954 Act
The claimant landlords were the owners of a building that was divided into six flats. The defendant tenant company held a lease of the entire building for a term of 52 years, expiring in June 2004. The defendant used the building for the business of letting flats, each of which was self-contained with a bathroom and a kitchen. Although the pattern of lettings varied, the defendant used two types of agreements. One agreement, which was used for longer lettings, was a conventional assured shorthold tenancy agreement. The second was a simple one-page form that contained the terms and conditions used for all the shorter lettings. The flats were let furnished, with telephones and televisions, heating, lighting and hot water. The services provided included tea and coffee, together with a change of linen twice a week and a daily change of towels. The company had an office in the building, and a manager attended during working hours to arrange the lettings and to supervise services and cleaning.
In August 2003, the defendant served a notice, under the Leasehold Reform Act 1967, to acquire the freehold, relying upon the amendments made to the Act by the Commonhold and Leasehold Reform Act 2002. The claimants resisted that claim on the basis that: (i) the defendant held a tenancy within Part II of the Landlord and Tenant Act 1954; (ii) such a tenancy invoked a residence condition; and (iii) the defendant was unable to enfranchise because it could not satisfy that condition. The defendant contended that it did not occupy the premises for the purposes of a business within the meaning of section 23 of the 1954 Act. The claimants sought declaratory relief.
Held: The claim was dismissed. The defendant was not in occupation for the purposes of a business within the meaning of section 23 of the 1954 Act. The lettings of the flats involved the grant of exclusive possession and were therefore tenancies. The defendant did not have a sufficient degree of control over the flats such that it was in occupation of them within section 23. If, in the alternative, the lettings did not create tenancies, the self-contained nature of the flats, and the fact that the defendant’s rights of entry were upon reasonable notice and not unrestricted in respect of the provision of services, were the principal reasons why it did not occupy the flats within the meaning of section 23.
The following cases are referred to in this report.
Bagettes Ltd v GP Estates Ltd [1956] Ch 290; [1956] 2 WLR 773; [1956] 1 All ER 729; (1956) 167 EG 249, CA
Bassairi Ltd v Camden London Borough Council; sub nom Bassari Ltd v Camden London Borough Council [1999] L&TR 45, CA
Boyer (William) & Sons Ltd v Adams (1976) 32 P&CR 89
Graysim Holdings Ltd v P&O Property Holdings Ltd [1996] AC 329; [1995] 3 WLR 854; [1995] 4 All ER 831; [1996] 1 EGLR 109; [1996] 03 EG 124, HL
Groveside Properties Ltdv Westminster Medical School (1983) 47 P&CR 507; [1983] 2 EGLR 68; 267 EG 593, CA
Lee-Verhulst (Investments) Ltd v Harwood Trust [1973] QB 204; [1972] 3 WLR 772; [1972] 3 All ER 619; (1972) 24 P&CR 346; 225 EG 793, CA
Linden v Department of Health and Social Security [1986] 1 WLR 164; [1986] 1 All ER 691; (1985) 51 P&CR 317; [1986] 1 EGLR 108; 277 EG 543
Street v Mountford [1985] AC 809; [1985] 2 WLR 877; [1985] 2 All ER 289; (1985) P&CR 258; [1985] 1 EGLR 128; 274 EG 821, HL
This was the hearing of a claim by the claimants, Abel Smith and others, for declaratory relief against the defendant, Titanate Ltd.
Mark Loveday (instructed by Horsey Lightly Fynn) appeared for the claimants; Edward Cole (instructed by Richards Butler) appeared for the defendant.
Giving judgment,
Introduction
[1] The claimants (the landlords) are the owners of the freehold reversion of a house at 37 Hertford Street, Mayfair, London W1 (the property). The defendant (the tenant) holds the entire property under a lease dated 29 May 1953 for a term of 52 years from 24 June 1952, at a fixed rent that is now £800 pa. The tenant is the assignee of the term and was registered at HM Land Registry on 11 November 1989. The lease ended by effluxion of time at the June quarter of 2004. The tenant seeks to avail itself of recent changes in the law effected by the Commonhold and Leasehold Reform Act 2002 (the 2002 Act), which would enable it to acquire the freehold under the Leasehold Reform Act 1967 (the 1967 Act), although it is a company. The landlords resist the claim on the basis that the tenancy was one to which Part II of the Landlord and Tenant Act 1954 (the 1954 Act) applied (that is, as a business tenancy).
Property
[2] The property is, as seen from the street, a typical late Georgian terraced house. However, photographs of the rear suggest that there has been major reconstruction in more modern times and it has the look of possibly having been reconstructed to create the units into which it is now divided. (Certainly, in 1979, a licence was given to create five residential units and the provision of accommodation for a housekeeper at the front of the ground floor, and this was varied further in 1981, so that – in effect – the housekeeper’s accommodation became another residential flat, as it now is.) It is, in fact, now divided into six self-contained residential flats. Four of the flats have two bedrooms and the flats on the ground floor have one bedroom each (one of those is a studio flat). Each has a kitchen, WC and a shower or bathroom. On the first floor is a small office, from which the tenant’s business is run. |page:64|
Tenant’s business
[3] This will have, in due course, to be the subject of detailed analysis. For present purposes, it is really common ground that the tenant uses the property for the purposes of the business of letting the flats (using the word “letting” in, at this stage, a deliberately neutral sense). The tenant uses a company (that I will call Care) as its agent. Care’s manager (until recently Mr Vladimir Maricic, who gave evidence before me) attends the office during working hours on weekdays and attends to, and arranges, the lettings. The pattern of lettings varies. It is, theoretically at least, possible to take a flat for a single night, although in fact this seems not to be something that is done much or at all. In general, the flats are let for a few weeks at a time (three weeks is suggested as being an average) and, in the past two years, three of the flats were let on a longer-term basis (namely six, nine and 12 months).
