by Sandi Murdoch
Readers will be aware of the House of Lords’ ruling in AG Securities v Vaughan: Antoniades v Villiers(*), and of the general tenor of the two decisions. It may be thought that, in the light of the new Housing Act 1988 which, from a landlords point of view, greatly reduces the adverse effects of statutory protection, the lease/licence distinction has lost its significance. It is suggested that this will not be so; for those occupying under agreements entered into before January 15 1989 the chance of Rent Act protection remains and such rights are likely to take on an enhanced value. Furthermore, despite the absence of rent control under the new regime, landlords are wary creatures and there may be many who will chose to hedge their bets by entering into agreements, where possible, which do not fall within the new Housing Act. This article therefore seeks to establish whether general and workable principles can be derived from their lordships’ judgments which will, at long last, remove the lease/licence controversy from the litigation arena.
The background
Despite the apparently “definitive” decision in Street v Mountford [5] AC 809 that an agreement under which premises are occupied exclusively for a term, at a rent will normally be regarded as a lease, irrespective of the declared intentions of the parties, difficulties have continued to arise. While the shift away from the nebulous test of intention to the apparently firmer ground of exclusive possession is, in many respects, welcome, it has not always been easy to decide in what circumstances an occupier can be said to enjoy exclusive possession, especially when — perhaps not unnaturally — landlords have, in the wake of Street, been striving to ensure that exclusive possession is not conferred!
The courts have had to decide whether, as a matter of principle, exclusive possession is to be deduced from the terms of the agreement itself or from the factual situation of the parties. If from the former, there is the obvious danger that the mere inclusion in the agreement of terms which deprive the occupier of exclusive possession, whether acted upon or not, will be sufficient to guarantee the creation of a licence. However, total reliance on the factual circumstances could prove equally unacceptable, since this involves making the existence of legal rights dependent on their exercise. Furthermore, this dilemma can become even more complicated in cases which concern not simply the status of a sole occupier but that of two or more occupiers who are sharing accommodation.
In the event, since Street the courts have on the whole adopted a careful combination of these two approaches. Whether or not exclusive possession has been conferred has been deduced from the agreement between the parties, but only after agreement has been carefully perused by the court in order to ensure that all of its terms are genuine; any that are viewed as sham are effectively struck out and ignored. If the duly “vetted” agreement confers exclusive possession, then the result is a lease; if not, the occupier is a mere licensee.
However, this fairly straightforward line has not operated consistently in one particular area, that of shared accommodation. Here it has become common for landlords to make each sharer sign a separate agreement under which the latter is given the right to use the premises not exclusively but in conjunction with other sharers nominated by the landlord. For good measure, the landlord often also reserves the right to share the premises himself. The courts have encountered grave difficulties in deciding how readily, and in what circumstances, they will treat such agreements as sham, and this ambivalence manifested itself in a series of virtually irreconcilable Court of Appeal decisions: Hadjiloucas v Crean [7] 2 EGLR 60, AG Securities v Vaughan [1988] 06 EG 112 and Antoniades v Villiers [1988] 17 EG 122.
It is, of course, these last two decisions which have recently been before the House of Lords and, fortunately for posterity, they represented two very different types of factual circumstances, thus enabling the House of Lords to take a good look at sharing agreements. In AG Securities the sharers had never previously met; they had approached the landlord quite independently; they occupied under separate agreements; each was paying a different rent; and each agreement commenced at a different time and was running for a different period. In Antoniades there were only two sharers, an unmarried couple who had been looking for a flat for some time; they thus made a joint approach to the landlord; their separate agreements ran from the same date, for the same term, at the same rent. The Court of Appeal had ruled that in AG Securities the sharers were joint tenants and in Antoniades that they were licensees. The House of Lords reversed both of these decisions. In doing so, have their lordships produced clear and workable guidelines for the future or fodder for the litigation-happy?
Shared accommodation?
Single or separate agreements?
