Barclays Wealth Trustees (Jersey) Ltd v Erimus Housing Ltd

Case No: HC12D04636 IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION [2013] EWHC 2699 (Ch) The Royal Courts of Justice The Strand London, WC2A 2LL Monday, 22 July 2013 BEFORE: MR J JARVIS QC (Sitting as a Deputy High Court Judge) ——————- BETWEEN: BARCLAYS WEALTH TRUSTEES (JERSEY) LIMITED Claimant/Respondent – and – ERIMUS HOUSING LIMITED Defendant/Appellant ——————- MS E BETTS (instructed by Reed Smith) appeared on behalf of the Claimant MR A ROSENTHAL (instructed by Bond Dickinson) appeared on behalf of the Defendant ——————- Judgment (As approved) ——————- Digital Transcript of Wordwave International Ltd (a Merrill Corporation Company) 8th Floor, 165 Fleet Street, London, EC4A 2DY Tel No: 020 7421 4036 Fax No: 020 7404 1424 Web: www.merrillcorp.com/mls Email: courtcontracts@merrillcorp.com (Official Shorthand Writers to the Court) THE DEPUTY JUDGE: Background 1. This case raises what appears to be a simple question whether the defendant, Erimus Housing Limited, the tenant, occupied premises owned by the claimant, Barclays Wealth Trustees (Jersey) Limited and Walbrook Properties Limited, the trustees of the Centre Unit Trust, the landlord, as a tenant at will or as tenant subject to a periodic tenancy. Until the expiry of the lease on 31 October 2009, the tenant held the property under the terms of a lease dated 9 November 2004, which had a term defined as approximately five years commencing on that date and expiring 31 October 2009. The rent was £170,209 per annum, together with service charges, insurance charges and value added tax, as applicable. 2. On 29 December 2005 the landlord became registered as freehold owner. Before the expiry of the lease Mr Andrew Arkle, on behalf of the tenant, started negotiations with the then agent for the landlord, Mr Stephen Gilroy of Storeys SSP. By 6 October 2009, there appeared to be proposals put forward with modest rent increases and a service charge increase, with a rent review in a third year. The suggestion was that there would be further discussions. 3. As I have indicated the lease expired on 31 October 2009. Negotiations then appear to have been reactivated at some date prior to 15 January 2010, when Mr Arkle wrote to Mr John Irwin, who was the landlord’s agent, and discussed, again, various terms, including the rental, flexibility over a break clause, a term of some six years, with break clauses on three months notice, on second, third, fourth and fifth anniversaries, and, as with the previous lease, contracting out of the provisions of the Landlord and Tenant Act 1954. 4. The next stage appears to be that on 16 November 2010 Mr Arkle wrote to Mr Paul Richardson, who was now the representative for Commercial Estates Group, the newly appointed agents for the landlord, and referred to there having been conversations about car parking. The reference appeared to relate back to the old lease which had provided for a use of 60 cars and the fact that Middlesbrough Council had sent some 75 parking passes and the tenant did not wish to have the additional 15 passes. 5. More importantly, Mr Arkle wrote: “On the matter of our occupation, we are holding over under the terms of the original lease and continue to make rent, service charges and insurance payments on the due dates. When we met at John Irwin’s offices some time ago we discussed the background to our occupation, but that was just before legal completion of the building sale. We have not received any specific proposals from you in terms of lease documentation. I was therefore wondering whether this is something that you’ll be progressing in the near future. In the meantime, we assume that both sides are content for matters to continue as they currently exist.” 6. There appears then to be a gap between 16 November 2010 and 15 June 2011. What appears to have happened on 15 June is Mr Arkle wrote to Mr Richardson and told him that he had the agreement on his side to the lease renewal and that he had instructed the tenant’s solicitors, Dickinson Dees, to act on its behalf and to whom the documentation should be sent. The response from Mr Richardson on the same day was thanking him for that and saying that instructions would be issued to the landlord’s solicitors, Reed Smith, to draft documentation on the basis of agreed heads of terms. 7. Those heads of terms included a term of three years from completion of documentation with 1 July being the target date, a rent of £133,665 per annum, plus value added tax and the various sums for service charges and parking. There was to be a break clause on 30 June 2013, subject to six months notice. So, at that point it looks as though there was agreement as to the terms upon which the renewal would take place. But, as it transpired, it never occurred. 8. What in fact happened was there was a telephone conversation between Mr Richardson and Mr Arkle in which Mr Arkle said that the tenant had now reviewed its occupational requirements and wanted bigger accommodation and was proposing to move. This led Mr Richardson to make an offer to Mr Arkle to provide for 30,000 square feet with 120 parking places with a stepped rent, hoping that there could be discussion as to that. That is contained in the email dated 25 August 2011. 