Legal framework
(a) 1967 Act
[4] I was helpfully taken by counsel through the detail of the statutory machinery, but, for the purposes of this judgment, I can summarise it quite shortly. Section 138(2) of the 2002 Act introduced a new group of sections into the 1967 Act: 1(1ZA)-1(1ZD) and 1(1B). These effectively abrogated the former rule (old section 1(1)(b)) that a tenant had to have occupied the premises as its residence for three years out of the previous 10, a requirement that, of course, a company could not satisfy. At the same time, the combined effect of the new group of sections provides as follows:
(i) The present tenancy would not be prevented from being enfranchised simply by the fact that the 1954 Act applied to it, since it is a tenancy for more than 35 years.
(ii) However, a tenant of a house to which the 1954 Act applies cannot enfranchise unless it can satisfy a residence condition (two years out of the past 10). But (as before) a company cannot satisfy that test (otherwise if the 1954 Act did not apply).
(iii) Accordingly, the tenant, being the tenant of a property held under a 52-year lease, would be unable to enfranchise if the 1954 Act applied to that tenancy.
It follows that the critical question is whether Part II of the 1954 Act applies to this tenancy.
(b) Notices
[5] Nothing directly turns upon the notices that have been given. The following facts may briefly be recorded:
(a) On 7 April 2003, the landlords served on the tenant a notice under section 40 of the 1954 Act (seeking information as to the use and occupation of the premises). A reply was given on 8 May and no issue is taken with the accuracy of the reply.
(b) On 24 June 2003, the landlords served a section 25 notice on the tenant, indicating that they would not oppose the grant of a new tenancy. A counternotice was served on 21 August 2003 by the tenant without prejudice to its claim under the 1967 Act.
(c) On 20 August 2003, the tenant served a notice to acquire the freehold under the 1967 Act, contending in that notice that the 1954 Act did not apply. For complex reasons, into which it is not necessary to go, the tenant needed to do this in order to preserve its entitlement to claim under the 1967 Act.
(d) Finally, the landlords, on 7 October 2003, served a notice in reply to the notice of claim, raising two grounds. One has now gone and the other is that this is a tenancy to which the 1954 Act applied.
By the operation of these various notices, the stage is set to raise the issue that I have to determine.
(c) 1954 Act
[6] The 1954 Act has been recently amended, but the relevant provisions are those that were in effect prior to amendment. The two relevant sections are:
(i) 23(1) (paraphrasing): The Act applies to any tenancy where the property comprised in the tenancy is or includes premises: (i) occupied by the tenant; (ii) so occupied for the purposes of a business carried on by him or her for that and other purposes;
(ii) 23(3): “The holding” for the purposes of the Act means the property comprised in the tenancy, but excluding any part occupied neither by the tenant nor by a person employed for the purposes of the tenant’s business.
(iii) the significance of the expression “the holding” is that it identifies and defines the property in respect of which, under section 32(1), the tenant might be able to obtain a new tenancy. It follows that property comprised in the old lease, but which is not by definition “the holding” (or part of the holding), is property in respect of which the tenant will not obtain a new tenancy.
(d) Relationship of the 1954 Act to the business of subletting property: Cases
[7] The legal problem first came to light, within months of the passing of the 1954 Act, with a request for a new tenancy made on 23 February 1955 leading to litigation that was subsequently considered by the Court of Appeal in Bagettes v GP Estates Ltd [1956] Ch 290*.
(i) The premises (as was effectively common ground) were used for the purposes of the business of subletting the premises in units.
(ii) It was, again apparently common ground, clear that the tenant undoubtedly occupied part of the premises (for example, common parts, boiler rooms etc) for the purposes of that business.
(iii) However, it appears to have been treated as common ground (or perhaps, more correctly, assumed without being decided) that although the tenant undoubtedly used the flats for the purpose of its business of letting accommodation, it could not claim that it was in occupation of the “let” flats for the purposes of its business, or, putting it another way, that the facts were such that it could not be said that once the flats had been let, the landlord “occupied” them for the purposes of the letting business. In a later authority (see Lee-Verhulst below), it was suggested that there was a concession. If there were, the report appears not to have recorded it, but, equally, it seems clear to me that the court made no decision on the point, but, rather, assumed it.
(iv) Given the assumption in (iii), once the flats were let, they ceased to be occupied by the tenant and, therefore, they ceased to be available as part of the “holding” because occupation, as opposed to use, is essential to the ascertainment of the holding.
(v) It then follows that the very process of the ascertainment of the holding effectively destroys the business, because the flats not being “occupied” by the tenant cannot be comprised in the new tenancy and the tenant loses its right to them.
(vi) All that the tenant is left with in those circumstances are the common parts etc and the vacant flats/units that are to be held only for so long as they remain unlet. The end result is that “the tenant is presented with a holding that, although occupied by it, is not so occupied for the purposes of any business whatsoever”: see Jenkins LJ, at the foot of p301.
(vii) Applying the principles to the facts before it, the Court of Appeal concluded that the “common parts etc” divorced from the lettable units could not be said to be occupied for the purposes of a business, nor could the unlet flats assist because the (temporary) occupation of the unlet flats could not be treated as being for the purposes of a business, it being merely occupation until the tenant could exclude itself from occupation by subletting.