Where accommodation is to be occupied by more than one person and the sharers sign individual agreements, it is now clear that the courts will decide, as a first step, whether these are to be treated in law as separate agreements or as a single agreement. In reaching its conclusion on this point the court will take account of two main factors: the circumstances surrounding the negotiations and any existing relationship between the prospective occupants. Thus, if the sharers already knew each other and made a joint approach to the owner of the property, this will be a strong indication that any separate agreements that they might then have signed were, in truth, interdependent; that either all would have signed or none. In such circumstances it would seem that, henceforth, a court is bound to conclude that the separate agreements are, in reality, a single agreement between the owner and the sharers jointly.
Effect of a single agreement
Such a conclusion does not in itself mean that the arrangement is a tenancy; however, what it must mean is that the sharers cannot have individual rights vis-a-vis each other. Importantly, therefore, it cannot be argued that each individual has rights which destroy the other’s right to exclusive possession. However, it remains possible for other clauses in what is now, by definition, being treated as a single agreement (or, indeed, in any agreement which always was a single agreement with a group of sharers), to preclude the grant of exclusive possession. Examples of such clauses would be where the owner reserves the right to share the premises himself or to nominate others to occupy the property.
The House of Lords has made it abundantly clear that such clauses must be carefully scrutinised in order to see whether they reflect the genuine intentions of the parties. Importantly, the House has ruled that the “subsequent conduct” of the parties, although not admissible as an aid to the meaning of the document, can be used as evidence of its genuineness.
So what factors will persuade a court that such clauses are not genuine? It is obvious from the ruling in Antoniades that the size of the accommodation and the nature and extent of the rights reserved by the owner may well be crucial. Thus, in that case the owner had reserved the right either to occupy himself or to put into the property an apparently unlimited number of other licensees. Given that the flat in question was suitable only for occupation by two persons and that he had already given the right to occupy to two people, their lordships were very prepared to conclude that such a reservation in these circumstances could not be genuine.
Turning the coin for a moment, is it possible for an owner to include in an agreement made with a number of sharers clauses which will genuinely preclude the grant of exclusive possession? The answer must be “yes”. Although this was not an issue which arose in either AG Securities or Antoniades, there seems to be no reason why, despite either having actually reached, or being treated as having reached, a single agreement with a group of occupiers, an owner cannot include provisions which do prevent those occupiers from having exclusive possession. For example, the owner may undertake to provide services for which he or his agents require unlimited access; in such a case the sharers would be lodgers and thus mere licensees. However, he must bear in mind that if he does not actually provide these services this “subsequent conduct” could be taken as evidence that the undertaking was a sham device.
It would also appear that the owner can reserve a right either for himself to share the property or, perhaps more convincingly, to put in nominated licensees. This would probably be more readily treated as genuine where the existing group of sharers does not fill the accommodation, although the reservation might still work if regarded as a predetermined method for replacing departing sharers. The owner must be careful to ensure that any such rights are limited to reflect the size of the property; thus, he must restrict his rights so that he merely maintains in the property only that number of occupants which it can genuinely house. Furthermore, he would do well to make certain that he does actually exercise control over any additions to or replacements for existing occupants, although there would appear to be no reason why he should not, as a matter of practice, allow the remaining sharers to have their say.
What will be the owner’s position if, despite reserving such a restricted right to nominate incoming licensees and making it clear to the original sharers that this is a system which he will operate, this never happens because none of the original sharers leaves? While it is clear that, in concluding in the AG Securities case that the occupiers were mere licensees, the House of Lords was influenced by the fact that the owners had actually exercised control over incoming occupiers, it was made equally clear that the issue is not the exercise of the right but its genuine existence: “Once it is accepted that the [owner] enjoyed the right — whether he exercised it or not — to share the accommodation with the [occupiers], either himself or by introducing one or more other persons to use the flat with them, it is…incontestable that the [occupiers] cannot claim to have had exclusive possession” (Lord Oliver). It therefore seems that such an owner will be treated as having successfully precluded the grant of exclusive possession.
