Ipsofactoj.com: International Cases  Part 6 Case 15 [CAEW]
COURT OF APPEAL, ENGLAND & WALES
- vs -
Leadenhall Residential 2 Ltd
LORD JUSTICE JUDGE
LORD JUSTICE LATHAM
MR JUSTICE LLOYD
29 JUNE 2001
Mr Justice Lloyd
This appeal raises a point of importance to landlords and tenants under the Housing Act 1988 in relation to circumstances which must occur very frequently. The Defendant, Mr Stirling, was a tenant under an assured tenancy. He got into arrears and his landlord brought proceedings for possession. An order for possession was obtained on the basis of those arrears, the ground relied on being one of those under which the court has no discretion to refuse an order or to suspend or postpone its effect. Mr Stirling was required to give up possession on 19 July 1996. Shortly before that date he offered to pay off the arrears at £100 per month, and the landlord agreed to that proposal. It is now said, for Mr Stirling, that this agreement constituted the creation of a new assured tenancy, and that possession can only be obtained by going through the procedure appropriate to such a tenancy. The deputy district judge held otherwise, as did the circuit judge on appeal. The general importance of the point justifies this second appeal.
Mr Stirling took a tenancy of 2 Linford Court, 14 Appleton Square, Mitcham, Surrey on 7 February 1994, for a year, at £4,940 per year, equivalent to £411.66 per month. His landlord was a different company from the present Respondent, Leadenhall Residential 2 Ltd ("Leadenhall"), but nothing turns on the identity of the particular freeholder, and I will refer to Leadenhall as if it had been the reversioner throughout. The tenancy was an assured tenancy under Chapter I of the Housing Act 1988. He remained in possession after the year had expired, and thus acquired a statutory assured periodic tenancy: Housing Act 1988, section 5. He was already in arrears of rent. Notice was served under section 8 of the 1988 Act that the landlord would seek possession, referring to both mandatory and discretionary grounds. In May 1996 possession proceedings were commenced, relying on both mandatory and discretionary grounds. On 21 June 1996 an immediate order for possession was made, requiring Mr Stirling to give up possession on 19 July 1996, and to pay arrears of £2,832.63. By a later amendment under the slip rule, it also provides that the Claimant be "at liberty to accept mesne profits at the rate of £411.66 per month until possession is given". The order is in the prescribed form and does not record on which ground it was made, nor does it make that clear, for example, by recording that the court was satisfied that it was reasonable to make the order. The order was in fact made on the mandatory ground.
Mr Stirling wrote a letter to the landlord dated 4 July 1996 which is not in evidence. On 8 July Leadenhall’s agent replied as follows:
I refer to your letter dated 4 July 1996 sent to Ross McLaren regarding your repayment plan of outstanding rent amounting to £2,643.45 as at end of June 1996. I would confirm that your offer to pay £100 per month is accepted by your landlord and by ourselves. I look forward to hearing from you and receiving your first payment of £100.
Leadenhall did not apply to enforce the possession order on 19 July 1996. It did so apply in August when Mr Stirling had not paid the first £100, but the warrant which had been issued was then withdrawn, and payment of the arrears began. It continued rather sporadically. The £411.66 was being paid regularly by way of housing benefit. In June 1997 when four monthly payments of £100 had been missed, the landlord’s agent wrote referring to £400 as being "rent in arrears", threatening enforcement proceedings, but again Mr Stirling managed to save the day with a payment. In March 1998 the landlord notified an increase of rent from £411.66 to £433 per month. Later, in January 1999 there was a further increase. It is accepted that the increase in March 1998 created a new tenancy, but if a new tenancy was not created until that date, then it was an assured shorthold tenancy and does not afford the same degree of protection for the tenant as does an assured tenancy. A new tenancy in July 1996 would have been an assured tenancy. In March 1999, on the grounds of further arrears, Leadenhall issued a warrant for possession. Mr Stirling applied to have the warrant set aside, and succeeded on the basis that the order for possession made in 1996 had been superseded by a new tenancy. The judge did not have to decide when the new tenancy came into being. In July 1999 Leadenhall gave a new notice that it would seek possession, and brought these proceedings in October 1999. On 18 April 2000 Deputy district Judge Turner delivered a written judgment and made an order for possession to be given on 2 May 2000. Mr Stirling appealed, and on 26 October 2000 His Honour Judge Coningsby Q.C. heard the appeal, gave judgment dismissing the appeal, and ordered that possession be given by 15 November 2000. The effect of the possession order had been stayed until then and is still stayed pending this further appeal.