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* Editor’s note: Also reported at (1956) 167 EG 249
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[8] It should be plain from what I have said so far that what Bagettes decided was that the tenant could not obtain a new tenancy where: (i) the business was that of letting the building in flats/rooms/units; and (ii) the effect of such letting was such that the landlord ceased to occupy the units that had been let once it had let them. As regards (ii), the decision did not determine when the circumstances would arise that would amount to occupation, notwithstanding letting, and when they would not. |page:65|
[9] That question was considered in the next of the authorities that was cited to me, namely Lee-Verhulst (Investments) Ltd v Harwood Trust [1973] QB 204* (again, Court of Appeal).
(a) This was a case in which there were premises with some 20 rooms let out by way of a business of letting furnished rooms with services (the detail of the services and the arrangements is of importance, and I will return to it later).
(b) It was held that the word “occupied” should be given its natural and ordinary meaning and, on the facts, including the degree of control and the extent of the services provided, the tenant “occupied” the entire premises for the purposes of the business. The central part of Sachs LJ’s judgment, at p213D, reads thus:
By Mr Lee and the staff the tenant company were present in the premises for the purposes of the business day and night; in the course of their services to the occupants they pervaded every room there; control was exercised by Mr Lee over the manner in which the occupancies were conducted – a control (eg by limitations over the cooking that was permitted and over who could stay in each apartment) of a degree much beyond that usual when a flat is let to a tenant under a normal lease; and in addition the tenant company’s furniture was in every room…
(c) The two types of occupation of a single room: (i) as in (b) above; and (ii) “as a residence” for Rent Act purposes were separate and distinct and could co-exist: the headnote attributes this to Stamp LJ, but it is plain that Sachs LJ was of the same view, at p215D-E. Karminski LJ made no separate comment on this point. It is questionable whether this finding has survived the attentions of the House of Lords in the later case of Graysim Holdings Ltd v P&O Property Holdings Ltd [1996] AC 329†: see below.
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* Editor’s note: Also reported at (1973) 225 EG 793
† Editor’s note: Also reported at [1996] 1 EGLR 109
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[10] Next in time was William Boyer & Sons Ltd v Adams (1976) 32 P&CR 89, a decision of Templeman J. The premises consisted of 11 light industrial units on a converted farm. The case decided two things:
(a) The principle in Lee-Verhulst that, notwithstanding that the premises were let to a subtenant, the landlord could maintain sufficient presence to “occupy” was adopted and relied upon.
(b) On the facts, it was held that the facts were such as to entitle the court to conclude that the tenant was not so much acting as a landlord passively receiving rent but as the manager of a business activity actively earning profits by providing accommodation, facilities and services and by devoting time for that purpose, and that, accordingly, the defendant was in occupation within section 23.
[11] Then came Groveside Properties Ltd v Westminster Medical School (1983) 47 P&CR 507‡ (Court of Appeal). This was a case as to whether the tenant, the medical school, had sublet a flat as student accommodation. “Control”, said Fox LJ, was an important element. As Mr Mark Loveday, for the landlord, put it, the school exercised a subtle degree of control. Thus, it selected the students, provided furniture and equipment, decorated, kept the keys of the flat, and was asked permission if the students wanted to have a party. It was held that there was sufficient control to allow for the finding that the school occupied the flat so as to satisfy section 23, Fox LJ said, at p510:
Control… was very restrained and very sensibly exercised, but I think it was of dominant importance. The students were only there at all because they were students of the medical school, it was not an ordinary relationship between persons letting and persons taking the accommodation…
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* Editor’s note: Also reported at [1983] 2 EGLR 68
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[12] A not dissimilar case, Linden v Department of Health and Social Security [1986] 1 EGLR 108 (Scott J), followed. Here, the department held a lease of eight flats used as nurses’ accommodation. Relevant factors included the fact that exclusive possession had not been given to the residents, that vacant flats were kept under the control of the authority, that the authority supplied both furniture and crockery and blankets, that the authority’s maintenance included decorating and trivial repairs and (in summary) “the evidence shows… that [the property] like the units for which Templeman J [in William Boyer] was concerned need not just a landlord but a manager. On the evidence that is the function discharged by the authority.” While saying that he considered that the case was borderline, Scott J came down in favour of the authority being in occupation.
[13] The next case in time was the one and only occasion upon which these problems have been considered by the House of Lords: Graysim. The leading speech with which the other members of the House simply concurred was that of Lord Nicholls. The practical problem with which the House was faced was that the relevant premises (a market) consisted of units in which the trading occupier carried on its own businesses and that therefore: (i) the tenant under the lease was seeking a new tenancy, relying upon its occupation of the units; while (ii) at the same time, the occupier of the units might have rights to a new tenancy of the units, arising from its own business tenancies (which would, because of the way in which the 1954 Act works, be rights directly against the head landlord). What the House decided (as I understand and read it) was:
(a) It approved and applied Bagettes for precisely the reasons given in that case.
(b) It discussed, at pp335-336 especially, the approach of the court to the question that Lord Nicholls described, at p335D, as “competition for the role of occupier”, pointing out that it is a question of fact and degree and that, for the proposes of the 1954 Act, the word “occupied” carries a connotation of some physical use of the premises by the tenant for the purposes of its business. He pointed out, at p336A-B, that there is no clear line, the difference between the extremes being one of degree and not of kind.
(c) The exercise of rights over property is not to be equated with occupation.
