Street v Mountford

Rent Act 1977 — Whether an agreement constituted a tenancy protected by the Act or a licence without such protection — Appeal from county court — Rooms in a building divided into ‘flatlets’ — Agreement described as a ‘licence agreement’ conferring a ‘right to occupy’, stating that it was a non-assignable personal licence, and containing inter alia a requirement to keep rooms in a ‘tidy condition’, a prohibition of children as well as pets and a right to re-enter if the rooms were ‘left vacant or unoccupied’, but not containing any provisions relating to repair, insurance or quiet possession — Agreement did, however, confer a right of exclusive occupation — The recorder, from whose decision this appeal was brought, referred to the right of exclusive occupation, considered that the agreement had ‘all the hallmarks of a tenancy agreement’, and decided that it constituted a protected tenancy — After considering a number of authorities, including Somma v Hazelhurst and Aldrington Garages Ltd v Fielder, the Court of Appeal held that the recorder had been in error — Exclusive occupation, although an essential feature of a tenancy, was also compatible with a licence, and in the present case, contrary to the recorder’s view, the other features bore all the hallmarks of a licence — The authorities showed that it is possible in law for the owner of a building such as the present one to grant a right of exclusive occupation without creating a tenancy, if he ensures that there is manifested the clear intention of both parties that the rights granted are merely those of a personal right of occupation and not those of a tenant — That was the position in the present case and it had not been shown that the agreement was a sham or that it contained an inaccurate statement of the true substance of the transaction — If the law denied occupiers protection in a manner not contemplated by the legislation, this was a matter which Parliament might have to consider — Appeal allowed This was an appeal by Roger Street from a decision of Mr Recorder Rolf at Bournemouth County Court in which he held, in proceedings under section 51A of the County Courts Act 1959, that the occupancy of the respondent, Mrs Wendy Mountford, of rooms at 5 St Clements Gardens, Boscombe, was a protected tenancy. P Cowell (instructed by Bower Cotton & Bower, agents for Richards & Morgan, of Bournemouth) appeared on behalf of the appellant; Miss Claudia Ackner (instructed by D’Angibau & Malim, of Boscombe) represented the respondent. Giving the first judgment at the invitation of Griffiths LJ, SLADE LJ said: This is an appeal by Mr Roger Street against an order of Mr Recorder Rolf made on September 21 1983 in the Bournemouth County Court. The order was made on an application made by Mr Street under section 51A of the County Courts Act 1959 asking the court to determine whether the occupancy of the respondent, Mrs Wendy Mountford, under a so-called licence agreement dated March 7 1983 of the second-floor premises known as rooms 5-6, 5 St Clements Gardens, Boscombe, Bournemouth, of which Mr Street is the owner, is a licence or a tenancy protected by the Rent Act 1977. The recorder answered this question by declaring that the so-called licence agreement is a tenancy agreement and that the tenancy is protected under the Act. One consequence was that the defendant was entitled to have a ‘fair rent’ fixed for her occupation of the premises. The facts are simple. The building known as 5 St Clements Gardens has at all material times been divided into what were described by the plaintiff’s agent, Mr Boyce, in an affidavit, as ‘flatlets’. In December 1982, Mr Boyce, who is a solicitor, was appointed by the plaintiff as his agent to manage the property. At that time the defendant and her husband had, for at least some months, been occupying a single furnished room in the building, known as no 5, under a written agreement which called itself a licence agreement, entered into between the plaintiff and the defendant. In or about March 1983 the defendant mentioned to Mr Boyce that she and her husband were looking for another flat. At about the same time the occupant of room 6 left the premises. Since rooms 5 and 6 were on the same floor, Mr Boyce, on behalf of the plaintiff, according to his oral evidence, offered the defendant a right of occupation of what he described as the whole of the top floor, save for the attic room. The top floor, with this exception, comprises rooms 5 and 6 and a shower and lavatory. Mr Boyce and the defendant, after some negotiation, agreed that the defendant should pay £37 a week for this right of occupation. After this oral agreement had been reached Mr Boyce completed a standard form of written agreement and presented it to her for signature. On March 7 1983 she signed it in his presence in two places. He completed a counterpart agreement, which he signed as agent and handed it to her. There was no conversation between them as to its form; the defendant requested no explanation of it and none was given. Save as to the details of the room and payment, it was identical to that which the defendant had signed in regard to her previous occupation of room 5. The agreement signed by the parties (twice by Mrs Mountford) on March 7 1983 read as follows: LICENCE AGREEMENT. I MRS WENDY MOUNTFORD (Signed) agree to take from the owner Roger Street the single furnished room number 5 & 6 at 5 St Clements Gardens, Boscombe, Bournemouth, commencing March 7 1983 at a licence fee of £37 per week. I understand that the right to occupy the above room is conditional on the strict observance of the following rules:– 1. No paraffin stoves, or other than the supplied form of heating, is allowed in the room. 2. No one but the above-named person may occupy or sleep in the room without prior permission, and this personal licence is not assignable. 