However, we cannot leave this particular question without alluding to one part of Lord Templeman’s judgment in Antoniades. While all their lordships were agreed that, in the circumstances of that case, the reservation by the landlord of a right to share was not genuine, Lord Templeman alone gave a second reason for his decision in that the couple were tenants rather than licensees. In his view, even if the reservation were genuine, because the landlord did not intend to share occupation from the moment the couple first went into occupation, they must be treated as initially having exclusive possession and thus a tenancy. If at any later date the landlord chose to exercise his right to go into occupation, this would then deprive them of exclusive possession and thus terminate their tenancy; given that their tenancy was governed by the Rent Act 1977 it could not be terminated other than by compliance with section 98. Hence the reservation, being inconsistent with the Rent Act, could not be lawfully exercised.
If Lord Templeman is correct, it is clearly impossible for a landlord, even genuinely, to reserve the right either to share or to put in other nominees unless he actually exercises the right from the outset. However, it is submitted that his view is not sustainable. Assuming that the reservation is a genuine reflection of the parties’ intentions, then it must surely follow that the occupiers cannot, in law, have been given exclusive possession, even if in fact they are for the time being actually enjoying undisturbed occupation. The existence from the outset of the owner’s right to share cannot be denied merely because it is not exercised (see Lord Oliver). Hence, it is suggested the occupiers do not have a tenancy in which the owner is reserving an “illegal” right to terminate.
Separate agreements
Having dealt with the situation where the agreement with the sharers is a single one, let us now consider that where the owner has made a series of separate agreements with a number of individuals by virtue of which they share the accommodation in question. This is likely to occur where, as in AG Securities, the sharers did not previously know each other and thus approached the landlord quite separately. Are there any circumstances in which they can be regarded as having exclusive possession and thus a tenancy, or are such sharers always licensees?
Although not argued in AG Securities, it was acknowledged by their lordships that there are circumstances in which each individual might have exclusive possession of a clearly identified part of the accommodation (most probably a bedroom) while sharing the other parts. Given that the agreements in AG Securities conferred on each the right to occupy any part of the flat and, more importantly, the facts showed that when any one occupant left the others often reallocated the bedrooms, counsel in that case was quite right not to pursue the above line. However, it can obviously be sustained in some cases. If each agreement gives the occupier the right to occupy a particular (perhaps, numbered) room which has its own lock, and he in fact occupies on this basis, he surely stands a good chance of being regarded as having exclusive possession, and thus a tenancy, of that room. In most cases this will be enough to bring him within the protection of either section 22 of the Rent Act 1977 (for an agreement entered into before January 15 1989), or section 3 of the Housing Act 1988.
Where the individual sharers cannot establish exclusive possession of part of the accommodation, can they be said, either individually or collectively, to have exclusive possession? To both these notions the House of Lords has given a firm rejection. The right given to each individual occupier is not one to the exclusive occupation of the property but merely to share it with others to be nominated by the owner. Provided the accommodation is suitable for occupation by more than one person and the right to nominate is restricted to a number which it can realistically house and, bearing in mind that in such circumstances this is the actual scenario contemplated by the parties, such an agreement must be treated as genuinely reflecting the rights of the parties.
Nevertheless, can all the sharers collectively be viewed as having exclusive possession, ie are they, together, joint tenants? Again, and quite rightly, the House of Lords has ruled that this cannot be so. It seems incontrovertible that, where occupiers come in under quite separate agreements, commencing at a different time and lasting for a different period, the traditional requirements of a joint tenancy, which demand the four unities of time, title, interest and possession, cannot be satisfied. What does not seem to have been countenanced is whether they could have been regarded as tenants in common, a form of co-ownership applicable to leaseholds which, although it requires unity of possession, does not demand the other unities. Despite this, it is submitted that this possibility was implicitly covered by Lord Oliver’s reasoning. He was not prepared to accept that they could collectively be regarded as having exclusive possession: given that each
“licence agreement is what it purports to be, that is to say, merely an agreement for permissive enjoyment as the invitee of the landlord, then each shares the use of the premises with other invitees of the same landlord. The landlord is not excluded for he continues to enjoy the premises through his invitees, even though he may for the time being have precluded himself by contract with each from withdrawing the invitation.”
