Firstcross Ltd (Formerly Welgelegen NV) v East West (Export/Import) Ltd and another

Rent Act 1977–Failure of valiant attempt to overturn established doctrine that, although a limited company tenant can claim Rent Act protection as to rent, it cannot on the termination of its contractual tenancy acquire a statutory tenancy either for itself or for a resident occupier–Conclusive authority of Hiller v United Dairies (London) Ltd and, on the broad principle, S L Dando Ltd v Hitchcock–Purpose of company’s tenancy in present case was to provide a dwelling for a director–Various ingenious arguments to avoid application of the authorities rejected–Appeal from county court judge’s decision dismissed–Landlords entitled to possession This was an appeal against an order for possession made by Judge Leslie in the Bloomsbury and Marylebone County Court in respect of a flat at 430 Park West, near Marble Arch, London W2. The plaintiffs in the county court action (respondents to the present appeal) were Firstcross Ltd (formerly Welgelegen NV) and the defendants (appellants) were East West (Export/Import) Ltd and Kiku Mahboob, the occupier. G I Bennett (instructed by Gentle Mathias & Co) appeared on behalf of the appellants; R C Pryor (instructed by C M Alfille & Co) represented the respondents. Giving judgment, STEPHENSON LJ said: This is an appeal by the defendants, East West (Export/Import) Ltd and Kiku Mahboob, against an order for possession made by His Honour Judge Leslie in the Bloomsbury and Marylebone County Court on November 30 1979. The order was for possession of flat 430, Park West, near Marble Arch in this city in favour of Welgelegen NV. They were the successors in title at one remove, or more, of Peachey Property Corporation Ltd and have been succeeded since these proceedings were instituted by Firstcross Ltd who are now substituted as respondents to this appeal. This flat was the subject of a printed tenancy agreement made on November 24 1972. The tenancy was admittedly determined by a valid notice to quit given on May 30 1979 and expiring on June 30 1979. The tenancy of this flat was admittedly within the Rent Act 1977, which now provides by section 1 that ‘. . . a tenancy under which a dwelling-house (which may be a house or part of a house) is let as a separate dwelling is a protected tenancy for the purposes of this Act.’  But the first defendants are a limited company, so that when the respondents’ predecessors wanted to get possession of the flat, by paragraph 7 of their particulars of claim they pleaded: ‘The defendant as a limited company is not entitled to the security of tenure afforded by the Rent Act 1977.’  By their defence filed after the second defendant, Mr Mahboob, had been joined on September 12 and filed on September 18, they admitted pretty well all the allegations made in the particulars of claim, except that made in paragraph 7 which I have read. As to that, they pleaded: . . . the sole purpose of the demise to the first defendant company was to provide a dwellinghouse for the second defendant. The agreement pleaded in paragraph 1 contained a proviso that ‘the flat is for occupation by Kiku Mahboob only,’ and was86 signed by the second defendant as ‘director tenant.’  Throughout the said tenancy the premises have been occupied by the second defendant. By paragraph 3: By reason of the matters aforesaid, it is denied that that said tenancy is excluded from the protection of the Rent Act 1977 by reason of the nominal tenant being a limited company. Then there is a counterclaim repeating the defence and the ‘second defendant counterclaims a declaration that he is a protected tenant of the premises mentioned in paragraph 1 of the particulars of claim.’ The learned county court judge held that he was bound by direct authority to reject the argument for the defendants that the defendant company was entitled to a statutory tenancy or had become the statutory tenant, and he held that the defendant company was not entitled to a statutory tenancy and the landlords were entitled to an order for possession. In his notice of appeal and in his able and exhaustive submissions to this court Mr Bennett, on behalf of both defendants, has made his main submission that which he made in the county court, namely that the defendant company has since June 30 1979 been a statutory tenant of this flat. A statutory tenant is now defined in section 2 of the Rent Act of 1977 in this way: (1) Subject to this Part of this Act– (a)  after the termination of a protected tenancy of a dwelling-house the person who, immediately before that termination, was the protected tenant of the dwelling-house shall, if and so long as he occupies the dwellinghouse as his residence, be the statutory tenant of it; But he then reinforced his main submission by an alternative submission that the second defendant is a statutory tenant of this flat. He concedes that the general rule, established by long-standing authority of this court, is that the tenancy granted to a limited company is not protected by being given the security of the Rent Acts, but he contends that there may be rare exceptions. The effects of this tenancy agreement and this case take it out of