3. The owner (or his agent) has the right at all times to enter the room to inspect its condition, read and collect money from meters, carry out maintenance works, install or replace furniture or for any other reasonable purpose. 4. All rooms must be kept in a clean and tidy condition. 5. All damage and breakages must be paid for or replaced at once. An initial deposit equivalent to 2 weeks licence fee will be refunded on termination of the licence subject to deduction for all damage and other breakages or arrears of licence fee, or retention towards the cost of any necessary possession proceedings. 6. No nuisance or annoyance to be caused to other occupiers. In particular, all music played after midnight to be kept low so as not to disturb occupiers of other rooms. 7. No children or pets allowed under any circumstances whatsoever. 8. Prompt payment of the licence fee must be made every Monday in advance without fail. 9. If the licence fee or any part of it shall be seven days in arrear or if the occupier shall be in breach of any of the other terms of this agreement or if (except by arrangement) the room is left vacant or unoccupied, the owner may re-enter the room and this licence shall then immediately be terminated (without prejudice to all other rights and remedies of the owner). 10. This licence may be terminated by 14 days written notice given to the occupier at any time by the owner or his agent, or by the same notice by the occupier to the owner or his agent. Occupier’s signature: Mrs W Mountford (Signed) (Owner’s copy) Owner/agent’s signature (Occupier’s copy). Date March 7 1983. I understand and accept that a licence in the above form does not and is not intended to give me a tenancy protected under the Rent Acts. Occupier’s signature: Mrs W Mountford (Signed). Mr Boyce’s unchallenged evidence was that the defendant requested that the agreement should be taken in her name only, rather than the joint names of herself and her husband, and that verbal permission was given that the husband should share the occupation with her. Following the execution of this agreement, according to the evidence, the defendant and her husband took up occupation of rooms 5 and 6 and continued to enjoy the use of the shower and lavatory on the top floor, from now on exclusively. Mr Boyce had one set of keys to rooms 5 and 6, and the defendant had another set. Room 5 has its own cooking facilities. It is common ground that, though the agreement of March 7 1983 describes itself as a ‘Licence Agreement’, it does not necessarily follow that the document, merely on that account, amounts in law to an agreement for a licence rather than a tenancy. As Jenkins LJ said in Addiscombe Garden Estates Ltd v Crabbe [1958] 1 QB 513 at p 522: The whole of the document must be looked at; and if, after it has been examined, the right conclusion appears to be that, whatever label may have been attached to it, it in fact conferred and imposed on the grantee in substance the rights and obligations of a tenant, and on the grantor in substance the rights and obligations of a landlord, then it must be given the appropriate effect, that is to say, it must be treated as a tenancy agreement as distinct from a mere licence. 120 Much more recently, in Marchant v Charters [1977] 1 WLR 1181, Lord Denning MR, with whose judgment Orr LJ and Waller LJ agreed, stated the test to be applied, in the context of a case which concerned the occupancy of a single furnished bed-sittingroom, having its own cooking facilities, as follows (at p 1185): Gathering the cases together, what does it come to?  What is the test to see whether the occupier of one room in a house is a tenant or a licensee?  It does not depend on whether he or she has exclusive possession or not. It does not depend on whether the occupation is permanent or temporary. It does not depend on the label which the parties put upon it. All these are factors which may influence the decision but none of them is conclusive. All the circumstances have to be worked out. Eventually the answer depends on the nature and quality of the occupancy. Was it intended that the occupier should have a stake in the room or did he have only permission for himself personally to occupy the room, whether under a contract or not?  In which case he is a licensee. The recorder heard oral evidence from Mr Boyce and Mr and Mrs Mountford. In giving judgment, he said that each case had to be decided on its own facts. ‘The document’, he said, ‘apart from the heading and the footnote had all the characteristics of a tenancy agreement. Mr Boyce, a solicitor, was clear about that other than the footnote. He stated that he could find no conditions in the form of agreement not to be found in a tenancy agreement other than the footnote.’  