Thus, the sharers could not be treated as having even the unity of possession.
Solely occupied accommodation
Although the House of Lords’ latest sortie into the field concerned two cases which involved the sharing of accommodation, it remains to be considered whether anything was said which is relevant to the sitution where the premises are occupied by one person only. Both Lord Templeman and Lord Oliver did make certain comments relating to a sole occupier which bear scrutiny.
Lord Templeman said:
“Under an agreement for the exclusive occupation of a room or rooms consisting of a dwelling for periodic payments then, save in the exceptional circumstances mentioned in Street v Mountford [5] AC 809, a single occupier, if he is not a lodger, must be a tenant. The agreement may provide, expressly or by implication, power for the owner to enter the dwelling to inspect or repair but if the occupier is entitled to the use and enjoyment of the dwelling and is not a lodger he is in exclusive occupation and the agreement creates a tenancy.”
Lord Oliver had this to say:
“Where…the circumstances show that the occupant is the only occupier realistically contemplated and the premises are inherently suitable only for single occupation, there is, generally, very little difficulty. Such an occupier normally has exclusive possession, as indeed she did in Street v Mountford, where such possession was conceded, unless the owner retains control and unrestricted access for the purpose of providing attendance and services …the occupier in those circumstances is either a lodger or a tenant.”
Both these comments reiterate a principle propounded by Lord Templeman in Street that a residential occupier is either a tenant or a lodger, a view that was firmly rejected by the Court of Appeal in Brooker Settled Estates v Ayers [7] 1 EGLR 50; (1987) 282 EG 325. The ruling there was that the crucial question is not whether the occupier is a lodger, but whether he has exclusive possession, thus acknowledging that it is perfectly possible for an owner to preclude the grant of exclusive possession other than by providing services which render the occupier a lodger.
It is submitted that the Brooker approach is sounder in principle, but is this pure semantics in a case involving a sole occupant? Not if, in such situations, there are genuine ways in which an owner can preclude the grant of exclusive possession, other than by providing services.
What if an owner agrees to allow a single occupier into possession of a two-bedroomed flat and reserves the right either to share the property himself or to put in one other occupier? Although the inclusion of such a clause would be highly susceptible of the argument that it is a sham device, such a conclusion might not always be justifiable. Our hypothesis involves accommodation which will actually sustain another occupant and a clause which limits the owner’s rights to put in only one other person — two important factors not present in Antoniades. Even so, if never actually acted upon, this “subsequent conduct” could be used as evidence that the clause was a sham. However, there is a snippet in Lord Jauncey’s judgment which might be regarded as pertinent: “Mr Antoniades…argued that the sole purpose of the clause was to enable him to use the flat if some disaster befell his own house and he had no roof over his head. Had the clause so specifically stated, different considerations might have applied.” A pointer to an acceptance form of precluding exclusive possession to a sole occupier?
If the above is one circumstance in which an owner could prevent a sole occupier from having exclusive possession other than by a lodging agreement, then the correctness of the either/or approach to the status of a residential occupier, apparently adopted by both Lord Templeman and Lord Oliver, will become crucial.
In conclusion, it must be said that the House of Lords has produced a workable regime governing sharing agreements. These two cases — which represented two very different but equally commonplace situations — gave their lordships the opportunity to consider the range of problems raised by these types of agreement. The solutions provided are, on the whole, eminently sensible. Inevitably, there remain some circumstances in which nice legal distinctions may yet be of great importance for occupiers under existing agreements. Perhaps fortunately, the new regime for private-sector tenancies may dull the ingenuity of those who might otherwise have spent many a happy hour trying to incorporate the benefit of the few remaining loopholes into new-style licences for future use.
(*) Reported in Estates Gazette, November 26 1988, at p 193.