that rule and the continuous occupation of this flat by the second defendant is sufficient in law to create a statutory tenancy either in the defendant company or in the second defendant. The tenancy agreement is certainly peculiar. It is an agreement, as I have said, on a printed form, made on November 24 1972 ‘Between Peachey Property Corporation Limited’ on the one part, and the defendant company on the other ‘(hereinafter called ‘the Tenant’) Whereby the landlords agree to let and the Tenant agrees to take all that flat numbered 430 . . . to hold the same unto the Tenant for a term from the 18th day of November 1972 to the 31st day of January 1973 subject to either party giving to the other at least 14 days’ clear notice of intention to allow the said term to determine by effluxion of time on the last mentioned date.’  Then there is a provision for paying the rent of £25.55 per week payable monthly in advance on the first day of every calendar month; then come a number of tenant’s covenants, more suitable to a personal tenant than to a corporation like the defendant company, and by (g) of clause 1, which sets out the tenant’s covenants, the tenant agrees and warrants as follows: (g)  Not to allow more than two persons (inclusive of the Tenant) to reside or regularly to sleep in the Flat. (h) To use and occupy the Flat as a private dwelling in one occupation only and not to permit or suffer the same to be used or occupied for any other purpose whatsoever. (i)   Not to assign or underlet or part with possession of the Flat or any part thereof or to share occupation thereof. The counterpart of this agreement we have is signed by the second defendant as the tenant director and after the place for the signature of Peachey Property Corporation there are written these words: ‘Providing the flat is for occupation by Kiku Mahboob only.’  That is signed by Mr Mahboob, the second defendant, again as a director tenant, over a printed stamp giving the defendant company’s name and address. The only evidence given before the county court judge in view of the admissions made in the defence was the evidence of the second defendant. He was asked in re-examination about this proviso and he said that Peachey Property added the proviso that the flat was only to be occupied by him. ‘They said they wanted to put this in and I agreed.’  In response to a question by the judge he said: ‘It did not seem to matter that the tenancy was not in my name.’  In examination-in-chief he had told the judge that the defendant company was his father’s company, his father being its managing director and having the controlling interest in it. He himself was appointed a director of it in 1970 and ceased to be a director in 1973 when he formed his own company, a company called KMI (London) Ltd, a trading company. At the start of the tenancy the rent was paid to the landlords by cheques drawn on the defendant company’s account. In 1973 when he formed his company the cheques were paid by KMI (London) Ltd, but at the insistence of new management from March 1979 onwards the practice reverted to payment of rent by the defendant company, but thenceforward the second defendant reimbursed the defendant company. The facts upon which Mr Bennett, on behalf of the defendants, relies are those set out in his notice of appeal, in which he says that in holding that the defendant company could not become a statutory tenant of the premises because it is a limited company the judge failed to have any or sufficient regard to the facts of clause 1(h) of the agreement, which I have read, then of the express proviso, which I have read, and clause 1(1), which I have read: then paras (4) and (5) of the notice of appeal: (4) the occupation of the said premises by the second defendant was not made contingent upon his being a director of, employed by or in any other way associated with the first defendant; (5)  the sole express purpose of the Tenancy Agreement was to provide residential accommodation exclusively for the second defendant, who has occupied the said premises continuously as his residence from November 24 1972 to date. Mr Bennett submits that the protection of the second defendant in his occupation of the flat serves the purpose and philosophy of the Rent Acts, former and present, to provide a degree of security for residential occupiers. Usually that purpose would be defeated by protecting the tenancies of limited companies, but not so here. The provision in clause 1(1) prohibiting assignment makes his occupation sufficiently personal to give rise to a statutory tenancy. He concedes that if the second defendant is a statutory tenant and remains in occupation and dies, his widow if she is living there with him at his death becomes a statutory tenant after him under the provisions of section 2 of and Part I of Schedule 1 to the Rent Act 1977. That would not, says Mr Bennett, be the result if the defendant company were the statutory tenant because the company would have no such successors as are described in Part I of Schedule 1. The question is, can the facts of this case give rise to a statutory tenancy in favour of a resident occupier at the termination of a contractual tenancy with a limited company?  