Sturolson & Co v Weniz

Landlord and tenant — Licensor and licensee — Rent Act — Whether an agreement created a non-exclusive licence or a protected tenancy under the Rent Act 1977 — Whether agreement a ‘sham’ — Appeal from decision of county court judge holding that the agreement was a ‘sham’ and that the transaction constituted a protected joint tenancy — The agreement was framed as a non-exclusive right of sharing a flat with such other person or persons as were approved by the owner — There was some evidence that the owner’s agent had sought to reassure the defendant that strangers would not be imposed on him and that he would be able to stay for a few years — It was stated that the object was to get round the Rent Act — The defendant and a friend each signed an identical sharing agreement relating to the subject flat and each agreed to pay £100 a month — On appeal by the owners against the county court judge’s decision, the Court of Appeal held (1) it was now well established that there is no objection to the owner of premises granting a licence which will not attract the122 protection of the Rent Act, but that the agreement must truly constitute a licence and not a lease; (2) in this case both the defendant and his friend fully understood what they were signing and were not led to suppose that the real agreement was something different; (3) the agent’s reassuring words indicated that the owners’ approach to the matter would be benevolent but was not an assurance of the security of tenure given by a tenancy; (4) neither the owners nor the sharers treated the document as a sham, it being openly presented and accepted as a method of defeating the Rent Act — Hence the county court judge was in error in concluding that the agreement was a sham — Somma v Hazelhurst and Diplock LJ’s analysis of a ‘sham’ in Snook v London & West Riding Investments Ltd cited — Appeal allowed This was an appeal by Sturolson & Co, a firm who owned a block of flats at Thurleigh Court, Nightingale Lane, Clapham, London SW12, from a decision of Judge Paiba at Wandsworth County Court in favour of Donald Lawrence Weniz, who resisted possession proceedings relating to flat 46 on the ground that he had a protected tenancy of the flat. P M Kremen (instructed by Rochman Landau & Co) appeared on behalf of the appellants; D J Lamming (instructed by Wandsworth Legal Resource Project) represented the respondent. Giving judgment, EVELEIGH LJ said: The plaintiffs are the successors in title to the previous owners of a block of flats. Those previous owners put an advertisement into the London Standard newspaper with the words: ‘CLAPHAM, three to four bedrooms S/C [self-contained] flats available. C/H etc and porter. £160-£200 per month. Suitable for sharing’, and then there followed a telephone number. The defendant, his wife and a friend, Mr Gilbert, who were contemplating sharing a flat between them, went to look at flats in the block. There was a second visit in which a Mr May went with the defendant and his wife and that visit resulted in two agreements, one signed by the defendant and one signed by Mr May. The agreements were in precisely the same terms. They were signed on July 21 1981 and stated: WHEREBY IT IS AGREED AS follows: 1. The Sharer shall have the right (which shall be personal to the Sharer and non-assignable) to share the premises known as Flat No 46 with such other person(s) as may be nominated by or approved by the Owner from time to time and shall also be entitled in common with the Owner and such persons to use the common stairways of the said building THURLEIGH COURT, SW12. 2. The Sharer’s said right shall run from the 1st day of August 1981 for a period of 12 months and monthly thereafter until terminated by one month’s notice to be given by either party to the other. 3. The Sharer has no right to exclusive occupation of any part of the said flat and shall not prevent or impede such other person(s) from exercising such right of sharing. 4. The Sharer will not: (a)    Permit any other person to use or share the said flat except such person(s) as shall be nominated or approved by the owner as aforesaid. (b)    Cause disturbance or annoyance (whether by unreasonable noise or otherwise) to other persons sleeping or staying in the said flat. (c)    Introduce any pets or other animals into the said flat or keep any pet or animal therein. 5. In consideration of the grant of the said right to him the Sharer shall pay monthly fee of £100 exclusive payable on the first day of each month in advance. The plaintiffs served a notice to quit and claimed possession of the premises. They also claimed arrears of rent. The defendant denied the right to possession and claimed that he had a protected tenancy. His evidence to substantiate that claim was directed to showing that the agreement which he had signed was not the true arrangement between the parties. The defendant is an American. He is an economist and now teaches at a college in this country. The gentleman, Mr May, was a friend. They had met, I believe, in Iran and at the time in question were both working in this country. The evidence called on behalf of the defendant, so far as relevant for the purpose of this judgment, was that they were told by Mr Gaty, the agent for the landlords, that all he was concerned with was to receive a rent of £200 per month, that they need not bother about clause 1 of the agreement, for the agreement was merely designed to get around the Rent Acts, and they were assured that the landlord or agent would not put anyone into the flat; therefore, on the basis of that part of the conversation between them, they were in effect being given exclusive possession of the flat, that the terms in the agreement were merely fictitious and that, consequently, they had the grant of a lease. The landlords contended that there was only a licence, the terms of which were contained in the agreements. It is conceded that the terms in the agreement indicate no more than a licence, but the learned judge, having stated the evidence at some length, said this at the conclusion of his judgment: At first sight and indeed taken at its face