This was a reference to a reply given by Mr Boyce in answer to a question put to him by the recorder himself in the following terms: ‘Mr Boyce, are there any terms in the agreement inconsistent with a tenanacy agreement?’  To which Mr Boyce replied: ‘The footnote but otherwise I do not think so.’  The question was one of law and therefore not in my opinion a proper question to put to the witness, even though he was a solicitor. In so far as he attached weight to the answer given by the witness, the recorder was, in my opinion, in error, since the question was one for him to decide. The recorder then continued: ‘Furthermore, the written agreement is consistent with the agreement reached according to the evidence. There was no challenge that something not agreed was included wrongly and there was no challenge that something agreed was not included. Can it properly be regarded as a licence?’ The recorder then proceeded to quote the passage from the judgment of Lord Denning MR in Marchant v Charters (supra) which I have already quoted. He concluded: Applying those tests I find here that there is exclusive possession, I find an indefinite period, I find there is more than one room comprised in the letting; when I apply the Denning tests do I find there is a stake in the room or only personal possession?  I am fully satisfied on the evidence it was intended that a stake in the room should be granted and the agreement made on March 7 1983 created a tenancy and was a tenancy agreement. The agreement document has all the hallmarks of a tenancy agreement. The Mountfords behaved as tenants. The use of the word Licence gives it a false label and it is no less false by the persistence of labelling (the word ‘Licence’ is used nine times) I am quite satisfied that document is a Tenancy Agreement and I declare that it is a Tenancy Agreement and is protected under the Rent Acts. There were thus three features on which the recorder appears to have relied in finding that a ‘stake in the room’ had been created and that the use of the word ‘Licence’ gave the written agreement of March 7 1983 a ‘false label’, namely (i) the fact that there was exclusive occupation of the two rooms; (ii) the fact that the written agreement of March 7 1983 in his view had ‘all the hallmarks of a tenancy agreement’; (iii) ‘the Mountfords behaved as tenants’. I will take these three points in the reverse order. While the recorder did not particularise the reasons which led him to say that the defendant and her husband behaved as tenants, I infer that the principal point which he must have had in mind was that, according to their evidence, they had, when paying the weekly sum due from the defendant for their occupation, used the phrase ‘rent’ and had referred to the book which recorded their payments as a ‘rent book’. Even if, which Mr Boyce denied, and as to which the recorder made no finding, Mr Boyce sometimes used the same terminology, I attach minimal importance to its use. I regard it as no more than a convenient means of verbal reference to the payments and the book in question, which throws little or no light on the substance of the relevant transaction. The second of the recorder’s three points, which relates to the form of the written agreement of March 7 1983, is of much greater importance and requires close examination. I entirely agree that the agreement does bear one significant hallmark commonly associated with a tenancy. Though it does not expressly so state, clause 3, in my opinion, shows that the right to occupy the premises conferred on the defendant was intended as an exclusive right of occupation, in that it was thought necessary to give a special and express power to the plaintiff to enter (compare Addiscombe Garden Estates Ltd v Crabbe [1958] 1 QB 513 at p 524). As Jenkins LJ pointed out in the latter case (at p 525): The exclusive character of the occupation granted by a document such as this has always been regarded, if not as a decisive indication, at all events as a very important indication to the effect that a tenancy, as distinct from a licence, is the real subject-matter of a document such as this. However, more recent authorities, to some of which I will refer later, confirm that exclusive occupation, while an important pointer, is by no means a decisive one. Excepting his exclusive reference to occupation, I find myself, with all respect to the recorder, in complete disagreement with his conclusion that the written agreement of March 7 1983, apart from the heading and the footnote, had ‘all the hallmarks of a tenancy agreement’. With this exception, my own impression of it is quite the contrary. The right conferred by the opening words of the document is not granted for any defined term and is described as a ‘right to occupy’, which is not apt to describe the right enjoyed by an ordinary tenant. Clause 2, which prohibits anyone except the defendant from occupying or sleeping in the premises without the plaintiff’s prior permission and states ‘this personal licence is not assignable’, points to a licence rather than a tenancy. So, too, does clause 4; it would, I think, be most unusual to find a provision in a tenancy agreement obliging the tenant to keep his rooms in a ‘tidy condition’. Clause 5, instead of placing an obligation on the plaintiff or defendant to repair, merely imposes on the defendant an obligation to pay for ‘damage and breakages’. As