Hutchison and others v B&DF Ltd

Business premises – Oral agreement – Claimant landlords terminating lease by notice – Defendant tenant denying receipt of notices – Claimants seeking to enforce oral agreements to create new tenancies – Whether negotiations creating oral binding agreement – Whether claimants entitled to enforce void agreement – Application grantedThe claimants were the freeholders of an industrial estate. The defendant carried on a business as an industrial caterer from a number of units on the estate. The defendant occupied unit 1 pursuant to an assignment of a lease, dated 26 March 1985, for a term of 21 years from 8 March 1985, and units 3 and 4 pursuant to an assignment of a lease, dated 27 March 2002, for a term of 4 years from 1 March 2002.The claimants contended that notices to terminate the leases were served by letter dated 7 September 2005 pursuant to section 25 of the Landlord and Tenant Act 1954. The defendant denied that it received those notices. The claimants subsequently argued that there was an oral agreement on or around 15 February 2006 for new terms of three years at a rent of £8,000 pa, which created immediate leases at the best rent payable without taking a fine with immediate possession. The agreement for unit 15 was said to be for a five-year term.The claimants argued that the three-year terms constituted immediate legal leases by virtue of section 54(2) of the Law of Property Act 1925. Therefore, they were not affected by the requirement, under section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, for a contract for sale of land to be in writing. Furthermore, an agreement to create such an interest was not required to be in writing (section 2(5)(a)).The defendant claimed that it had vacated the units on 31 December 2006 and denied entering into any new agreements. It contended that the original tenancy continued under section 24 of the 1954 Act until terminated on 31 December 2006 by notices given under section 27 of the 1954 Act. The defendant argued that during the negotiations between the parties it was made clear that, although the defendant wished to continue to occupy the existing and further units, it could not agree any lease until planning permission had been obtained for a new odour control system. Thus it occupied the new units as tenant at will.The claimants applied to the court for: (i) a declaration that the defendant was the tenant of the units in question; (ii) an order that the defendant executed leases in respect of those units; and (iii) judgment for the amounts due in respect of the units together with interest.Held: The application was granted.On the facts and evidence the clear conclusion was that the discussions between the parties had led to a binding oral agreement for all the units, except unit 15, for the grant of three-year terms at the best rent obtainable without taking a fine. Those agreements did not need to satisfy the 1989 Act as they ripened into legal leases by virtue of section 54(2) of the 1925 Act when possession was taken. The agreement for unit 15 was void because it fell foul of the provisions of section 2 of the 1989 Act. The claimants’ claim to enforce the void five-year term on estoppel grounds failed since an estoppel could not be used for asserting reliance upon an agreement void for want of compliance with section 2 of the 1989 Act. In all the circumstances, the claimants (including an experienced property lawyer and an experienced surveyor) could not have believed that there was an enforceable oral agreement for a five-year term and could not say that they allowed the defendant into possession in a mistaken belief that there was a binding agreement: Cobbe v Yeoman’s Row Management Ltd & another [2008] UKHL 55; [2008] 35 EG 142 applied.However, the defendant had entered into possession under a void lease and paid rent by reference to the yearly rent. The lease therefore became a yearly periodic tenancy. The defendant accepted that if it was a yearly periodic tenancy (or even a quarterly tenancy, which is the other possibility) the notice in respect of unit 15 was ineffective because it did not expire on a quarter day. It followed that the claimants were entitled to the relief sought: Javad v Aqil [1990] 2 EGLR 82; [1990] 41 EG 61 considered.Zia Bhaloo (instructed by Mundays LLP, of Surrey) appeared for the claimants; Caroline Shea (instructed by DMH Stallard, of Crawley) appeared for the defendant.Eileen O’Grady, barrister