9. That was not accepted by the tenant, because the next day, 26 August 2011, Mr Arkle wrote back to Mr Richardson apologising for the departure from what had been intended in relation to the property at Centre North East, Middlesbrough, saying that they had advanced designs and incurred significant costs on what was to be a new build proposal. He then said: “Unfortunately, this means we are unable to progress with the two year minimum commitment as originally expected in good faith. We are anticipating vacating Centre North East around March of 2012 and are therefore suggesting that we continue to hold over paying as we have to date, such payments being comparable with what was intended in terms of the sums involved.” 10. Very little seems to have happened after that. There was no response to that letter from Mr Arkle. Then on 3 February 2012 Mr Richardson wrote to Mr Arkle referring to the discussions in 2011 saying: “I would be grateful if you could please provide an update in respect of your indicative operational timescales for relocating, as we will need to begin the formalities associated with a tenant vacating.” 11. Again, there is no further correspondence immediately after that, but there were plainly conversations which took place, because in an email dated 24 May 2012 Mr Arkle says to Mr Richardson that there had been conversations and that they now had a move date agreed and that was to be 31 August 2012. Mr Arkle asked the question when the landlord required the tenant to give formal written notice or whether it could be dealt with by an exchange of emails. 12. On 30 May 2012 Mr Arkle sent a formal letter of intent to vacate on 30 May 2012, with the vacation date being 31 August 2012. Subsequently, the tenant’s solicitor wrote on 21 June 2012 indicating that the tenant now wished to terminate its tenancy and the letter was to give at least three written months notice to terminate on 28 September 2012. To complete this chapter, on 26 June 2012 Reed Smith, acting for the landlord, said that the position in law was that the premises were occupied by the tenant on a yearly basis, which would require notice of at least six month, expiring with the end of the lease period, 31 October 2013. 13. There was then further correspondence, which eventually led to an acceptance that if there were a periodic tenancy it would not be a quarterly tenancy, but would in fact be an annual tenancy, the tenant’s solicitor having asserted on 7 August 2012 that it was a quarterly tenancy. On 25 September 2012 the property was vacated and the keys were given up by the tenant. The Issues 14. Originally, in these proceedings, two declarations were sought. The first, which remains relevant, is whether there was an implied annual tenancy. The second was in relation to whether a licence for alterations dated 9 November 2004 bound the defendant, the tenant, and obliged him to reinstate the premises. That second declaration has now been conceded and is subject to discussion as to the state of dilapidations. It is only the first matter which concerns me. The practical effect of what I am asked to decide concerns whether rent of some 13 months, namely approximately £185,000, should be paid by the tenant to the landlord so as to cover the period to 31 October 2013. The Law 15. There has not been any serious dispute as to the applicable law. I can set out the principles quite simply: (1) Where property is let at the will of the lessor and the lessee is a tenant at will he or she has no certain or sure estate, because the lessor may put him out at any time he pleases; (2) A tenancy at will can be created expressly or by conduct; (3) Either party can determine a tenancy at will at any time; (4) If the tenant wishes to terminate the tenancy, merely giving notice is not enough; the tenant must also give up possession in order to terminate the tenancy: Woodfall at paragraph 6.074; (5) A landlord is not required to allow the tenant a reasonable time within which to vacate the premises, although the tenant may be allowed to re-enter solely to remove his goods: Doe D Nicholl v M’Kaeng [1830] 10 Bd&C 721. 16. The leading case on the distinction between a tenancy at will and a periodic tenancy is Javad v Aqil [1991] 1 WLR 1007. The analysis of Nicholls LJ concerning the position where a tenant is in possession and making payments of rent is set out at paragraphs 1011H to 1013D. 17. In summary: (1) A tenancy or a lease is an interest in land. With exceptions immaterial for present purposes, a tenancy springs from a consensual arrangement between two parties (1012C); (2) The extent of the right granted and accepted depends primarily upon the intention of the parties (1012C-D); (3) Where there is no express agreement, the law has to step in and fill the gaps. The law will imply from what was agreed and all the surrounding circumstances the terms the parties have taken or are to be taken to have intended to apply (1012E); (4) If one party permits