There was no dispute of fact before Deputy District Judge Turner, and so far as I can gather no oral evidence at all, the matter proceeding on the documents, and above all on the letter of 8 July 1996. He held that the dealings in July 1996 were not intended to create legal relations at all, and that the letter amounted to no more than an agreement for the payment of the arrears for which a money judgment already existed: see paragraph 3.9 of his reserved judgment. On appeal, His Honour Judge Coningsby Q.C. viewed what took place in July 1996 as amounting to an agreement that, if the tenant paid the £100 per month and the £411.66 each month as well, the landlord would not apply for a warrant of possession to enforce the order. The letter says nothing about either the £411.66 or the enforcement of the order. He analysed the position somewhat differently from the Deputy District Judge, and said that it was not a tenancy, but was an arrangement for Mr Stirling to stay on as a non-tenant against whom Leadenhall would not enforce the possession order if he paid off the arrears and kept up payment of the current rent in accordance with his offer. He held that this was a relationship which could exist legally without constituting a tenancy, that it was not a licence, but was like a licence, and was a conditional right of occupation.
Mr Luba Q.C. submits that the parties agreed in July 1996 that Mr Stirling should continue to have exclusive possession of the premises after 19 July 1996 in return for monthly payments, and that this has the effect of giving Mr Stirling a new tenancy, regardless of the parties’ actual understanding or intentions. If that is correct, landlords who have the benefit of a possession order on a mandatory ground act at their peril if they show any indulgence to the tenant after the date on which he is bound to give up possession. That is a conclusion to which the court would be reluctant to come, but he submits that we have no choice.
THE HOUSING ACT 1988
Assured tenancies are governed by the Housing Act 1988, Chapter I. Under section 5 an assured tenancy cannot be brought to an end by the landlord except by obtaining an order of the court. By section 7, the court may only make an order for possession, if the dwelling is let on an assured tenancy, on one of the grounds set out in Schedule 2 to the Act; if a ground set out in Part I of the Schedule is made out the court has no discretion not to make an order, whereas on the grounds set out in Part II the court may make an order if it considers it reasonable to do so. Under section 7(7) a statutory periodic tenancy such as Mr Stirling had in June 1996 comes to an end on the day on which the possession order takes effect. Section 8 requires the landlord to give notice before proceedings are started. Section 9 gives the court power to adjourn possession proceedings for such period as it thinks fit and, if it makes a possession order, also gives it power, either on making the order or afterwards at any time before execution, to stay or suspend that order or to postpone the date for possession. However, section 9(6) provides that none of these discretionary relieving powers apply if the court is satisfied that the landlord is entitled to possession on any of the mandatory grounds for possession in Part I of Schedule 2, or if the tenancy is an assured shorthold tenancy under section 21. The mandatory grounds in Schedule 2 Part I include ground 8, relating to given minimum arrears of rent. The discretionary grounds in Part II include grounds 10 and 11 which relate to arrears of rent.
BURROWS v. LONDON BOROUGH OF BRENT
Tenancies of dwellings belonging to local authorities, and some other social landlords, are not assured tenancies but secure tenancies, under the Housing Act 1985 Part IV. A licence to occupy a dwelling-house given by such a landlord is also a secure tenancy: section 79(3). Such a tenancy cannot be brought to an end by the landlord without an order for possession: section 82(1). If an order is made, the tenancy comes to an end on the date on which the tenant is to give up possession under the order. The grounds on which the court may make an order are set out in Schedule 2 to the 1985 Act, and they include grounds which are discretionary, depending on whether the court thinks it reasonable to make the order, or on whether the court thinks it reasonable to make the order and is also satisfied that there will be reasonable alternative accommodation available for the tenant, and mandatory grounds, which depend only on the court being satisfied as to suitable alternative accommodation. Section 85 gives the court discretionary relieving powers of adjournment of the proceedings, and staying or suspending the order or postponing the date for possession, very similar to those which exist under section 9(1) and (2) of the 1988 Act. As in that case, however, these powers do not apply where the order is sought or made on the mandatory grounds requiring only that alternative accommodation be available.
