Durman and others v Bell

Landlord and tenant — Dwelling-house subject to Rent (Agriculture) Act 1976 — Protected occupancy — Statutory tenancy under 1976 Act — Whether former agricultural worker who commenced a small builder’s business continued to be protected under Act — Appeal by landlords from dismissal of possession proceedings — Respondent had been employed by former landlord as a herdsman and occupied the dwelling-house free of rent — He ceased to be so employed when the former landlord sold the farm including the dwelling-house, subject to the respondent’s occupation, to the appellants — Respondent continued to occupy the dwelling-house free of rent and carried out relief milking one day a week for the plaintiffs and possibly did the same for other farmers — Later the respondent began to develop a small jobbing builder’s business and subsequently ceased, at his own request, to do relief milking for the appellants — Some time afterwards the appellants applied to the rent officer to register a fair rent under the 1976 Act for the dwelling-house — A fair rent was fixed and was paid by the appellant for some seven years Eventually the appellants complained that the respondent was running a builder’s business from the house, that a bedroom was used as an office, the garage as a store and the garden altered to facilitate the deposit of scaffolding and other builder’s materials — Proceedings for possession followed, the appellants alleging that the respondent’s statutory tenancy under the 1976 Act had automatically terminated as a result of the development of his builder’s business or, alternatively, that he was in breach of covenant and ought not to be the object of the court’s discretion — The judge in the county court held that there could not be an automatic termination of a statutory tenancy, that any breach of covenant had been waived by acceptance of rent with knowledge of the breach, and that, as a matter of discretion, it was not appropriate to grant possession The Court of Appeal held as follows — (1) When the fair rent fixed by the rent officer was accepted and paid by the respondent a statutory tenancy under section 4 of the 1976 Act came into existence — The previous protected occupancy ceased on its termination ‘otherwise’ within section 4(1) of the 1976 Act, ie by operation of law on the parties’ agreeing to a statutory tenancy — (2) It was a condition of that statutory tenancy that the respondent would not use the house or part of it for purposes other than a private dwelling-house — (3) The respondent broke that condition by using the premises to a significant extent for business purposes — (4) That did not bring the tenancy automatically to an end, as the breach was waived by the landlord and had subsequently been made good — (5) As a matter of discretion, however, it was not right to make a possession order — Consequently, appeal dismissed — Cheryl Investments Ltd v Saldanha distinguished The following cases are referred to in this report. Cheryl Investments Ltd v Saldanha [1978] 1 WLR 1329; [1979] 1 All ER 5; (1978) 37 P&CR 349; 248 EG 591, [1978] 2 EGLR 54, CA Wallis v Semark [1951] 2 TLR 222, CA This was an appeal by Leslie Donald Durman, Jean Margaret Durman and Diana Ruth Jane Durman, the plaintiffs below, from the decision of Mr Recorder Hicks QC at Exeter County Court refusing to grant a possession order against Donald Bell, the defendant below and present respondent, in respect of a dwelling-house known as Little Acres, Blindwell Farm, Tiverton, Devonshire. Miss Elizabeth Gumbel (instructed by Bower Cotton & Bower, agents for Bond Pearce, of Exeter) appeared on behalf of the appellants; Miss Erica Foggin (instructed by Bevan Ashford, of Tiverton) represented the respondent. Giving judgment, DILLON LJ said: This is an appeal by the plaintiffs in the action, three members of a farming family called Durman, against an order of Mr Recorder Hicks QC given in the Exeter County Court on September 25 1987. The proceedings concern some premises known as Little Acres, Blindwell Farm, Tiverton in Devonshire. The plaintiffs are the landlords of Little Acres and the defendant in the action, the respondent to this appeal, Mr Donald Bell, is the occupier. It appears that Little Acres, the house, was built in 1974 by a Mr Turpin, who was the then owner of Blindwell Farm, under a planning consent issued in January 1974 which imposed a condition that the property was only to be occupied by persons employed or last employed locally in agriculture or forestry work. At that time Mr Bell, the respondent, was employed as herdsman by Mr Turpin at Blindwell Farm. In 1977 Mr Turpin, who was apparently in some financial difficulties, sold Blindwell Farm to the appellants and Little Acres was included in the sale subject to the occupancy of the respondent. The respondent’s employment by Mr Turpin was naturally terminated just before the sale was completed. From the completion of that sale in September 1977 until January 1979 the respondent did relief milking for the appellants one day a week at Blindwell Farm, and it may be that he also did relief milking on other days for other farmers in the neighbourhood. He continued in occupation of Little Acres but paid no rent. While occupying in Mr Turpin’s time, he had likewise paid no rent. It appears that in the latter part of the period, while he was doing relief milking, he began building up a small jobbing builder’s business. In January 1979 he stopped