(d) Normally, said Lord Nicholls, at p336D-F, where the permission takes the form of a tenancy, there is usually little difficulty. The tenant will be the occupier, not the landlord – the tenant having, in the ordinary cases, a degree of sole use of the property sufficient to enable it to carry on its business there to the exclusion of everyone else. He then added: “Although there will usually be little difficulty in landlord and tenant cases this may not always be so. I would not rule out the possibility that, exceptionally, the rights reserved by a landlord may be so extensive that he would remain in occupation of the demised property.” There would, he said, be more room for debate if it were a licence and not a tenancy.
(e) Necessarily, the House had to consider the question of dual occupation that lay at the heart of the problem. Lord Nicholls rejected the concept that (at least where both the head tenancy and the subletting were for business purposes) both the sublessee and the head tenant could occupy at the same time for the purpose of their respective business. Such a result, he concluded, would not be in accordance with the scheme of the 1954 Act. As a consequence of coming to this conclusion, he rejected the relevant conclusion in Lee-Verhulst and William Boyer, “at any rate where the subletting is itself a business tenancy”. I will have to come back to this part of the decision a little later on.
[13A] The most recent case to which I was referred was Bassairi Ltd v Camden London Borough Council [1999] L&TR 45 (Court of Appeal). This was an appeal from the late Judge Green, sitting at this court. It was a case about the subletting of rooms for residential purposes, where some services and supplies were, allegedly, offered. Judge Green had decided the case on two bases:
(i) that, on the basis of Graysim, there could not be dual occupation by the tenants and the subtenants of the rooms let to the subtenants and that, therefore, the rooms could not form part of the holding;
(ii) if he were wrong on (i), he felt that, on the facts, the case fell “comfortably on the other side of the line from Lee-Verhulst“. There was no little element of the alleged services not having actually been supplied and possibly of being “window dressing”.
The Court of Appeal upheld the judge. It plainly agreed with his conclusion that the facts fell on the other side of the line. It also supported a further finding of his, namely that the occupants of the |page:66| rooms were tenants and that, as such, it was proper to infer that they had had exclusive possession of their rooms.
They made no express comment (favourable or otherwise) on the judge’s first point. In the course of argument, I had thought that what had been said at the end of Peter Gibson LJ’s judgment (the leading judgment – Bennett J simply agreed), at p58, was of assistance, butI am persuaded by Mr Loveday that it was not. The one place at which they addressed the point was at p54, where, describing Lord Nicholls’ conclusion, Peter Gibson LJ said that “he rejected the notion that more than one person… could each have occupation for the purposes of section 23”.
What did Graysim actually decide about joint occupation: Is Lee-Verhulst still (on that point) good law?
[14] Mr Loveday reminded me, rightly, that Graysim was actually a decision about whether two business tenants, where one was the landlord of the other, could each have the same property as its “holding” or part of its holding. The House held that they could not and, necessarily, for that purpose, rejected, at least in that context, the concept of joint occupation that the Court of Appeal had favoured (in a case where the sublessee was residential) in Lee-Verhulst. So, said Mr Loveday, that is all that it did, and indeed it is apparent from what Lord Nicholls said, at p338C, that he was deciding the point only in the context of a subletting that was itself a business tenancy. Furthermore, he said, the Court of Appeal in Bassairi is not to be taken as having taken any different view of what Lord Nicholls had said than that.
[15] In my judgment, Mr Loverday is correct in this submission, and for these reasons:
(a) Fundamental to Lord Nicholls’ conclusion (and the real point of this part of the case) was his decision that two people could not both be in occupation for the purposes of section 23(3), that is, so as to define the holding. The problem arises because, as it seems to me, this resolution of the problem depends upon the sublessee being a business sublessee and therefore itself needing to get within section 23(3). A residential sublessee, on the other hand, has no need to get within section 23(3), which is of no interest or importance to it. Therefore, the entire logic of Lord Nicholls’ conclusion, at least following through his reasoning at p337, has no application where the sublessee is residential.
(b) In Bassairi, it is quite right, of course, to observe, as Mr Edward Cole said, that the Court of Appeal said nothing to cast doubt on Judge Green’s first conclusion. But it simply did not discuss it and really left it on one side while it considered his conclusions on the facts that it wholly supported (on all points). Since the court did not say why it had not dealt with the first point (which, had it upheld it in terms, would have been an answer in itself to the appeal), one can only speculate, although perhaps the most obvious conclusion is that it saw a clear answer on the facts without having to embark upon this difficult territory. Further, it seems to me that the passage from Peter Gibson LJ’s judgment, which I quote at the end of [13] of this judgment, is, if anything, a “steer” in the direction of his not having expressed a supportive view of Judge Green’s first conclusion.
[16] However, although my conclusion might shut Mr Cole out from his shortest road home, he is none the less assisted by an important passage in Lord Nicholls’ speech, which I have already quoted, and also by that part of the decision in Bassairi that relied upon the conclusion that some of the occupiers were tenants and, as such, would be expected to have exclusive occupation. The passage in Lord Nicholls speech (to repeat for the sake of convenience) was at p336D-F, where he said (to abbreviate and paraphrase):
(i) Where the permission is a tenancy, there will usually be little difficulty because, ordinarily, the tenant entitled to exclusive possession will be the occupier. (He is speaking, of course, here, and throughout this part of the discussion, of a business subtenant, but, in these instances, there can, I think, be no difference between a business and a residential tenant – it is not dependent upon a consideration of section 23 but applies ordinary landlord and tenant principles.)
(ii) (i) will be the position even though the lease contains a restrictive user covenant and reserves conventional rights of entry.
(iii) There will normally be no difficulty in landlord and tenant cases, but the possibility is not ruled out that the rights reserved by the landlord might be so extensive that it would remain in occupation of the demised property.