Mr Bennett would, I think, submit that that question is stated too widely, because his answer to it depends so much on the precise facts of this case, as proved by reading the proviso with the tenant’s covenants; but nevertheless it seems to me to be the right question which the judge and this court have to answer. It was held by the Divisional Court as long ago as 1933 in Reidy v Walker [1933] 2 KB 266 that the fundamental principle of the Rent Acts laid down by this court in such cases as Haskins v Lewis and Skinner v Geary, reported in [1931] 2 KB at pp 1 and 546 respectively, was to protect a resident in a dwelling-house from being turned out of his home, and that principle applied to prevent a limited company87 from being protected. That decision was approved by this court in the same year in Hiller v United Dairies (London) Ltd [1934] 1 KB 57, where the defendant company claimed to be in occupation by their manager. In that case Lord Wright said, at p 61: As I understand the argument very ably put forward by Mr Vaughan in the present case it is this, that as the defendants are a company, and, therefore, incapable of physical possession, they ought to be placed in a position better than, and different from, the position of one who is an individual and not a juristic person such as the defendant company. I cannot follow that argument at all. If the rights under the Acts which are given to the statutory tenant are, as this court has held in several cases, purely personal, I do not see how these rights can be vicariously enjoyed or how the principle of dwelling in the premises by an agent be admitted. At p 63, Slesser LJ said this: Here the right, such as it is, is a personal right of tenancy of the company. There is no evidence they have parted with the possession of it and if they had, that would in itself exclude them from any rights here. They cannot by the nature of things reside in a domestic sense, they cannot come or go to these particular premises and they are outside the Act. I would only add this. I do not intend to decide–it is not necessary to decide in this case–whether the Act can in all circumstances be said not to apply to a corporation. A corporation may be a corporation aggregate or a corporation sole. There may be cases where particular corporations may come within the province of the Act. It is not necessary to decide the point. It is sufficient to say that this trading company cannot come within the Act and that the cases of Skinner v Geary and Haskins v Lewis exclude it. Mr Bennett relied on that passage in the county court and, I think, to some extent in this court; but I agree with the learned judge that it is not open because the defendant company is a trading corporation and Slesser LJ was only considering the possibility that there might be some sorts of corporation other than a trading company which might be protected by the security conferred by the Rent Acts. But the final authority which, in my judgment, brings Mr Bennett down is what this court said and decided in the case of Dando (SL) Ltd v Hitchcock reported in [1954] 2 QB 317, following the case of Cove v Flick reported in a note to that case at p 326 of the same volume. In two cases which had been reported in the Estates Gazette Digest and had found their way into Megarry on the Rent Acts, county court judges had refused possession to landlords against tenants who were not themselves occupying the dwelling-houses let to them. In Kirk v Shriebhand [1947] EGD 248 Judge Pratt held that the basis of the tenancy agreement in that case was that the tenant’s two married daughters and sons-in-law should occupy the dwelling-house as their residence, not the tenant himself. In Gapps Ltd v Hedges [1950] EGD 255 Judge Dove had held that a written agreement which permitted a tenant to allow his former manager to occupy the demised premises from the time of the demise was made with the intention that they should be used as a dwelling not by the tenant but by another named person, who made the house his home and continued to live there. He therefore held that the tenant, though he had always resided elsewhere, was a statutory tenant. Both these judges stated that to refuse protection would be to encourage landlords to circumvent, or evade, the Rent Act by letting premises to one person, perhaps a stranger, for occupation by another. These persuasive decisions were referred to in Megarry on the Rent Acts, sixth edition, p 155, in this way: Such decisions present obvious theoretical difficulties but the satisfactory results can perhaps be supported (at all events between the original parties), on the ground that by their agreement the parties have made occupation by the daughters or the manager equivalent to personal occupation by the tenant. In Wabe v Taylor [1952] 2 QB 735 Birkett LJ quoted that passage. In Dando (SL) Ltd v Hitchcock [1954] 2 QB 317 the predecessors in title of S L Dando Ltd let a farmhouse to Hitchcock by a tenancy agreement with a clause providing (at p 317 of the report): . . . either the tenant or his present manager, Austen Paynter (the second defendant), is to reside on the premises and not to part with the