to clause 7, which prohibits ‘children and pets’, I think that a provision prohibiting children would be very unusual in the context of a tenancy agreement. No less unusual in a tenancy agreement would be provisions in the precise form of clause 9, which gives the plaintiff power to re-enter if, among other circumstances ‘(except by arrangement) the room is left vacant or unoccupied’. Furthermore, though I attach less importance to this point, the agreement contains none of the provisions which one commonly expects to find in tenancy agreements, such as provisions relating to repair, insurance and quiet possession. For these reasons, I think that, even if one disregards the declaration of intent at the very end of the agreement, its heading and the reference to a ‘licence fee’ rather than rent, the agreement bears all the hallmarks of a licence, rather than a tenancy, save for the one important feature of exclusive occupation. With this exception, everything in the document itself points to the defendant being given a mere personal right to occupy the rooms, rather than a proprietary interest in them as tenant. For present purposes, however, one cannot disregard any of these last-mentioned features, most particularly the brief declaration at the foot of the agreement. The defendant’s evidence was that she did not understand this declaration. But its form was clear and unequivocal and she appended her signature immediately beneath it. It was a plain expression of the intentions of both parties that what she was being given was a licence rather than a tenancy. There is no plea by her of misrepresentation, undue influence or non est factum and no claim for rectification. A long line of authorities shows that, while the fact of exclusive occupation is a most important pointer as to the intentions of the parties, their true intentions are the decisive consideration in determining whether an agreement creates a tenancy on the one hand or a licence on the other hand (see, for example, Cobb v Lane [1952] 1 All ER 1199; Isaac v Hotel de Paris Ltd [1960] 1 WLR 239 PC). In these circumstances it seems to me that if the defendant is to displace the express statement of intention embodied in the declaration, she must show that the declaration was either a deliberate sham or at least an inaccurate statement of what was the true substance of the real transaction agreed between the parties; compare Buchmann v May [1978] 2 All ER 993. At least prima facie, it is clear evidence of the parties’ intentions that she should not have a tenancy. The defendant grasped this nettle in her answer to the plaintiff’s application, when she said: ‘The said agreement produced by the applicant was a sham purporting to be a licence. The respondent took exclusive occupation of the premises to use as a residence.’ Miss Ackner, in submitting on the defendant’s behalf that the document had been given what she called a ‘bogus label’, strongly121 relied, as she was fully entitled to do, on the surrounding circumstances. The premises in question, she pointed out, are effectively a self-contained flat. Ever since the agreement was signed, the defendant and her husband have enjoyed the exclusive occupation of the two rooms and the shower and lavatory on the top floor. The defendant has had friends to stay without seeking the plaintiff’s permission. Her evidence was that some time after the agreement had been signed, she sought and obtained from the plaintiff’s agent permission to erect an outer door at the entrance of the premises occupied by her, though the evidence did not make clear whether the door was ever in fact erected, and if so whether the plaintiff retained a key. Clause 3 of the agreement itself was a clear indication that the defendant was to enjoy exclusive occupation. When regard is had to the substance of the transaction, Miss Ackner submitted, one finds that this is a tenancy masquerading as a licence. Though I did not find persuasive Miss Ackner’s further submissions based on the form of the agreement itself, I thought there was considerable force in her submissions based on the nature of these premises and the facts that, as I accept, the defendant was always intended to enjoy and has in fact enjoyed, with her husband, exclusive occupation of the top floor of this building, with the exception of the attic. If an arrangement such as this, albeit of a very temporary nature, does not give rise to a ‘tenancy’ falling within section 1 of the Rent Act 1977, one can foresee the possibility of owners of property being able to avoid the operation of that Act by making arrangements which deny occupiers its protection in circumstances and in a manner which possibly were not contemplated by the legislature. Nevertheless, the recent decision of this court in Somma v Hazelhurst [1978] 1 WLR 1014 in my opinion makes it quite clear, if it was not clear before, that it is legally possible for an agreement to be made between two parties, even when the relationship between them is solely of a commercial nature, under which one of them is to enjoy, and does enjoy, the exclusive occupation of even a whole house, but is still to have the rights of only a licensee, as opposed to a tenant. Cumming-Bruce LJ, delivering the judgment of the court, said this (at pp 1024-5): Lord Gifford, basing himself on the judgment of Denning