(iv) Where the permission takes the form of a licence, there will often be more room for debate. A licensor may have an easier task in establishing that it still occupies.
There is no dispute about any of this.
Necessarily, following my earlier conclusion, the expression “would remain in occupation” would include the concept of Lee-Verhulst joint occupation, but as it seems to me, there would have to be enough, in the case of a tenancy, to displace the ordinary inference that the tenant has exclusive occupation by reason of its tenancy.
Are these tenancies?
Facts
[17] There are two types of agreement that the tenant uses. The first, which it uses for longer lettings, is a conventional assured shorthold (AST) agreement. It is common ground that this creates a tenancy, and it is conceded that flat 6, which, on the critical date (20 August 2003), was the subject of such a tenancy, was not “occupied” by the tenant for the purposes of its letting business. The second is used for all the varied species of shorter letting. It seems plain (although the evidence itself is not very clear) that a decision was taken to adopt two separate forms. In his evidence, Mr Maricic spoke of using the second form (which is simply one page) because short-term visitors would not want to read through a full agreement. That sounds reasonable to me as an explanation. There appears to have been, on no discernable basis other than the arbitrary, a decision to use the short agreement for lets of less than six months and the long agreement for longer lets.
The short form of agreement contains nothing whatever about either rent or terms. Mr Maricic’s evidence was that he, as the person responsible for the lettings, made the rent agreement with the potential tenant. He said: “I would give our rack rate and they would accept or try to negotiate.” I do not think that it was explored in evidence quite how the length of occupation was arrived at, but the obvious inference is that it was done in much the same way (although I would find that where there is an advance reservation, it must be fixed at that time).
[18] At one point during submissions, it was suggested that the analysis was that the written terms were the letting agreement and that there was some type of oral collateral arrangement that fixed the rent. In my judgment, it is exactly the opposite way round. The short-form document, which is called “rental terms and conditions”, sets out various terms and regulations under the headings
Rental includes
Cleaning services
Reservations (dealing with confirmation)
Cancellation
Arrivals and departures
Breakages
Telephones and additional charges
Other
the latter including the management’s right of access.
There is nothing whatever in that document that, even inferentially, sets the rent (or any obligation to pay it) or the length of the letting. However, the number of the flat, the name of the occupier and signature are all provided in blank at the foot of the form and, no doubt, are filled in as appropriate.
In my judgment, the irresistible inference is that the essential contract of letting, rent/fee, length of occupation are agreed orally and the short-form agreement is really collateral to that essential contract. For without the oral contract there is no letting at all. Indeed, the oral contract could survive perfectly well (in a tenancy context supplying the rent and term – or if no terms, then a periodic tenancy) on its own without anything else, as has been the case with many tenancies in the private sector down the years. |page:67|
Analysis
[19] In my judgment, one has to look at the arrangements under the shorter form as a combination of an oral agreement to take a flat for an agreed period at a periodic rental (using that expression for the moment neutrally), but upon the terms and conditions set out in the short agreement. In the ordinary way, such an arrangement would, unless the terms and conditions were inconsistent with a tenancy, be regarded as a tenancy. Residential occupation granted at a rent for a term with exclusive possession is a tenancy: see Street v Mountford [1985] AC 809*, a case that was decided after some of the authorities that I have referred to, and which was mentioned in argument but not formally cited. In Street, at p818A, Lord Templeman helpfully drew a distinction between a tenant and a lodger thus:
[an] occupier is a lodger if the landlord provides attendance or services which require the landlords or his servants to exercise unrestricted access to and use of the premises. A lodger is entitled to live in the premises but cannot call the place his own.
The most obvious factor here in support of exclusive possession is that these are all self-contained flats with all the internal facilities (kitchen, bathroom, and so forth) to support independent living, and the occupiers let themselves into both flat and block with their own keys. If the matter stopped there, I would have little doubt that it was exclusive possession and a tenancy.
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* Editor’s note: Also reported at [1985] 1 EGLR 128
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[20] A majority of the issues raised (especially in the context of exclusive possession) against these being tenancies are also relevant to the question of occupation/control. To a point, Mr Loveday might have been right when he said, as he did, that the question of whether these are subtenancies really begs the question of occupation. There is indeed some danger of circularity. It might be arguable that “occupation/control” could exist even where there is exclusive possession; however, if there is exclusive possession, there must be a tenancy. Nevertheless, the strict approach (see Graysim) must be: (i) are these subtenancies; (ii) if they are, none the less are the rights reserved to the landlords so extensive as to give it occupation; and (iii) if they are not subtenancies but licences, are the terms/arrangements such as to give the landlords occupation? Essentially, the elements that relate to (i) go either to exclusive possession or any terms that are inconsistent with the basic concept of tenancy. They may also go to (ii) and (iii). For present purposes, I limit myself to (i), and consider the following relevant, or potentially relevant, factors:
(a) Short period of let: There is no rule of law that a tenancy has to be for any particular period, however short. Obviously, if the flats were regularly let (like hotel rooms) on a nightly basis, this might support a general argument that the business was more like a hotel, but, in fact, although a daily letting is theoretically possible (and has been advertised), it is factually rare to non-existent, and the general pattern is a letting for a multiple of weeks.
(b) Provision of furniture: Although a number of the authorities have referred to the presence of furniture as being one of the elements going towards a finding of “occupation” by the landlord, its significance might well be that if there were no provision of furniture, the concept of occupation would be much harder to support. Importantly, it must be remembered that the furnished tenancy is well recognised by the law.