another to go into possession of its land on payment of rent of so much per week or month, failing more, the inference sensibly and reasonably to be drawn is that the parties intended there should be a weekly or monthly tenancy. Likewise, if one party permits another to remain in possession after the expiry of his tenancy (1012E-F); (5) However, this simple situation is unlikely to arise often, not least because of the extent to which statute has intervened in landlord and tenant relationships. Frequently there will be more circumstances which concern the court. Where there is more than the simple situation, the inference sensibly and reasonably to be drawn would depend upon a fair consideration of all the circumstances of which payment of rent on a periodical basis is only one, albeit, a very important one (1012F-G); (6) It is clearly established that it is legitimate to have regard to the relevant statutory protection in determining whether or not acceptance of rent is a factor from which a new tenancy could be created: see Longrigg, Burrough and Trounson v Smith [1979] 251 EGLR 847, 849. When account is taken of the machinery of the Landlord and Tenant Act 1954, the parties’ knowledge of its operation may show that the parties did not intend to create a periodic tenancy pending a grant. Under the old law, it would have been necessary for the court to have approved this under section 38(4) of the Landlord and Tenant Act. But now, since 2004, it can be dealt with subject to statutory declarations of the parties acknowledging the effect of contracting out of the Landlord and Tenant Act 1954. 18. It follows, therefore, that the court must consider the intentions of the parties from what was agreed and the surrounding circumstances and draw what appropriate inference can be made to show whether there is a periodic tenancy or a tenancy at will. In Javad, Nicholls LJ also considered the specific situation where the parties were negotiating the terms of a proposed lease and the prospective tenant is let into possession or is allowed to remain in possession in advance of and in anticipation of terms being agreed. 19. Nicholls LJ decided: (1) The fact that the parties have not yet agreed terms will be a factor to be taken into account in ascertaining their intention. It will often be a weighty factor (1012H); (2) They cannot sensibly be taken to have agreed that a tenant shall have a periodic tenancy when he has been permitted to go into possession or remain in possession merely as an interim measure in the expectation that all will be regulated and regularised in due course, when terms are agreed and a formal lease is granted (1012H-1013A); (3) When and so long as such parties are in the throes of negotiating larger terms caution must be exercised before inferring or imputing to the parties an intention to give to the occupant more than a very limited interest, be it a licence or tenancy (1013D-C); (4) The court must be aware of inferring or imputing from conduct such as payment of rent or the carrying out of repairs, where the explanation lies in the parties’ expectation that they will be able to reach agreement on the larger terms, an intention to grant a lesser interest, such as a periodic tenancy, which the parties never had in contemplation at all (1013C-D). 20. It is also helpful to take into account the five matters which Pumfrey J set out in London Baggage Co (Charing Cross) v Railtrack Plc [2000] L&TR 439 at 449. The five considerations were: (1) There is no rule that in a case in which the tenant holds over after the previous tenancy has been determined, that a tender or acceptance of rent will raise the presumption of a periodic tenancy; (2) In deciding whether a periodic tenancy had come into existence the court will look at the intention of the parties and all the surrounding circumstances; (3) It is the objective to ascertain the willingness to contract that must be taken into account and the necessary intent to form a contract are the same in the case of a lease as they are in relation to any other contractual relationship; (4) Where a contractual relationship is said to arise from conduct the onus is on the party relying on the contract; (5) The holding over during the negotiation for a new tenancy is a classic instance of a case in which the only relationship which it is necessary to imply is a tenancy at will. 21. Ms Betts, counsel for the landlord, relies particularly on the Court of Appeal decision in Walji v Mount Cook Land Limited [2002] 1 P&CR 13. In that case, pending the completion of the formalities, it was agreed between the parties that the claimant would remain in possession paying rent as it had been payable under the under-lease. The judge in the County Court reached the conclusion that the claimants had a periodic tenancy of the shop premises on a quarterly basis. The Court of Appeal upheld that finding by the judge. 22. Charles J, who gave the leading judgment and with whose judgment Mance and Aldous LJJ agreed, said the particular facts in Walji were not like the Javad case where the tenant was let into occupation in anticipation of terms being agreed. Charles J considered the position in Walji was much closer, although not wholly analogous, to a tenant without statutory protection holding over at the end of a lease and paying rent on a quarterly basis. 