possession of any part thereof. The manager moved into the house with his family, and continued to live there, later entering into partnership with Hitchcock in a dairy business which was carried on in part of the premises. Hitchcock did not at any material time live in the house nor had he ever intended to live there. In 1953 the plaintiff company, S L Dando Ltd, bought Parker’s interest in the premises, and served notice to quit on the tenant Hitchcock, thereby determining the contractual tenancy. They applied to the county court for an order for possession. . . . Judge Daynes refused the order. He expressed the view that his decision was consistent with two other decisions of county court judges, Kirk v Shriebhand and Gapps Ltd v Hedges and Ley, neither of which had to his knowledge been adversely criticised; and added that in Wabe v Taylor Birkett LJ had based his judgment in part on Mr Megarry’s conclusion at p 155 of the sixth edition of The Rent Acts that those decisions were on the right lines. This court called attention to Cove v Flick, which was not then reported, at p 319 of the report. In that case Judge Howard had given possession against a tenant intending that the house let should be a home for his parents, his sister and himself. They all lived there until he married and left. This court dismissed the tenant’s appeal. In the case of Cove v Flick Somervell LJ said at p 327 of the report in [1954] 2 QB: Wabe v Taylor concerned a deserted wife and her position was, therefore, a very special one and cannot assist the defendant in the present case. After quoting the same passage from Megarry on the Rent Acts as it appeared in the seventh edition at p 188 from which the word ‘perhaps’ had been omitted, Somervell LJ said: I am not at all clear whether the parties can in fact do that [make occupation by others equivalent to personal occupation by a tenant]. As Denning LJ pointed out in the course of the argument, it may be difficult to reconcile that with the decision where a limited company was the defendant. Certainly I think what was said in Wabe v Taylor ought not to be regarded as having any general application beyond the facts of the case as there stated in Birkett LJ’s judgment. The sort of case contemplated by Mr Megarry in that sentence can be dealt with when it arises. For these reasons it is clear that this point does not avail the tenant and that what he had said with regard to the family coming to live there, and the fact that they did go there, in no way prevents the landlord from relying on the principle of Skinner v Geary, if that principle is applicable to this case. Denning LJ quoted what I have quoted from Hiller v United Dairies (London) Ltd and said: That principle is really sufficient to decide the first point in the present case. As to the proposition which was stated in Mr Megarry’s book and quoted by Birkett LJ in Wabe v Taylor, I can well see that the court would not allow a landlord to evade the Act by taking an absent member of the family as a nominal tenant when the real occupier and real tenant was to be a present member; but, subject to cases of that kind, it seems to me that the principle stated by Lord Wright is beyond question. I agree with all that my Lord has said on the other point also and that the appeal should be dismissed. Romer LJ, at the bottom of p 328, referred to the same passage which Birkett LJ had quoted from the 6th edition of Megarry on the Rent Acts, noticed that in the 7th edition the precautionary word ‘perhaps’ had been dropped, and said: I quite agree with what my brethren have said on the difficulty of the proposition, but at the moment I should like to see the word ‘perhaps’ restored. 88 In Dando’s case, this court allowed the landlords’ appeal and gave them possession. All its members emphasised that the position of a husband occupying, not by himself but by his wife, a dwelling-house let to him was special and not to be extended to other cases where the occupier was not the wife. Denning LJ, at the beginning of the first judgment, said this at p 321: Paynter himself is only a licensee and has no protection against Hitchcock; but Hitchcock claims to be entitled to the protection of the Acts because he says that occupation by Paynter is equivalent to occupation by himself, and for this purpose he relies on the clause in the agreement which I have read. After quoting again what Lord Wright had said in Hiller’s case, he added: If Hitchcock were enabled by the clause in this agreement to claim the protection of the Acts, it would mean that a limited company by a like clause could obtain protection; and that would be contrary to the principle involved in Hiller’s case. So also, if Hitchcock could by the clause obtain the benefit of the Acts in respect of this house, he might do so in a similar way for half a dozen houses and he might be statutory tenant of half a dozen: and if he died and his widow succeeded, she might claim the statutory tenancy. Such consequences can never have been intended by Parliament; and I do not think that the clause in the agreement can be admitted to have such an effect. The clause is not carried over into the statutory tenancy because it is not