The London Borough of Brent entered into a tenancy agreement with a Mr Allen and his wife Miss Burrows. Mr Allen then left his wife and the property. Some years later the Council obtained an order for possession on the grounds of arrears of rent, requiring Miss Burrows to give up possession on 12 February 1992. Before that date, however, she and the Council made an agreement under which she was allowed to remain in possession so long as she paid a sum equivalent to the rent and an agreed regular sum towards the arrears. This agreement was recorded in writing in a document signed by Miss Burrows which acknowledged her arrears and included the following:
I agree to pay the rent charge of £2.67 due every week and, in addition, to reduce the arrears by regular instalments of £3.00 per week.
The amounts payable and paid were documented by the Council as if they were rent, and were increased successively in April 1992, 1993 and 1994 in accordance with its general rental policy. Later Miss Burrows again fell into arrears and the Council issued and enforced a warrant for possession. Miss Burrows started proceedings to be let back into the property, on the basis that the agreement in February 1992 had created a new secure tenancy, and that if she was to be evicted for arrears the requisite procedure had to be gone through from the start. At trial the judge found for Miss Burrows and the Council appealed. In the Court of Appeal (see (1995) 27 HLR 748) it was submitted for the Council that the agreement in February 1992 was not intended to give Miss Burrows exclusive possession of the property, but only amounted to a forbearance from executing the warrant as long as she complied with the terms of the agreement, giving her the status of a tolerated trespasser, merely postponing the date on which possession would be enforced. For Miss Burrows it was submitted that, after the date on which she was ordered to give possession, her occupation could only be that of a trespasser liable to pay mesne profits unless and until the Council either executed the order by means of a warrant for possession, or granted her a new tenancy or licence to stay, and that the agreement in February 1992 gave her the right to remain in exclusive occupation of the property at a rent, and necessarily amounted to the grant of a new tenancy as of the date when her former tenancy came to an end.
Auld LJ said that the concept of a tolerated trespasser might be possible in a holding-over case, but that it could have no possible application to the circumstances of that case, where the landlord entitled to possession under an order taking effect in a few days had expressly agreed with the tenant that she might continue to live in the property for an indefinite period provided that she paid rent and a regular payment in reduction of arrears of rent. He held that the effect of the agreement was to give her a new lease or licence to occupy the property, it not being necessary to decide which, because of section 79(3): see 27 HLR at 755. The Court of Appeal therefore dismissed the Council’s appeal.
The Council appealed to the House of Lords: see  1 W.L.R. 1448. A new point was taken, based on section 85(2), prompted by the decision of the Court of Appeal in Greenwich LBC v. Regan (1996) 28 HLR 469. The House of Lords held that since the order could have been suspended or stayed, or the date for possession postponed, so as to give effect to the agreement between the parties on the basis of which Miss Burrows remained in possession, it remained possible, by such an order, to revive the original secure tenancy at any time up to the moment which possession was enforced. Accordingly, it was not necessary or appropriate to infer the creation of a new tenancy or licence in order to explain the agreement reached in February 1992. The retention of possession and payment of rent remained attributable to the former tenancy which was in limbo but which might be revived, the former tenant being fairly described as a tolerated trespasser whom the landlord has agreed not to evict pending either the revival of the old tenancy or the breach of the agreed conditions. If and so long as the former tenant complied with the conditions, he or she could at any time apply back to the court and obtain a postponement of the possession date so as to reinstate the old tenancy: see Lord Browne-Wilkinson at  1 W.L.R. 1455. On that basis, the House of Lords allowed the Council’s appeal. Lord Browne-Wilkinson made clear at 1454 that a factor which influenced him strongly was the desirability of enabling local authority landlords to deal humanely and reasonably with their tenants, so that they can grant an indulgence to them without being subject to adverse consequences, which would deter them from behaving sensibly and reasonably towards tenants who, having become subject to a possession order, are able to make sensible and acceptable proposals for payment under which they ought to be allowed to remain in possession. Lord Browne-Wilkinson did however say that, on the case as put to the Court of Appeal, the conclusion they reached in favour of Miss Burrows was inevitable: see  1 W.L.R. 1452.