23. There were six points in Walji that convinced Charles J that there was a periodic tenancy. Those six points were: (1) The Walji brothers had been in occupation and had been paying the rent for some time; (2) In May 1995 Romula Limited were told that Sads Limited, the tenant under the under-lease, no longer existed; (3) With that knowledge and on that basis, Romula Limited permitted the Walji brothers to remain in occupation and accepted rent from them on the terms of the proposed new under-lease to the Walji brothers which had been agreed subject to contract or lease; (5) There were no continuing negotiations and neither side pressed for the grant of the lease; (6) There is no indication that Romula Limited was concerned, as would often be the case where a landlord let someone into possession during negotiations for a lease, that the Walji brothers should not be tenants with statutory protection. These led to and supported the conclusion reached by the judge, applying the underlying principle, that the claimants had a periodic tenancy of the shop premises. Analysis of the tenant’s submissions 24. Mr Adam Rosenthal, counsel for the tenant, started his submissions by asking the question: what would have been the position when the lease expired on 31 October 2009? He submitted rightly that there could be no periodic tenancy the day after expiry. There could only have been a tenancy at will. From that starting point he asked: what conduct was there that can have changed what was a tenancy at will into a periodic tenancy? Of course, all cases where there has been a holding over after the expiry of a fixed term tenancy raise that same question. 25. The focus for the court is to look at the conduct of the parties after the expiry of the fixed term tenancy. Mr Rosenthal, following the submissions of Ms Betts, looked at two separate periods in the history of this relationship. The first period is the period up to August 2011. Mr Rosenthal submits that during that period it is quite plain that the occupation of the tenant was referable to the negotiation for the new lease. He submits that the parties were in the throes of negotiation throughout this period and therefore that is a very strong pointer to the fact that the occupation was to be regarded purely as an interim measure and would not give rise to any rights. 26. I have set out in some detail at the outset of this judgment the chronology of the negotiations. I said during the course of argument that I considered the negotiation to be at the very least desultory. Bearing in mind that the lease expired on 31 October 2009, the period up to August 2011 was getting close to two years alone. There was certainly no great impetus in the negotiations. It seems to me that any fair reading of these discussions must lead to the conclusion that the parties were not in the throes of a negotiation. It was a very half-hearted exercise that seems to have gone on. 27. I draw the clear inference that the landlord was content for the tenant to remain in occupation and pay the rent and was perfectly happy that it would in due course reach some kind of arrangement with the tenant. But, no real application appears to have been given to negotiation. The matter ceased to be a matter of sticking plaster relief, but much more of a permanent arrangement. I take the period from August 2010 as a clear example of the negotiations having completely stalled. At that date new agents, the Commercial Estates Group, had been appointed. 28. What is suggested in the witness statement of Ms Fiona Graham is that Andrew Arkle met with Paul Richardson on 5 August 2010 and introduced himself as the prospective managing agent. Andrew Arkle explained that the defendant was planning on building a new office. Andrew Arkle then explained that any new lease between the claimant and the defendant would have to make provisions for this situation and allow the defendant to terminate on giving notice. Both parties agreed to resume discussions. 29. So, at that date in August 2010, it was absolutely plain that a different arrangement would have to be made from that which had been originally discussed, because the tenant was going to move into new offices and that it would want to leave the present premises at some point. Things then appeared to have moved very little forward by 16 November 2010, because that is when Mr Arkle wrote again to Mr Richardson, and the main concern was about parking. There were no proposals for any new terms of a lease and the suggestion was: “Both sides are content for matters to continue as they currently exist.” 30. So, far from there being active negotiations, the position, it seems to me, was quite the reverse. There were no negotiations and there was no push on either side for there to be negotiations. They were happy for the tenant to remain in occupation. It was not then until 15 June 2011 that new heads of terms were agreed, as I have set out earlier in this judgment, for a three year lease, with break terms which would have enabled the tenant to vacate on three months notice. As it turned out, that never came into being. In due course, notice was given to vacate. 