(c) The right to vary the terms without prior notice (reserved in the rental terms and conditions): This can be a reference only to those terms and conditions and not to the basic (oral) rental agreement. In my judgment, it would, in any event, fall to be construed restrictedly and relate to alterations to the existing terms, not the addition of new ones that alter the basis of the entire agreement. In any event, it has never actually been exercised. Mr Loveday submitted that it suggests a high degree of control: I do not think so, nor do I consider it to be inconsistent with an exclusive right to occupy.
(d) The language of the short form: It is well established that where one is seeking to find whether an agreement is a tenancy or a licence, the terminology used is rarely determinative. In fact, as Mr Cole rightly submitted, the language is neutral. The word “rental” suggests tenancy, the word “guest” suggests licence. The language of the document itself sheds no direct light upon what the grant is or purports to be (because the grant was made orally and not in this document).
(e) Control over arrival or departure: The short form provides, inter alia, that: (a) the apartments must be vacated by noon on the day of departure, with a provision for further payment if they are not; and (b) the apartments will be released, owing to non-arrival, after 24 hours. No argument was addressed as to (a), but I will deal with it for completeness. I think that the short answer is that it is simply consistent with an argument dealing with what would be a holding over (b) is the one upon which Mr Loveday relied. He said that “release” is wholly inconsistent with a letting to a tenant. But I prefer Mr Cole’s analysis. There are, on his submission, two stages, namely when: (i) the flat is booked or conditionally let; and (ii) it is either let or the letting becomes unconditional. Neither of the alternatives in this analysis would, in my judgment, conflict with the concept of a tenancy.
(f) Reservation of the right to gain access: This is a right exercisable “with adequate notice to guests”. On the evidence, there are occasions, which Mr Maricic was completely frank about, when this has been done without any sort of notice at all, although only in circumstances where it was known (or at least expected) that the tenant would not be in the flat. Generally, this was done for the purposes of showing agents (and also, indeed, Mr Abel Smith, the tenant-for-life of the settlement of which the landlords are trustees) around a flat or flats. Mr Loveday said that this is a high degree of control. I do not think that it is by itself, and from the point of the instant exercise I do not think that it is inconsistent with exclusive possession. In particular: (i) the entries without notice are, in fact, in breach of the agreement and not in conformity with it (and it is not suggested that this was a breach so much tolerated as to mature into a custom); (ii) the provision of a landlord’s power of entry is a common feature of leases. Usually, it is for a set purpose or purposes, but I do not think that that is essential or determinative. The fact that is specifically reserved is consistent with what is otherwise a grant of exclusive possession. If there were no exclusive possession, there would be no end to reserve it; (iii) there is, in any event, a lot of difference between a right exercisable only upon notice and a right exercisable at will and in any circumstances, for example, simply to be able to walk into a flat when the occupier is in the shower. Such a right might be more arguably inconsistent with exclusive possession. This one is not.
(g) Provision of services: This is not of itself determinative of exclusive possession, although it might bear upon it. The service flat is a well-enough-known entity. The test, as it seems to me, is that in the passage from Lord Templeman in Street that I have quoted above, does the provision of services require unrestricted access by the landlords; if it does, there is no exclusive possession, if it does not, there is. In Lee-Verhulst, the provision of cleaning and linen services weighed heavily with Stamp LJ, while other matters (as quoted above) weighed more heavily with Sachs LJ, but, for the reasons that I have given, this has to be looked at in the context of unrestricted access. This needs more detailed discussion, and I will consider this below.
(h) Substantial on-site management, which is submitted is strongly indicative of control. I will consider this together with (g) above.
Services and control
[21](a) The question of services is in particular relevant to all questions and requires, first, some findings of fact (most matters were actually common ground). Thus, the following services are, I find, provided:
(1) Cleaning five days a week (the rental terms state this, together with the provision that it can be guaranteed only if the apartment is accessible before noon). As a matter of fact, the maid goes in and out for a fairly brief period on five days of the week. Mr Maricic’s evidence was that she would always knock on the door first; if the occupier was not there, she would use her keys.
(2) Linen twice a week.
(3) Daily towel change. |page:68|
(4) Provision by the landlords of all furniture and furnishings, TV, white goods and usual domestic items.
(5) Direct-dial telephones.
(6) Space and water heating, lighting and electricity.
(7) Coffee and tea for guests to make their own drinks (as is commonly found in hotels).
Mr Cole’s submissions about these matters were first of all that they were not inconsistent with exclusive possession so as to affect whether the lettings were tenancies, and, second, that none of them was an indication of control. I will say at once that I cannot see that (5), (6) and (7) really affect the issue; they are facilities provided along with the letting as opposed to anything indicative of occupation/exclusivity. I have already dealt with the significance of (4).
Items (1) to (3) are obviously the more important ones because, if the provision of the services is such as to be inconsistent with exclusive possession (Street), the occupier will be a lodger and not a tenant. Even if it does not go that far, it is highly material to any question (so far as relevant) of occupation or control. As to these, Mr Cole specifically submitted:
(i) the concept of a right of occupation with attendance is not of itself inconsistent with the grant of exclusive possession in the form of a tenancy, and he referred to the provisions of section 7 of the Rent Act 1977, which exempts such tenancies from security and asks the rhetorical question: why exempt them if they cannot be tenancies? I agree. It is, in any event, I think, plain from the quotation from Street that the question is not whether there are services but the nature and effect of the services.
(ii) The services are not such as to be inconsistent with exclusive possession. I agree. They amount to short visits by cleaners who clean the flat, change the linen and change the towels, but otherwise leave the occupier in peace, and, in my judgment, would be expected to do so. They are, I think, very far removed from the sort of services that really require a degree of occupation by the landlord.