value, the agreement between Keene Investments Ltd the original owner and the defendant is a licence, as it has all the hallmarks as such. However, the evidence in my judgment disclosed quite clearly that the owners through their agent Mr Gaty wanted to obtain a set figure for the use and occupation of the flat, and in essence were not concerned as to who were occupying the flat at any particular time as long as such payment was paid. In this case £200 each month. Then follow important words: In my judgment it follows that the owners let ‘the flat’ and that the wording of the agreements was sham and therefore there was a letting of the flat in question for twelve months jointly to the defendant and Mr May. He went on to say that they were protected tenants. In the case of Snook v London & West Riding Investments Ltd [1967] 2 QB 786 Diplock LJ (as he then was) said at p 802: As regards the contention of the plaintiff that the transactions between himself, Auto Finance and the defendants were a ‘sham’, it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the ‘sham’ which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities (see Yorkshire Railway Wagon Co v Maclure (1882) 21 Ch D 309 and Stoneleigh Finance Ltd v Phillips [1965] 2 QB 537) that for acts or documents to be a ‘sham’ with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No unexpressed intention of a ‘shammer’ affects the right of a party whom he deceived. There is an express finding in this case that the defendants were not parties to the alleged ‘sham’. So this contention fails. It seems to me that this case can be approached in several ways, but at the very root of it lies the question: did the parties intend this document to be the document that governed their relationship or was it intended merely to cover some other transaction? I think in order to answer this question it is necessary to look further at the evidence that was given in the case. The block of flats was in a deplorable condition. The landlords’ agent told the three people who were present that it was the landlords’ intention, when the money was available, to redecorate the flats, but it was anticipated that that would not be for three or four years. An arrangement was made between the defendant and Mr May that they would put the flat into good decorative order and the owners agreed not to charge for the first month or so. (The precise period does not matter.) The defendant, in his evidence, said that he thought they could live there indefinitely, or certainly for a number of years. He said that his wife asked about the duration of their stay and said that they did not want to leave after 12 months. (A period of 12 months had probably been mentioned as a possible duration of the stay.)  She was told of plans for refurbishing the flats in three to four years’ time and was further told that there was ‘no objection to our staying up to that point and we probably would be able to stay indefinitely’. The Rent Acts were mentioned. They were told that the agreement was a way of getting round the law. It is to be noted in the agreement that Mr May made himself responsible for £100 per month and the defendant made himself responsible for £100 per month. It is now well established that there is no objection to the owner of the premises granting a licence which will not attract the protection of the Rent Acts as opposed to a lease, but of course he must do so by making an agreement that truly does grant a licence as opposed to a lease. There has been no argument in this case on that basic proposition. The issue between the parties has been whether this document does show the agreement entered into between the parties, or whether it was fictitious — a sham — when in the background there was a situation created that amounted to the grant of a lease. It seems to me that the defendant and Mr May fully appreciated the terms that they were signing, because on their own evidence they asked questions about it. They asked to what extent the terms entitled the landlord to possession. They indicated that they wanted to stay for a substantial period. In view of the answers given by the defendant himself, it seems to me clear that the landlords’ agent was indicating to them his expectation of the way in which the landlords would enforce their rights under this agreement; in other words that there would be a benevolent approach to the matter by the landlords. This seems to me to be the only possible way to treat the statement that he expected them to have up to the time when the flats would be put in order. This is quite inconsistent with assuring them that they would have a tenancy, with the security that that implies, but what is more important is that it indicates that the defendant himself knew that this document was governing their legal relationship, or he would not have wanted to know how the landlord was going to operate it. But there is another factor in this case. The defendant signed only for £100. Mr May signed for the other £100. If they were tenants, as alleged, then they were joint tenants. Mr May has now left. A Mr Strudwick came in at some time, and presumably Mr Strudwick is paying £100. A cheque for £200 is (or was at one time) sent to the landlords’ agent to cover the whole flat. If this were a joint tenancy, then the defendant is responsible for £200 a month. If he does not pay it, and nobody else pays it, Mr May was presumably responsible for a rent of £200 per month. The way in which the evidence was given and the fact that they signed separately, undertaking a several obligation for one figure of £100 per month each, are indications arguing against a joint tenancy. I do not believe that they ever did intend a joint tenancy. The way in which Mr Strudwick has come into the premises is inconsistent with such a conclusion. The evidence indicates that they were sharing this flat in a way that was consistent with the terms of that written agreement, and that leads to the conclusion that there is no reason to think that this document was a sham. The defendant said in his evidence, ‘we were concerned that the landlord could put in a stranger