consistent with the provisions of the Act. It is contrary to the principle that the tenant is only protected so long as he himself retains possession, which means so long as he himself remains in personal occupation. Some reference was made to the husband and wife cases. It is well established that if a husband deserts his wife and leaves her in the house, the statutory tenancy does not come to an end. That is because of the particular relationship of husband and wife. The husband continues to occupy by his wife. She has an irrevocable authority from him to stay there. It remains the matrimonial home, though he is not living there. Those cases are on a special footing, and do not apply to this case. Then Denning LJ said this: Let me add a word of caution. I can well see that the court would not allow the landlord to avoid the Acts by taking someone as a nominal tenant, well knowing that the real tenant was to be somebody else. The court would then look to the realities of the situation. But subject to cases of that kind, the only person protected under the Rent Restriction Acts is the tenant; and he is protected only so long as it is his home. As Lord Goddard CJ said in Reidy v Walker, the Rent Restriction Acts were intended for the protection of a person’s home, not for the protection of some other rights which he may have. This case seems to me to be an attempt to protect Hitchcock in respect of some other rights, certainly not a right in respect of his home. In my judgment, this appeal should be allowed. I make no apology for reading the whole of that short leading judgment because it contains, it seems to me, almost a complete statement of the relevant law and indicates how we should decide this appeal. Birkett LJ elaborated what Denning LJ had said about Wabe v Taylor and explained, at p 324: . . . in support of the view which I, and the other members of this court took, that on the facts of that case the landlord had accepted the deserted wife and her occupation as the occupation of the tenant. He then quoted the judgments in Cove v Flick and concluded, at p 325: It is perfectly plain that Wabe v Taylor decided that in the case of a husband and wife the occupancy of a wife can be regarded as the occupancy of the husband. Mr de Piro says: ‘I want to extend that and I want to say that in this particular case, having regard to the clause in the agreement, the occupancy of Paynter was the occupancy of the tenant.’  I am bound to say that, having regard to the decisions in Skinner v Geary and all the cases which have followed, it seems very difficult to make that extension without coming into conflict with those decisions, notably the judgment of Lord Wright which has been quoted above. Finally Lord Goddard CJ said, at p 325: I think that the Acts are intended and designed to protect tenants and tenants only. That there has been an inroad into that principle in the cases of husband and wife is no doubt true. I cannot help thinking that in those cases the shadow of the old common law doctrine that husband and wife are one in law has possibly, consciously or unconsciously, affected the courts. The Acts put very considerable difficulties in the way of landlords and circumscribe their legal rights to a very great extent. I do not think that we ought by decisions to enlarge the difficulties of landlords or to go further than the declared object and policy of the Acts dictate–that is, to protect tenants–and I think that it cannot be denied that that means tenants who live in these houses. Where there is a personal tenant who does not live in the house, never intends to live in the house, and declares that his intention is never to live in it, I can see no reason why his tenancy should be protected to enable him to keep in the house a manager, or a partner, or anyone else whom it may be convenient to have there. He did not there refer to the position of a tenant company, but that he took the same view of a company as of an absentee tenant is indicated by the question he is reported to have asked in the course of the argument: Why should an individual who says that he never intends to occupy, and never has done, be in a better position than a company?  The court ought not to strain the Acts to protect a person in occupation who is not the tenant; and here the manager was never the tenant. So he allowed the appeal and again I make no apology for reading almost the whole of his short and very pertinent judgment. None of the judgments in Dando’s case refer to the two county court judgments which were followed by Judge Daynes, but in reversing the decision of Judge Daynes they were, in my judgment, overruling those decisions also. I cannot distinguish the position of Hitchcock and his manager, Paynter, from the position of Hedges and his manager, Ley, merely on the ground that the clause in Hitchcock’s tenancy agreement gave him or, alternatively, his manager a licence to occupy the demised premises; and I do not consider that the decision in either county court case can be supported without extending the decision in Wabe’s case contrary to the opinions expressed by this court in Dando’s case. It is thus, it seems to me, trite law, as Lord