By way of trying to bring these principles together, I would add:
(1) I would conclude that whether services are provided is not the point. A tenant or a licensee (residential or otherwise) can contract for all manner of services to be provided that might not affect the question of occupation of the premises at all.
(2) The point (both as affecting exclusive possession and as affecting occupation by the landlord) is whether, in order to provide those services, the landlord must have some degree of occupation of the flat or unit.
(3) In Lee-Verhulst, Stamp LJ was much impressed by the services (Sachs LJ was impressed by different matters). His rhetorical question, at p217C (and see also [23] of this judgment), was could one say that, putting everything together (including services), it could be said that the landlord was not occupying? He answered that question: “no”. It does not follow that the services provided here and the way in which they are provided mean that that question is answered in the same way in this case.
(b) On-site management: This is important for several reasons. In William Boyer (not specifically relied upon for this purpose, but, to my mind, relevant), Templeman J drew the distinction between an operation in which the landlord simply sat back and drew the rent, and where it was the manager of a business activity. It is, I think, questionable how far this has survived Lord Nicholls’ analysis in Graysim, although it was not disapproved in terms. Certainly, one must accept that if (i) the reality is that there is a heavy element of on-site management involving some occupation of the flat/apartment then (ii) it might not be a tenancy or (iii) the terms of the tenancy are such as to give the landlord the status of occupier or (iv) if a licence, then this is indicative of presence/control/occupation.
With these considerations in mind, I find the following facts:
(1) There is a dedicated office in the building.
(2) The manager (Mr Maricic, when he was there) attended from 9am to 5pm, five days a week.
(3) One of his primary duties was the arrangement of lettings. If you wanted to rent a flat, he was the man you (or your agent) went to see or spoke to.
(4) But his duties also included the co-ordination of services/cleaning common parts/management of the block.
(5) However (I accept what Mr Cole said here), he did not provide those services himself, and his presence during those hours was not necessary to ensure that those services were provided.
(6) He was present on weekdays only.
(7) He provided occasional assistance (for example, the use of his fax) to occupiers.
Based upon this, Mr Loveday submitted that this was a very high degree of management for only six flats. It is, of course, partly explained by the fact that the flats were necessarily going to be booked and let for the future, and, therefore, Mr Maricic needed to be there to deal with that important aspect of the business and partly to deal with the day-to-day provision of cleaners etc. Although, having said that, I agree that it is a substantial element of on-site management for so small a unit.
The question though, as it seems to me, is not “is there a high degree of management”, but “does that high degree of management involve or require some degree of occupation or control of the flats (or both) whether affecting exclusivity of possession or otherwise?” That is the point, as I think is plain from the authorities. Asking the question in that way, it seems to me that the answer must be “no”. The only sort of physical intrusion is the maid service. Mr Maricic had no control over the entry to the block, the entry to the flats or what the occupants did in them. What he was not was any sort of concierge or gatekeeper. In many ways, he was indistinguishable from a highly involved managing agent.
Are these therefore tenancies?
[22] The factors that I have considered so far, although they may be relevant elsewhere also, are those that, in my judgment, are relevant to this first question, namely whether the lettings gave exclusive possession and therefore created a tenancy. My conclusion has in the main been, considering them individually, that they do not amount even to occupation/control, let alone negative exclusive possession. Even if one considers them all together (and there is a respectable argument for doing so), they do not, in the aggregate, go so far as to negative exclusive possession. In my judgment, for these reasons set out in my examination of these factors, the answer has to be that, whether one views the factors singly or together, there is exclusive possession and that the lettings are tenancies. The next question accordingly arises.
Are the arrangements none the less, such as (per Lord Nicholls) the rights of the landlord, so extensive so that it would remain in occupation of the demised property?
[23] It is difficult at first blush to think of cases where this would be so. It seems to me that the area in which one would be looking is the sort of case where the degree of control is such (and well beyond normal tenants’ covenants) where: (i) the landlord’s ordinary functions under the agreement can be preformed only by some degree of occupancy of the premises by the landlord; and/or (ii) the landlord’s control over what happens on the premises is of serious significance, for example, not necessarily exclusively, in cases where the landlord is able to say who comes onto the premises, how the facilities are to be used, whether there is to be control of the everyday business of living, and so on. The sort of control found in Lee-Verhulst or (especially on this point) Groveside might go some way towards this.
In my judgment, none of the facts that I have found seem to me to go anything like that far. It follows, therefore, that I find that there is no “occupation” by Titanate and that it is therefore not a tenant within the 1954 Act.
Alternative: What if the occupiers do not have tenancies?
[24] This question does not strictly have to be answered because, having found as I have that these are tenancies and that the landlords do not retain the extensive rights of occupation that would be required by Graysim, this is conclusive of the case. |page:69|
However, it seems to me desirable to consider the alternative. Assume that, for one reason or another, these are not tenancies, is there sufficient occupation by the landlords to bring the case within the statute? It is necessary, for this purpose, to go back to the authorities.
Lee-Verhulst is the most useful starting point. The critical factual findings upon which the Court of Appeal based its judgment are those of the trial judge, set out, in extensor, at p211:
A substantial part of the basement consists of Mr & Mrs Lee’s home… the basement also contains an oil fired boiler which provides hot water throughout the house. This is tended by Mr Lee. A spacious hall in the basement is used by Mr Lee to store suitcases, trunks, packing cases etc for the convenience of the occupants of the rooms of the house.
