Royal Borough of Kensington & Chelsea v Mellcraft Ltd [2024] EWHC 539 (Ch); [2024] PLSCS 49
Daniel Gatty recently appeared for the successful Respondent in the appeal to the High Court in Royal Borough of Kensington & Chelsea v Mellcraft Ltd. The appeal concerned two different aspects of the question, when will a person be in occupation for business purposes under the Landlord and Tenant Act 1954 ("1954 Act")?
Royal Borough of Kensington & Chelsea ("the Council") is the freeholder of a building on the Portobello Road, London W11. In 2012, Mellcraft Ltd ("Mellcraft") took a five year lease of the first and second floors of the property ("the flat"). Shortly afterwards, a lease of the ground floor shop was granted to another company controlled by the same director. The director ("M") lived in the flat and conducted Mellcraft's business from it. Mellcraft had no other business premises.
The Council served a s. 25 notice to terminate the tenancy of the flat, stating that it would oppose the grant of a new tenancy under ground g (i.e. that the landlord intends to occupy the holding for the purposes, or partly for the purposes, of a business to be carried on by him therein). The Council's stated intention was to use the flat to satisfy its statutory obligations to house persons who were homeless.
The s. 25 notice was said to be served without prejudice to the Council's contention that Mellcraft's tenancy was contracted out of security of tenure under the 1954 Act. Mellcraft applied to the County Court at Central London for a new lease. The Council defended the claim on three grounds, none of them successful at first instance. The Council took two points on appeal to the High Court (having separately lost a preliminary issue trial on the question whether the tenancy was contracted out). In summary, the grounds of appeal were (1) that the trial judge should not have found that Mellcraft had been in occupation of the flat for the purposes of its business at the expiry of the contractual term, and (2) that the trial judge should have found that the Council was entitled to oppose the grant of a new tenancy under ground g because it intended to occupy the flat for the purposes of a business.
Edwin Johnson J. dismissed the appeal. On the first issue, occupation by Mellcraft, the trial judge (HHJ Monty KC) had found that Mellcraft, through M, was occupying the flat for the purposes of its business, notwithstanding that M was also using the flat as his family home. Consequently, s. 23(1) of the 1954 Act was satisfied and Mellcraft's tenancy was continued by s. 24 of the 1954 Act. Edwin Johnson J. held that, in the light of Lord Denning MR's judgment in Cheryl Investments Ltd v Saldanha [1978] 1 WLR 1329, it was open to the trial judge to find that Mellcraft was occupying the flat for the purposes of its business because M conducted Mellcraft's business from there notwithstanding that it was also M's residence. There was no basis for interfering with the trial judge's factual finding that Mellcraft was doing so.
On the question whether the Council could satisfy ground g, the evidence at trial had been that the Council intended to use the flat to help it discharge its duties to homeless persons under the Housing Act 1985 by granting a tenancy of the flat to person(s) to whom it owed such duties. By operation of the Housing Act 1985, such a tenancy would not be a secure tenancy and so would be terminable in accordance with the common law once the relevant statutory duty was fulfilled.
It was held at first instance that the Council did not have an intention to occupy the flat for the purposes of ground g because its intention was to grant a tenancy to a third party as a result of which the Council would not have sufficient control of the flat to be treated as itself in occupation of the flat for the purposes of s. 30(1)(g) of the 1954 Act.
In upholding that decision, Edwin Johnson J. referred to the decision of the House of Lords in Graysim Holdings Ltd v P&O Property Holdings Ltd [1996] AC 326, HL. In that case, the question was whether Graysim had a business tenancy of a market hall in circumstances where all the market stalls were sublet. It was held that it did not – Graysim was not occupying the market hall for the purposes of Graysim's business. Giving the leading speech, Lord Nicholls discussed whether A can be in occupation of premises over which A has granted B a subtenancy or licence. At p. 336 he said:
"When a landowner permits another to use his property for business purposes, the question whether the landowner is sufficiently excluded, and the other is sufficiently present, for the latter to be regarded as the occupier in place of the former is a question of degree. It is, moreover, a question of fact in the sense that the answer depends upon the facts of the particular case....The degree of presence and exclusion required to constitute occupation, and the acts needed to evince presence and exclusion, must always depend upon the nature of the premises, the use to which they are being put, and the rights enjoyed or exercised by the persons in question.
Since the question is one of degree, inevitably there will be doubt and difficulty over cases in the grey area. Where the permission takes the form of the grant of a tenancy, there will usually be little difficulty. Ordinarily the tenant, entitled to exclusive possession of the offices or factory or shop, will be the occupier, not the landlord. This will be so even though the lease reserves to the landlord the usual rights to enter and inspect and repair, and even though the lease contains a user covenant, strictly limiting the use which the tenant may make of the demised property. In such cases the property is occupied by the tenant because he has a degree of sole use of the property sufficient to enable him to carry on his business there to the exclusion of everyone else. Although there will usually be little difficulty in landlord and tenant cases, this may not always be so. I would not rule out the possibility that, exceptionally, the rights reserved by a landlord might be so extensive that he would remain in occupation of the demised property. Where the permission takes the form of a licence there will often be more room for debate. The rights granted by a licence tend to be less extensive than those comprised in a tenancy. In the nature of things, therefore, a licensor may have an easier task in establishing that he still occupies. This should occasion no surprise. The Act itself draws a distinction between tenants and licensees, protecting the former but not the latter."
Applying Graysim and other authorities on the point, the Judge held that the trial judge was entitled, and perhaps bound, to reach the conclusion that the intended letting of the flat by the Council as temporary accommodation for homeless persons did not qualify as an intention to occupy the flat by the Council for the purposes of ground g. The result might have been different if the Council had intended to grant licences under which the Council maintained significant control of the flat.
The Judge approved as a correct summary of the law Daniel's submission to the trial judge that "save in exceptional circumstances, for example as in the Lee-Verhulst case (Lee-Verhulst (Investments) Ltd v Harwood Trust [1973] QB 204) where there was real control retained and exercised, the landlord does not occupy the premises; the tenant does".
The full judgment can be found here (The Royal Borough of Kensington And Chelsea v Mellcraft Ltd [2024] EWHC 539 (Ch) (11 March 2024) (bailii.org)). See also the discussion of the case in the Practice Points section of the 23.3.24 edition of the Estates Gazette (PP 2024/49 on p. 34).
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