Mr Luba relies strongly on that proposition, namely that the only thing that enabled the court to find in favour of Brent Council was section 85(2). He points out that, although there is an equivalent provision in the 1988 Act, it does not apply here, because of section 9(6). Therefore, he submits, the answer in the present case must be the same as the Court of Appeal came to in Burrows, in favour of Mr Stirling. He does accept that there is one other difference in the relevant legislation. Under the 1985 Act it does not matter whether the new arrangement or agreement amounts to a tenancy or a licence, because of section 79(3). Under the 1988 Act it does matter, because only if there is a new tenancy does it amount to an assured tenancy giving Mr Stirling the protection of a new tenancy as of July 1996. He goes on to submit that, in the circumstances, the new arrangement cannot have been other than a tenancy. This depends on the nature of the dealings between the parties in July 1996, but before I examine that, it is right to summarise the general law as regards the basis of arrangements under which one person has exclusive occupation of another’s property and pays for that occupation.
LICENCE OR TENANCY: THE GENERAL LAW
Mr Luba submits that there are, relevantly, only three possibilities where one person, A, is the owner of land and another, B, is in occupation of that land. If B is there without the consent of A he is a trespasser. If he is there with consent, then either that consent amounts to the creation of a tenancy, in which case he is a tenant, or it does not, in which case he is a licensee. He further submits that, if B has exclusive possession of the premises for a term or on a periodic basis and is paying money for his occupation, then he is a tenant, unless special circumstances exist, and that this is the case whether or not the parties intend that a tenancy should exist, or realise that it does, and regardless of what label the parties may put on the transaction. For this he relies principally on Street v. Mountford  AC 809.
That case was concerned with a fully expressed written agreement, described as a licence agreement, whereby A granted to B the right to occupy two rooms at a weekly payment subject to 14 days’ notice, and which gave B exclusive occupation of the rooms. Later, A sought to establish that the agreement did not create a tenancy, since if it did then B would have the protection of the Rent Acts. The Court of Appeal held in favour of A but the House of Lords allowed B’s appeal. Lord Templeman gave the only full speech. He reviewed both older and more recent cases on the distinction between licences and tenancies. The case establishes clearly the irrelevance of the parties’ intentions, understanding or even express declaration as regards the effect of the agreement which they enter into. It takes as the most critical test whether B has exclusive possession of the premises. It recognises that there are some cases where, despite B having exclusive possession, the parties did not intend to create legal relations at all: one example is a case of pure charity, as in Booker v. Palmer  2 All ER 674. It recognises that there are cases where the agreement involves the provision of service or attendance by A, so that B is only a lodger. That is not a term of art, but it is a convenient label for a licensee in particular circumstances. It also recognises that there are some special cases, including service occupiers, to which I will come. But subject to those points, the case states unequivocally that if residential accommodation is granted for a term at a rent with exclusive possession, the landlord providing neither attendance nor service, the grant is a tenancy: see  AC, at 818C.
Among the cases reviewed by Lord Templeman was Murray Bull & Co Ltd v. Murray  1 QB 211. There a company had granted a tenancy to its managing director of a flat which provided direct access to the company’s business premises, but this was not by way of a service occupancy. The tenancy came to an end, as did the tenant’s employment, but he was allowed to stay on for a time, paying rent but on the express basis that this was not to constitute a tenancy. It was held that this intention was effective to prevent a tenancy arising, but Lord Templeman held that the decision was wrong. He said that the parties showed an intention to contract and there were "no relevant special circumstances":  AC, at 822E.