doing the relief milking for the appellants at his own request. He continued at Little Acres, making no payment, either in cash or kind, for being there. There was a threat of possession proceedings in August 1979 and there was some discussion about a possible sale of Little Acres to the respondent, but nothing followed from that. What did result, however, in 1980 was that there was an application by the appellants to the rent officer for the registration of a fair rent in respect of Little Acres. Certain objections to that application were submitted by a chartered surveyor acting on behalf of the respondent, that is to say as to the amount of the rent claimed, but in May 1980 the rent officer registered a118 standard rent for a statutory tenancy of Little Acres effective from March 24 1980. In due course (and I need not go into detail) the respondent began paying rent from 1980 for his occupation of Little Acres at the rate fixed by the rent officer. In fact, according to the rent book, the payments of rent went on down to April 30 1987. The business of a builder, which the respondent had been developing, was likewise pursued by him. On May 2 1986, however, a solicitor acting for the appellants wrote to the respondent asserting that he was running a business as a builder and decorator from Little Acres and asserting that accordingly his statutory tenancy under section 4 of the Rent (Agriculture) Act 1976 had ceased. The letter went on to require him to quit and deliver possession of the premises to the appellants not later than 28 days after receipt of the letter. The letter was founded in part on an inspection of Little Acres by a Mr Hunter, a chartered surveyor, in September 1985. He had found that one bedroom was being used as an office and the garage was being used as a builder’s store, and the garden was unkempt and a rockery had been removed in order to facilitate the storage of scaffolding and other builder’s materials. The Act referred to in the letter of May 2 1986, the Rent (Agriculture) Act 1976, was an Act passed to give protection to agricultural workers who had previously been occupying tied cottages which were outwith the protection of the Rent Acts. Section 2 of the 1976 Act sets up the conception of a protected occupancy. Section 2(1) provides that: Where a person has, in relation to a dwelling-house, a relevant licence or tenancy and the dwelling-house is in qualifying ownership, or has been in qualifying ownership at any time during the subsistence of the licence or tenancy (whether it was at the time a relevant licence or tenancy or not), he shall be a protected occupier of the dwelling-house if – (a)   he is a qualifying worker, or (b)   he has been a qualifying worker at any time during the subsistence of the licence or tenancy (whether it was at the time a relevant licence or tenancy or not). There is a further provision in section 2(2): Where a person has, in relation to a dwelling-house, a relevant licence or tenancy and the dwelling-house is in qualifying ownership, or has been in qualifying ownership at any time during the subsistence of the licence or tenancy . . . he shall be a protected occupier of the dwelling-house if and so long as he is incapable of whole-time work in agriculture, or work in agriculture as a permit worker, in consequence of a qualifying injury or disease. Then there is provision for the protection of successors of protected occupiers. But it is envisaged that a protected occupier may cease to be a protected occupier because he no longer qualifies, and by section 4(1) it is provided as follows: . . . where a person ceases to be a protected occupier of a dwelling-house on the termination, whether by notice to quit or by virtue of section 16(3) of this Act which does not in fact matter or otherwise, of his licence or tenancy, he shall, if and so long as he occupies the dwelling-house as his residence, be the statutory tenant of it. Section 13 provides in subsection (1) for there to be ‘a part of the register under Part IV of the Rent Act 1968* in which rents may be registered for dwelling-houses which are subject to statutory tenancies (as defined in [the 1976] Act).’  Then there is provision for the registration of rents in section 14 for dwelling-houses subject to statutory tenancies and in section 15 in relation to increases of rent. *Editor’s note: ‘Rent Act 1977’ was substituted for ‘Rent Act 1968’ by Schedule 23, para 75, to the 1977 Act. That Act therefore provides the legislative background at the start of the time when the appellants became the owners of Blindwell Farm, including Little Acres. Unquestionably, the respondent was initially a protected occupier who was working on the land, but of course he ceased to work on the land. The arguments put forward in the court below seem to have been broadly on the following lines. It was contended for the respondent that he was still a protected occupier and had never become a statutory tenant. It was contended for the appellants that he became a statutory tenant in 1980 or thereabouts when a rent for a statutory tenancy was fixed by the rent officer and accepted and paid by the respondent, but that when his business activities as a builder had thereafter built up to a significant extent, his statutory tenancy automatically came to an end. Therefore he had no security of tenure at all when the present proceedings were started claiming possession of Little Acres. It was contended in the alternative for the