The remainder of the house consists of 20 fully furnished rooms with hall and staircases all fully carpeted and furnished. 17 of these rooms have small bathrooms “en suite” the remaining three have the use of a separate bathroom on the landing nearby. There are common lavatories on each landing. The rooms are all supplied with blankets, bed linen and towels and the company employ two chambermaids who visit each room daily to [clean and make beds] [They have passkeys to the rooms] as has Mr Lee who reserves to himself the right to visit all the rooms at all reasonable times for the proper running of the business. The rooms are not equipped with telephones. [incoming calls are taken at a common phone and there is a common coin operated phone – Mr Lee pays the bills and recoups from the coins] The rooms have no kitchen or cooking facilities except as permitted by the under lease [ie the lease to the Company] Most if not all are equipped with a gas fire and a gas ring [for making drinks etc] One or two occupants have installed more sophisticated cooking arrangements [small ovens to which Mr Lee consented]. [there are also message and mail forwarding arrangements. [Light meals were also sometimes provided]
Faced with the totality of that evidence, the Court of Appeal came to the conclusion that it did. Sachs LJ came to the conclusion that I have already quoted earlier.
Stamp LJ, at p216F, to whose judgment I have already briefly referred, described the business as “providing furnished accommodation and services for those residing there”. And, at p217C, he said:
Can it be said that the tenant of the house who carried on there the business described and enumerated by Sachs LJ including to mention only some of them the supply of furniture blankets bed linen and towels to the rooms where the occupants reside the cleaning of the rooms and when required the provision of light meals was not occupying them for the purposes of a business.
Graysim, at p336, really made it plain that all these are matters of fact and degree. However (as quoted above), Lord Nicholls did point out, at p335C, that “occupies” connotes some physical use of the premises (and, therefore, it would follow, the individual flat) for the purposes of its business.
I do not find what one might refer to as the “hostel” cases, Groveside and Linden, of very much assistance (beyond those features of Groveside referred to above). To my mind, these cases (both of which were held by some of the judges who decided them as near the borderline) were really concerned with a quite different situation, especially clear in Groveside, where, plainly, there were pastoral considerations and other considerations relevant to the landlords’ activities (medical school in one case, and the NHS in the other) that are not present here at all. Also, in Groveside, there was an obvious element of control of a kind not relevant to the present case.
Bassairi is not of as great deal of help here except negatively. The services/supplies were of a fairly minimal nature (even leaving aside the finding that there were tenancies), and it is at least dubious whether the services were genuine. The result of that case is no great surprise.
Broadly speaking, I think one can start to categorise in this way:
(a) There will be cases where flats are let on conventional terms, with the landlord doing no more than receiving the rents and performing the landlord’s covenants. In those cases, the position is as it was assumed to be in Bagettes. There can be no business occupation of the flats.
(b) At the other end of the spectrum, there will be cases such as common lodging houses, or hostels/student halls of residence, where there is a high degree of control and the services are performed in circumstances in which the landlord has and uses an unfettered access to the rooms for that purpose. (An example of this sort of control might be the Blackpool landlady of legend, who never allowed the lodgers into the house between breakfast and supper.)
(c) In the middle will be cases where there is some degree of control and/or less restricted access and/or a greater degree of intrusive service provision. These may lie either side of the line.
It is not an easy or possibly even a helpful operation to classify tests rigidly. In the end, it might be a matter of impression, of asking the question as to whether the arrangement is such that the landlord, in order to carry on its business (either or indeed both), controls the way in which the premises are used so as to amount to occupation, needs a degree of occupation in order to carry out its functions. In some cases, putting all the features together will make the answers obvious. Therefore, in assessing where the premises lie, one has to have regard to all the facts.
I have already analysed most of the facts, although, to an extent, with other objects in view. Looking at them again, and also adding one further fact that the guests are mostly from abroad, include students and are people who might be thought to be taking a flat as an alternative to staying in an hotel in London, I come to the following conclusion:
(1) It is true that the Court of Appeal, in Lee-Verhulst, laid stress (Stamp LJ especially) upon the provision of cleaning and linen services and the provision of furniture.
(2) But those are not the entirety of the features of that case. There were other linked and highly important features, namely unrestricted access not upon notice, and tight control on cooking facilities.
(3) Also in that case, although most of the rooms had en-suite bathrooms, not all did, and none had kitchens. They were not self-contained flats; the apartments in the present case are.
(4) Mr Loveday asked me to approach this case upon the basis that what is really being offered is an alternative to hotel accommodation. In one sense, of course, it is; the choice can often be (as holidaymakers with large families know well) between a hotel and a flat/cottage/villa. But it does not follow that the choice is between equivalents. I do not think that this helps. Mr Loveday, in his closing submissions, suggested, I think, that a decision that (among other things) these were tenancies might be a novelty, and a disaster where a growing market is concerned. But taking a furnished house or apartment as a tenant for a season (or the season) goes back to Jane Austen’s day, if not earlier, and has not caused exceptional problems in the past.
(5) In any event, as a matter of fact, the style and type of accommodation, the typical length of stay and the nature of the establishment make the property very different from an hotel type of use.
(6) Fundamentally, it seems to me that the big difference from cases like Lee-Verhulst is the self-contained nature of the flats and that the landlords’ right of entry is a right upon reasonable notice and is not unrestricted. In particular, there is not an unrestricted right to enter to perform necessary services.
(7) The other features that I rejected as not being indicative against a tenancy are, to my mind, of little assistance for the present exercise, much for the reasons that I gave when considering them.
I come, therefore, to the conclusion that, on the alternative ground, I would still conclude that the tenancy was not governed by the 1954 Act, and I would dismiss the claim accordingly.
Claim dismissed.