Another case considered by Lord Templeman, Marcroft Wagons v. Smith  2 KB 496, provides an instructive comparison with the present case. There, a house had been occupied by a Mr Aris as a statutory tenant under the Rent Acts. He died and his widow succeeded to the statutory tenancy, and lived on in the house with her daughter. The widow then died. The daughter asked that the tenancy be transferred into her name. The landlord’s agent refused to do that, saying that the landlord would want the premises for an employee, but did not require the daughter to leave, and accepted from her a sum equivalent to 2 weeks’ rent, and she remained in occupation paying thereafter the equivalent of the weekly rent. The landlord did not seek possession until 6 months had gone by. The county court judge held that this did not create a tenancy, but only a licence, and the Court of Appeal held that this was a finding which was open to him on the evidence. It was relevant that, when the widow died, it was not clear whether her husband had become a statutory tenant before his death: if he had not, then the daughter would have had statutory succession rights. The court held that he had, but considered that this question was a further reason why allowing the daughter to remain in possession for a while did not lead to the creation of a tenancy.
Sir Raymond Evershed MR said this, at page 501:
There is no doubt that the intricacies of modern life, as reflected in the Rent Restriction Acts, have made, in many respects, the relationship between landlords and tenants sometimes assume an artificial and indeed unfriendly character, which is somewhat to be deplored. In particular landlords, who may have ordinary human instincts of kindliness and courtesy, may often be afraid to allow to a tenant the benefit of those natural instincts in case it may afterwards turn out that the tenant has thereby acquired a position from which he cannot subsequently be dislodged. In the general interest it may be necessary that the relationship should have to assume a much more formal character than would otherwise be necessary; nevertheless I would be extremely sorry if anything which fell from this court were to have the effect that a landlord could never grant to a person in the position of the Defendant any kind of indulgence, particularly in the circumstances which existed in March 1950 when the Defendant lost her mother. It seems to me that it would be quite shocking if, because a landlord allowed a condition of affairs to remain undisturbed for some short period of time, the law would have to infer that a relationship had arisen which made it impossible thereafter for the landlord to recover possession of the property, when admittedly by taking proper measures from the start he could have recovered possession.
On the facts of the case the court was troubled as to whether it was possible to hold that the position was and remained only a licence when the landlord allowed the Defendant to remain in possession, paying the weekly sums, for 6 months, whereas it would have had no such difficulty if she had been allowed to stay for only a few weeks. It held, on balance and with some hesitation, that the period of 6 months was consistent with the position remaining a licence, so that the Defendant had no defence to the claim for possession. In Street v. Mountford Lord Templeman treats this as a case in which the parties did not intend to contract at all: see  AC, at 820D.
Lord Templeman recognised that there might be special circumstances such that the arrangement between the parties could not be regarded as constituting a tenancy. He mentioned a number of examples himself, and also referred on this point to Errington v. Errington  1 KB 290 and some later cases. In Errington Denning LJ referred to a number of special cases where a tenancy had been held not to arise despite the occupier having exclusive possession in return for payment. These included Marcroft Wagons Ltd v. Smith, described above, and otherwise were as follows: a case of a requisitioning authority (which had no estate in the land out of which to grant a tenancy) allowing people into possession in return for a weekly payment, a case where a landlord told a tenant on his retirement that he could live in a cottage rent free for the rest of his life, and a case where the owner of a shop allowed (but did not require) its manager to live in a flat above the shop and took the value of the occupation into account in fixing his wages. He summarised the position at  1 KB 298 by saying that letting someone in on the basis of exclusive possession normally shows the arrangement to be a tenancy, but that will not be so if the circumstances negative any intention to create a tenancy. That contrary intention cannot be an intention that something which, on correct legal analysis, is a tenancy should be treated as if it were something else. The intention has to relate to the substance of the transaction, not to its label.
In Street v. Mountford Lord Templeman referred to cases of lodgers, service occupiers, and vendor and purchaser where the purchaser is allowed into the property before completion. He said, at 826H to 827A:
Sometimes it may appear from the surrounding circumstances that the right to exclusive possession is referable to a legal relationship other than a tenancy.
Lord Templeman also said that the statutory regime of the Rent Acts was irrelevant to the problem of determining the legal effect of the rights granted by the agreement at issue in that case: see 819G.