appellants that when he carried on his business activities in Little Acres he was in breach of covenant of his tenancy and possession was sought on that ground, which was a matter for the discretion of the court. In answer to the claim based on breach of covenant it was contended for the respondent that any breach of covenant had been waived long since by the acceptance of rent by the appellants with knowledge of the breach, and it was contended further that the court should not in the exercise of its discretion make an order for possession on the ground of the breach of covenant by using the premises for the purpose of the building business. On that issue of breach of covenant it was contended for the appellants that, owing to financial difficulties, they needed possession themselves of Little Acres. It was contended for the respondent that Little Acres was, and had at all times been, his home, and that he had ceased all business activities there, having made arrangements to carry them on in premises made available to him by other farmers in the neighbourhood. The judge did not express any opinion on whether or not the status of protected occupier continued. He held that there could not be an automatic termination of a statutory tenancy. He held further that any breach of covenant by the business activities had been waived by the acceptance of rent with knowledge of the breach, and he held further, as a matter of discretion, that it was not appropriate to make any order for possession. I should add to the citations which I have already made from the 1976 Act that Schedule 5 sets out the terms of the statutory tenancy which is to apply under section 4. They include under para 7(1) that ‘It shall be a condition of the statutory tenancy that the tenant will not use the dwelling-house, or any part of it, for purposes other than those of a private dwelling-house’. Subpara (2) provides that ‘It shall be a condition of the statutory tenancy that the tenant shall not assign, sub-let, or part with possession of, the dwelling-house, or any part of it.’ In this court it is accepted that the decision of the judge in the exercise of his discretion, that it was not appropriate to make an order for possession on the ground of breach of covenant, cannot be challenged. It is accepted also that the decision whether there had been a waiver of any breach of covenant was a decision on a question of fact which was for the judge to decide and that there is no point in the appellants’ seeking to challenge it, because to challenge that alone would get them nowhere when they cannot challenge the exercise of discretion over the making of the possession order. The appellants therefore put their case on appeal entirely on the point that the respondent had become a statutory tenant and his statutory tenancy automatically determined when he used the premises to a significant extent for business purposes. The respondent, however, seeks to maintain that the protected occupancy continued and had not been superseded by any statutory tenancy at all. Reference in that regard was made by the respondent’s counsel to a case of Wallis v Semark [1951] 2 TLR 222. The facts of that case were, however, very different from the facts of the present case, and it seems to me that the only help it gives us is that it illustrates that it is a question of the correct inference from the facts whether a tenancy did or did not come into existence. Here it seems to me that the inference is overwhelming that, when the figure for rent for a statutory tenancy fixed by the rent officer was accepted by the respondent and that rent was paid by the respondent and accepted by the appellants, a statutory tenancy under section 4 of the 1976 Act did come into existence. The protected occupancy came to an end not by notice to quit or by virtue of section 16(3) of the 1976 Act but ‘otherwise’, namely, by operation of law on the parties impliedly agreeing to a statutory tenancy. That statutory tenancy was subject to the terms set out in Schedule 5 to the 1976 Act, including the tenant’s covenants which I have mentioned. That statutory tenancy was also to continue, on the plain wording of section 4(1), if and so long as the respondent occupied the dwelling-house Little Acres as his residence. The judge took the view that he was indeed continuing to occupy the dwelling-house as his residence, no matter what other things he was also doing in the dwelling-house, and accordingly he rejected the contention that the business user had produced an automatic termination of the statutory tenancy. 119 I am bound to say that it seems to me to be extremely difficult to contend against the scheme set up by the 1976 Act that mere significant business user in a part of a dwelling-house which is still used as the residence of the tenant would automatically cause him to lose all protection. The protection under the 1976 Act is intended to be personal to the statutory tenant, as the covenant I have mentioned indicates, and not to be assignable as a tenancy of business premises would ordinarily be. It is none the less urged for the appellants that we are constrained to a different conclusion by the decision of this court in the case of Cheryl Investments Ltd v Saldanha [1978] 1 WLR 1329. There were two appeals before the court on that occasion: it is only the Cheryl Investments appeal which is relevant. The position in that case was that the tenant had taken a tenancy of a service residential