LJ, as he then was, in Facchini v Bryson [1952] 1 TLR 1386, at p 1389 and the reasoning in Marchant v Charters [1977] 1 WLR 1181, at p 1185, submits that in a ‘Rent Act’ situation, any permission to occupy residential premises exclusively must be a tenancy and not a licence, unless it comes into the category of hotels, hostels, family arrangements or service occupancy or a similar undefined special category. We can see no reason why an ordinary landlord not in any of these special categories should not be able to grant a licence to occupy an ordinary house. If that is what both he and the licensee intend and if they can frame any written agreement in such a way as to demonstrate that it is not really an agreement for a lease masquerading as a licence, we can see no reason in law or justice why they should be prevented from achieving that object. Nor can we see why their common intentions should be categorised as bogus or unreal or as sham merely on the ground that the court disapproves of the bargain. On the authority of that decision, I think it must be accepted that it is possible in law for the owner of a building such as 5 St Clements Gardens to grant a person the right of exclusive occupation of the top floor without creating a tenancy, if he ensures that there is manifested the clear intention of both parties that the rights granted are to be merely those of a personal right of occupation and not those of a tenant. If it is claimed that the effect of such an agreement is to take it outside the ambit of the Rent Acts, the court has to be ‘especially wary and especially careful to see that the wool is not being pulled over its eyes’ (see Aldrington Garages Ltd v Fielder (1979) 37 P & CR 461 at p 469 per Geoffrey Lane LJ, and at p 473 per Roskill LJ). Nevertheless, as Geoffrey Lane LJ observed in that case (at p 468): It seems to me that if the parties succeed in producing an agreement which, in all the circumstances of the case, is in fact a licence and not a tenancy they should not be prevented from that course by the courts bending over backwards to ensure that landlords do not manage to avoid the provisions of the Rent Acts. There is no reason why, if it is possible and properly done, agreements should not be entered into which do not fall within the Rent Acts, and the mere fact that those agreements may result in enhanced profits for the owners does not necessarily mean that the agreements should be construed as tenancies rather than licences. In the present case, I am satisfied that the agreement of March 7 1983 does not attempt to pull the wool over anyone’s eyes. It does not misrepresent the true nature of the agreed transaction in any way. As the recorder himself said: ‘There was no challenge that something not agreed was included wrongly and there was no challenge that something agreed was not included.’  Having regard to the form of the document and the declaration at the foot of it, I do not see how the plaintiff could have made much clearer his intention that what was being offered to the defendant was a mere licence to occupy and not an interest in the premises as tenant. And I do not see how the defendant could have made clearer her acceptance of that offer than by her two signatures. In my judgment, the agreement of March 7 1983 read as a whole, even when considered in the light of the surrounding circumstances and conduct of the parties, on which the defendant relies, on balance still points overwhelmingly to the intention to give her the rights of a mere licensee, as opposed to those of a tenant. Indeed, I would go so far as to say that her enjoyment of exclusive occupation of these top-floor premises is almost the only factor of any weight which points in the opposite direction. But the present state of the authorities does not entitle the court, as a matter of law, to treat this factor as being decisive in her favour. To echo the words of Stephenson LJ in Aldrington Garages Ltd v Fielder (1979) 37 P & CR 461 at p 476: What the judge and this court have to decide is not what the parties wanted but what they obtained; not what the plaintiffs wanted to grant but what they in fact granted; not what the defendant wanted to get but what he actually got. For the reasons already given, I feel no doubt that, on the particular facts of this case, what the defendant got was a licence rather than a tenancy. I would allow this appeal, set aside the recorder’s order and declare that the defendant’s occupancy of the premises is a licence. GRIFFITHS LJ said: I agree that for the reasons given by Slade LJ Mrs Mountford was in law granted a licence and not a tenancy. I wish I had felt able to come to a contrary conclusion because this decision shows how easy it is for a landlord to avoid the provisions of the Rent Act 1977 as they apply to furnished accommodation. If the device of letting by licence rather than a tenancy becomes widespread, Parliament may have to consider bringing licences under the same umbrella of protection as tenancies, as they have done for the purpose of allowing a tenant to purchase his council house, see Housing Act 1980 section 48 (1). I agree that this appeal must be allowed. The appeal was allowed with costs, to be paid out of the Legal Aid Fund. No order was made for costs in the court below. The order for costs was not to be drawn up for 10 weeks.