We were shown one case decided since Street v. Mountford, namely Javad v. Aqil  1 W.L.R. 1007. That was an odd case, in which, for reasons to do with the pleadings, it was not argued that the occupation was under a licence, but the owner of the property succeeded in establishing that the occupation was under a tenancy at will. The occupant was allowed in pending negotiations for a lease, and paid three instalments of rent on a quarterly basis, but the negotiations broke down and the landlord sought possession. Thus, if the case had been argued on the basis of a licence, it may have been possible to justify such a contention by saying that the explanation for the giving of possession lay not in any existing agreement which might constitute a tenancy, but in the current negotiations. I do not find that case helpful in resolving the issue before us.
Thus, there is no defined list of special cases in which a person who is let into, or allowed to remain in, another’s property, with exclusive possession and paying for his occupation may be a licensee rather than a tenant. There are certain recognised categories, such as service occupiers and lodgers, but otherwise it depends on finding either that there is no intention to contract at all, or that the circumstances are such as to justify attributing the possession to something quite distinct from a tenancy. The question is whether either of those findings is correct in the present circumstances.
LICENCE, TENANCY OR TRESPASS: THE FACTS
Here Mr Stirling was a tenant on 8 July at the time when the landlord accepted his proposal. The arrangement undoubtedly contemplated that he would remain in exclusive possession of the premises of which he was (up to 19 July) the tenant, and that he would go on paying the same amount for his occupation as had been being paid by way of rent, as well as regular sums towards the accrued arrears. To all outward appearance, the position remained the same as it had been before the possession order was made, apart from the fact of that order itself. Undoubtedly the original assured tenancy came to an end on 19 July 1996 as a result of the order, and was not capable of being revived, as it could have been if it had been made on a discretionary ground. Mr Luba submits that it is not open to the court to find anything other than that Mr Stirling remained in possession after 19 July 1996 under a new tenancy.
Mr Morgan Q.C., for Leadenhall, submitted that this would be an absurd result to suppose that the parties had intended, and a highly unsatisfactory result to achieve in general. It would mean that the landlord, who could throw the tenant out on or after 20 July 1996 by obtaining a warrant of possession, and who was entitled, until possession was given, to receive £411.66 per month by way of mesne profits, lost the benefit of the possession order at once, by doing no more than agreeing to a proposal as to the payment of the arrears by instalments, for which it had a money judgment, and, by implication, agreeing not to enforce the possession order while payments were kept up. If Mr Luba is right, and the tenant thereafter neglected to pay the sum due in respect of his occupation of the premises, Leadenhall would have to give a fresh notice under section 8, and then start new proceedings, facing therefore additional cost and additional delay.
Mr Morgan submitted, in my judgment rightly, that, if the exchange of letters in July 1996 had not taken place, and if Mr Stirling had continued to pay (by way of housing benefit) the £411.66 per month and had made payments towards the money judgment, either regularly or sporadically, and if Leadenhall had simply refrained from issuing a warrant to obtain possession, the present argument could not have been run. Nothing that Leadenhall had done could be said to have amounted to agreeing to any new tenancy, and the parties’ rights and obligations would be governed by the order. Mesne profits is no more than the name given to damages for trespass by unlawful occupation of land where the trespasser used to be a tenant. Thus by the terms of the order, as corrected, and as quoted at paragraph 2 above, Leadenhall was free to receive from Mr Stirling £411.66 each month as damages for trespass, and the receipt of those sums month by month cannot be relied on by itself to say that Mr Stirling was no longer a trespasser paying damages for trespass but rather a tenant paying rent. Without the exchange of letters in July 1996, Mr Stirling would clearly have continued as a trespasser, at risk of being turned out on the issue of a warrant, but in practice able to expect that, so long as payments were made, he would be allowed to stay. How, then, can it be said that, merely by accepting a proposal to pay regular amounts towards the money judgment and, impliedly, agreeing not to enforce the order in the meantime, if the payments for occupation were also kept up, the landlord has altered the position fundamentally?