flat. Besides living there, however, he used it for the conduct of an import business — having a business telephone, a business address and doing from there whatever was required to be done in the course of the business. The issue before the court was whether the tenant was protected by the Rent Acts or only by Part II of the Landlord and Tenant Act 1954. The court held that the protection was only that of Part II of the 1954 Act. It was not suggested that a situation had been arrived at in which the tenant had no protection at all. The leading judgment was given by Lord Denning MR, and he expressed the view that all tenancies had to be divided into two separate and distinct categories: regulated tenancies and business tenancies. Every tenancy had to be placed into one category or the other. Regulated tenancies were dwelling-houses protected by the Rent Acts. Business tenancies were business premises protected by the 1954 Act. He then referred to certain provisions in the Rent Acts of 1965, 1968 and 1977. He referred in particular to section 24(3) of the 1977 Act. The Rent Act 1977 was stated by its title to be an Act to consolidate the Rent Act 1968, certain parts of the Housing Finance Act 1972, the Rent Act 1974 and certain other enactments with amendments to give effect to recommendations of the Law Commission. But the Rent (Agriculture) Act 1976 is not one of the Acts consolidated, though it is referred to in some of the provisions of the 1977 Act. It continues, so far as I can see, to have its own independent operation according to its tenor. Certain of the provisions of the 1977 Act have since been altered. The present position in relation to section 24(3) is that it provides as before that a tenancy shall not be a regulated tenancy if it is a tenancy to which Part II of the Landlord and Tenant Act 1954 applies. ‘Regulated tenancy’ is defined in section 1, which now provides that a regulated tenancy is a protected or a statutory tenancy. The wording of that section at the time of the decision in Cheryl Investments has been amended. In Cheryl Investments the court, having those statutory provisions before it, took the view that the tenancy under consideration, because it was to a significant extent used for business purposes, had become by the relevant time a business tenancy within the meaning of section 23(1) of the 1954 Act, and therefore, because of section 24(3) of the 1977 Act, it was not a regulated tenancy within the meaning of the 1977 Act and so was not a protected or statutory tenancy within the meaning of that Act. All that is easily understandable; it is considering two codes to see which the tenancy at the relevant time fell into, but it is not considering the scheme set up by the 1976 Act. I prefer the approach which the learned recorder adopted in the present case. Under section 4 the previous protected occupancy became a statutory tenancy. It was a statutory tenancy to continue if and so long as the respondent occupied the dwelling-house as his residence. It was a condition of the tenancy that he would not use the dwelling-house, or any part of it, for purposes other than those of a private dwelling-house. He broke that condition by using the premises to a significant extent, as defined in Cheryl Investments, for business purposes. That did not, however, bring his tenancy automatically to an end. The breach was waived by the landlords and has since been made good, and as a matter of discretion it was not right to make a possession order. I agree with those conclusions and for my part I would dismiss this appeal. Agreeing, BINGHAM LJ said: It seems to me plain that the respondent ceased to be a protected occupier on the termination of his licence or tenancy. Section 4(1) of the 1976 Act provides that such termination may take place by notice to quit or by virtue of section 16 of the Act or otherwise. No reliance is placed on a notice to quit in this case, nor on section 16, but reliance is placed on the words ‘or otherwise’, and in my judgment rightly so placed. The arrangements made in 1980 had the effect of converting the protected occupancy into a statutory tenancy. The parties invoked procedures only appropriate to a statutory tenancy by fixing a fair rent, registering a fair rent and thereafter by paying and receiving it. It seems to me that that conduct is clear evidence of an agreement which brought the protected occupancy to an end and substituted a statutory tenancy. Second, I agree with Dillon LJ that, while the respondent’s business user may have been a breach of his covenant provided by para 7 of Schedule 5 to the 1976 Act, it did not have the effect of converting his statutory tenancy under that Act into a business tenancy under the 1954 Act. Third, and again in agreement with Dillon LJ, I agree that the learned judge was entitled on all the facts to conclude that it would not be reasonable to make an order for possession. By section 7(2) of the 1976 Act it is provided that ‘the court shall not make an order unless it considers it reasonable to do so’. The judge did not. That finding is not, and indeed could not be, challenged in this court, and it is fatal to the appellants’ claim for possession. Accordingly, for the reasons given by Dillon LJ, I agree that the appeal must be dismissed. The appeal was dismissed with costs, not to be enforced without leave; legal aid taxation of both parties’ costs; application for leave to appeal to the House of Lords was refused.