31. It seems to me that this was a relationship which developed in which it was accepted on both sides that the landlord would not, at its whim, simply take proceedings to evict the tenant without notice. There was plainly, it seems to me, an acceptance on both sides that notice was going to be relevant and the occupation was on that basis. 32. I turn to the second period from 26 August 2011. When Mr Rosenthal was addressing me I asked him if the arrangement set out in the email dated 26 August 2011, to the effect that the tenant would remain in occupation until around March 2012, whilst it continued to pay the rent which it had been paying, could create in itself some kind of tenancy which could expire in around March 2012. 33. Mr Rosenthal over the short adjournment researched the law and indicated to me that there were only four types of arrangement which the parties could have agreed: (1) A fixed term of any duration, if six months or more, without formalities; (2) A fixed term subject to a break clause, which could be a rolling break clause, exercisable at any notice period; (3) An agreed periodic tenancy on a weekly, monthly or annual basis; (4) A tenancy at will. I accept this. 34. However, what the parties could not in law agree was a term of indeterminate duration. You cannot agree to give exclusive possession for an indefinite time subject to simply giving notice. That is undoubtedly the law, as set out in a series of cases, the most notable of which are the Court of Appeal decision in Lace v Chandler [1944) KB 368 CA, the House of Lords decision in Prudential Assurance Co Limited v London Residuary Body [1992] 2 AC 386 and the most recent Supreme Court decision in Mexfield Housing Co-operative Limited v Berrisford [2012] 1 AC 955. 35. The only way in which the law could be changed is by statute, unsatisfactory as the present state of the law may be. It seems to me, therefore, that there was a very clear indication in the 26 August 2011 email that the tenant wanted to have the right to stay in the premises until March 2012. It could not be achieved at law by a tenancy on that basis other than a periodic tenancy. Against that, Mr Rosenthal submits that the landlord simply could have at any stage told the tenant that it had to vacate, without notice. He submits that was a risk that the tenant took. 36. I do not consider that to be a realistic reading of what was happening between these parties over this very substantial period of time. It seems to me that the tenant expected to have some protection. In other words, that it would not be turned out on its ear. These premises were its principle offices, with substantial equipment and were essential for the way in which its business was operated. It could not have taken the risk that it could have been evicted at a moment’s notice. 37. I do, on the other hand, have to ask the question, would the landlord in these circumstances have committed itself to a position where it would have given a protective tenancy under the Landlord and Tenant Act, because the procedure for contracting out had not been carried out? It seems to me, this case falls very much into the same vein as the Walji case. It seems to me that this is a case where the landlord was simply not concerned with that issue. It allowed the situation to develop as it did. It may not itself have taken sufficient notice of that, but that is irrelevant. It seems to me, whether it did or not, the fact of this relationship developing in the way it had, was such that it did in fact create protection. 38. I found helpful the question posed by Ms Betts: what would have happened if on 27 August the landlord had decided that it would tell the tenant that it had to leave the premises the next day? The tenant would undoubtedly have started proceedings and claimed that it had protection. It was, it would have said, a periodic tenant. As it turns out, although it is irrelevant, it appears it believed that it held a quarterly periodic tenancy. It would no doubt have taken that view. One can see that the court is likely to have come to the conclusion, as I now do, that there was a periodic tenancy in place. 39. So, when one looks at it the other way round, the answer has to be the same. This was a periodic tenancy which, as matters have transpired, works out in favour of the landlord. Conclusion 40. I, therefore, conclude that this is a case where there was a periodic tenancy, where the landlord and tenant expected to have a proper landlord and tenant relationship where notice had to be given. It was a consensual occupation which had lasted for a substantial period of time. The commercial reality was that there was a need for notice to be given, because the parties were in a relationship of landlord and tenant operating on a periodic basis. I, therefore, will make the declaration sought in paragraph 1 of the claim form.