and we were assured that he would not put anyone in’. The landlords’ agent said, in giving evidence, that he was convinced of the respectability of the sharers (as they are called in the agreement) and would be satisfied with anyone they brought in as a substitute for the other, and therefore could not foresee that there would be any objection. I see no evidence to show that this document was treated as a sham by the landlords. The mere fact the judge found that the landlord would be content to get £200 per month does not inevitably lead to that conclusion. Indeed, the natural conclusion in a case like this would be that the landlord was trying to achieve an agreement which would in reality defeat the Rent Acts. That is what the agent said he was doing; that is what the defendant knew he was doing, and it was to such a document that the defendant put his signature. In those circumstances, there has to be very clear evidence that the agreement was something else. Then one asks oneself, if it was a sham what was it that the defendant was seeking to obtain?  Who was the defendant intending to deceive?  The only purpose in the defendant’s signing a document with which he did not agree would be to obtain the flat; but he knew that the landlord would not obtain the flat if the circumstances were such that the Rent Acts would apply. Consequently he must have known that it was the landlords’ intention that the legal rights between the parties should be those that resulted from the agreement which was signed. I find it, therefore, impossible to say that the defendant, or indeed the plaintiffs’ predecessors, could have regarded this document as a sham. For those reasons I think that the learned judge was wrong in concluding that this agreement was a sham. He seemed to regard the fact that the landlords appeared to be happy if they could obtain £200 a month rent and that that was really their object, as leading inevitably to that conclusion. For the reasons I have given I do not think it does and I would allow this appeal. Agreeing, FOX LJ said: It is clear that, notwithstanding the Rent Acts, there is no reason, as a matter of public policy, why a landlord should not grant a licence to occupy a dwelling-house so that the transaction is outside the protection of the Rent Acts: see, for example, Somma v Hazelhurst [1978] 1 WLR 1014 at pp 1024-5. If that is what the parties want, and they are able to draft an agreement which demonstrates that that is their agreement, there is no reason why they should be prevented from achieving their object. It is not unlawful to arrange a transaction so that it does not fall within the protection of the Rent Acts. Two crucial questions then arise for the purposes of this case. First, was the agreement in this case, upon its true construction, a licence or was it a tenancy?  In my view it was quite clearly a licence and not a tenancy, and indeed that is conceded. Secondly, did the agreement represent the true agreement between the parties, or was it something that in fact was a sham, the true intention of the parties being to create a tenancy? In my view, both parties certainly intended to execute this agreement and they understood its terms. It may be that the agreement was the only way in which the defendant could get into the premises, but that is not a reason for saying that the parties’ true intention was different from what it appears to be on the face of the document. I can see no reason to suppose that there was any misrepresentation or fraud in the case at all. It is said that the agreement was merely a cloak for something different and the defendant relies on the evidence given by Mr May as to discussions with Mr Gaty before the agreement was signed, as to clause 1 of the agreement. Clause 1 reads: 1. The Sharer shall have the right (which shall be personal to the Sharer and non-assignable) to share the premises known as Flat No 46 with such other person(s) as may be nominated by or approved by the Owner from time to time and shall also be entitled in common with the Owner and such persons to use the common stairways of the said building . . . The judge’s note as to the evidence to which I have referred is this: Clause 1. Gaty said disregard it, it is something to get around the law, it is up to us whom we have in the flat. It is true that the provision was something which was inserted to avoid the Rent Acts, but that was perfectly well known to both sides and, as I have mentioned, is not of itself an unlawful object, nor is it in any way by itself conclusive of the present point. As to disregarding it, the plaintiffs (as I read the evidence) were merely saying that they would not impose strangers upon the defendant and Mr May; they were saying ‘we have the power to do it, but you can trust us and everything will be all right’. That appears from the defendant’s evidence when he said ‘Mr Gaty laughed and assured us he would not put anyone into the flat’. Reliance was also placed upon the fact that Mr May said that Gaty told them, in relation to clause 2, that they could stay there for several years. Mr May, in fact, left of his own accord. The position was that Mr May and the defendant were told the general position of the landlords, namely that they would not be able to do much to the premises for about three years but in the meantime Mr May and the defendant would be able to occupy them. In so far as the defendant and Mr May were at the mercy of the landlord in respect of the situation, that is something of which they were well aware and accepted, and they were content to trust the landlord over it. I can see no reason, looking at the evidence as a whole, for supposing either that the defendant did not fully understand the agreement he was entering into or that he was in any way intending, or led to suppose, that behind it there would be another true and different agreement. I think that the agreement which was intended to be entered into was the agreement as signed and there was never intended to be any other at all. I agree with my Lord that the appeal should be allowed. The appeal was allowed with costs in the Court of Appeal and below.