Denning MR stated it in Feather Supplies Ltd v Ingham [1971] 2 QB 348 at p 352(G): . . . that a statutory tenant is only entitled to retain possession so long as he–or his wife–is personally in occupation of the dwelling-house. If he puts in a relative (other than his wife) or a manager or licensee, and is not in occupation himself, the landlord can turn them out. It seems to me a conclusion a fortiori that a limited company is in no better position than a tenant who could reside in the premises personally, whereas a limited company cannot. Mr Bennett’s able argument has not persuaded me any more than it persuaded the learned county court judge that a named individual, who is a director but who is accommodated in the dwelling-house on terms that no one except one other person is to occupy it with him, but that he can reside there whether he retains his links with the tenant company as director or not, or in any other way or not, is in any different position from Paynter in Dando’s case, or Ley in Gapp’s case. If Hitchcock and Paynter could be turned out of Dando’s farmhouse, I do not see why the second defendant cannot be turned out of the plaintiff’s flat. He is in a worse position than Paynter because the tenant on whom he relies for his right to be in the flat is a limited company and, unlike Hitchcock, incapable of itself taking physical possession of the flat and personally residing there. I understood Mr Bennett to concede that the defendant company could not have got the benefit of the protection of the Act if the tenancy agreement had provided for the occupation of the second defendant so long only as he remained a89 director; in that case no statutory tenancy would arise on the determination of the agreement while the second defendant was still a director, but if he were to cease to be a director and to sever his links with the defendant company a week before the tenancy expired, a statutory tenancy would arise. That, with other anomalies, illustrates the difficulty of accepting Mr Bennett’s arguments in favour of these defendants. The strength of the defendant’s case, as of the case of Hedges and Ley in Gapp’s case, is that the express purpose of the tenancy agreement is to provide residence for the second defendant; but the tenant is not the second defendant, but the defendant company, whose tenancy is determinable by a month’s notice after about 2 1/2 months. So the express purpose of the agreement as a whole is to provide a residence for the second defendant as long as the tenancy lasts, provided he chooses to remain in occupation. I agree with Mr Pryor that the defendant company would not be in breach of covenant if they allowed the second defendant to go out of occupation during the currency of the tenancy provided that they put no one else in; but the purpose of providing a residence for the second defendant after the end of the tenancy for as long as he chooses to remain there cannot be derived from the terms of the agreement, but only from the application of the statutory provisions of the Rent Act to the defendant company’s tenancy, and that is contrary to the law laid down in such cases as Hiller, which were clearly assumed to be still binding in Dando’s case. Mr Bennett is, therefore, driven back to the contention that the defendant company occupied under the tenancy through the second defendant, or that his occupation is their occupation, or to asserting that the defendant company is only the nominal tenant and the real tenant is the second defendant, as indicated by Denning LJ’s words of caution in Dando’s case echoing what he had said in Cove v Flick. But this Mr Bennett cannot do, as Mr Pryor pointed out, for that would make the written agreement a sham, as purporting to be an agreement to let the flat to the defendant company when it was really an agreement to let it to the second defendant. That the agreement was a sham was disclaimed at the trial in the county court and indeed is disclaimed here before us, and was unsupported by the evidence there given. Peachey Property Corporation wanted the proviso and the second defendant agreed, but he did not say that he understood that he was the tenant, though the judge asked him a question which he might have so answered as to have supplied evidence that the agreement was a sham and he was the real party to whom the flat was being let. He could have told the judge, if it were true, that the defendant company were merely his agent or nominee, and if the judge had believed him he could and should have given effect to the real agreement and dismissed the claim. But instead the second defendant told the judge that it did not seem to matter that the tenancy was not in his name. I suspect it mattered very much to Peachey Property Corporation that it was not, because if it had been he would have had what the defendant company’s tenancy cannot give him–the security of a protected statutory tenancy. For these reasons I approve the judgment of the learned judge and would dismiss the appeal. DUNN LJ and SIR STANLEY REES agreed. The appeal was dismissed with costs. Leave to appeal to the House of Lords was refused. Possession was ordered within 28 days of date of judgment.