Both Counsel made submissions based on anomaly as regards the position in which the parties would be if there were no new tenancy. Mr Morgan’s main submission was that referred to in the previous paragraph, as to the absurdity of the consequences for Leadenhall of having been found to have agreed a new tenancy. Mr Luba’s answer to the submission that it is undesirable to put landlords in a position in which they cannot be indulgent to tenants, or not without severe risk to their own interests, was to point out that landlords have an alternative course which does not expose them to this sort of dilemma. They can seek an order on a discretionary, rather than the mandatory, ground, in which case an arrangement such as was made in the present case, or in the Burrows case, is explicable in law without the creation of a new tenancy, on the analysis of the House of Lords in Burrows. Of course, if they do that, the court also has more flexibility as to whether, and if so when and on what terms, to make a possession order.
Mr Luba’s submissions as to anomaly focussed on Mr Stirling’s position. In particular he pointed out that Mr Stirling would have no right to compel Leadenhall to carry out any obligations, such as of repair, to which it would have been subject under the previous assured tenancy, and would have no rights against the owner of the property under the Defective Premises Act 1972, though he did accept that a contractual licensee has such rights and even a trespasser would have rights under the Occupiers’ Liability Act 1984. He also submitted that, if the correct analysis were a contractual licence, Leadenhall would have no contractual right to possession except on the basis of non-payment of rent or of the periodical sum towards the arrears. He posed the questions whether, as a trespasser in possession pending execution of the order, Mr Stirling would have a home for the purposes of the European Convention on Human Rights, and who would be the occupier for council tax purposes.
I see the force of Mr Luba’s submissions based on Street v. Mountford, and I see that on Mr Morgan’s argument there are anomalies in Mr Stirling’s position, though there are also difficulties consequent on Mr Luba’s submissions. It seems to me, however, that the issue which has first to be addressed is whether, by what passed between the parties, they did indeed intend to create legal relations, or rather to affect the legal relations which already governed the position between them by way of the order. Lord Templeman’s speech in Street v. Mountford recognises that this is the first question. Usually the answer will be clear in a case where what is at issue is the arrangement under which B is let into possession of A’s property in the first place. Often it will be clear in a holding-over case, but there is more scope for doubt in such cases, where the parties’ relations are, or at any rate have been, governed by one set of rights and obligations, but these have come to an end. In Burrows, but for section 85(2), the position would have been clear because of the terms of the written agreement entered into by Miss Burrows and the Council providing for her to pay rent and a sum towards the arrears, not to mention the subsequent increases in the rent she had to pay. In the present case the position is a good deal less clear, because what was done was not formally documented.
If no new arrangement had been come to between Mr Stirling and Leadenhall after the date of the order on 21 June 1996, then, when he was allowed to and did remain in possession after 19 July, he was a trespasser, liable to pay Leadenhall at the rate of £411.66 per month by way of mesne profits for his occupation of the property, and also liable to pay it £2,832 arrears. Leadenhall could have executed the order by obtaining and enforcing a warrant at any time within 6 years, but did not have to do so. That situation could have continued for several years, if nothing was done to alter it. Thus, in Capital Prime Plus plc v. Wills (1998) 31 HLR 926 at 935, Simon Brown LJ said this:
[A landlord] can of course obtain an immediate order under Ground 8 and then simply not follow it up, depending no doubt on whether the tenant pays the arrears outstanding.
The first question is whether what was said in July 1996 was intended to alter the relations between the parties so that they should be governed by a new agreement rather than by the order. No new or different terms were come to, as regards the terms on which Mr Stirling was to remain in occupation. He was to go on paying for his occupation at the same rate. The only point dealt with expressly was the rate at which he would pay off the arrears. I can see the force of Mr Luba’s criticisms of Judge Coningsby’s approach. If there was a new contractual arrangement under which, after 19 July 1996, Mr Stirling had the benefit of exclusive possession of the property for an indefinite period in return for payment, it would be hard to categorise that as anything other than a tenancy, in the light of Street v. Mountford. However, I am impressed by Mr Morgan’s submission as to the artificiality of distinguishing what happened in the present case from a case where the landlord does nothing except to accept payments from the former tenant by way of mesne profits, at the rate set out in the order, and towards the arrears, and refrains from enforcing the order. The content of the suggested new contract in the present case is very much more limited than the express agreement entered into in the Burrows case. In my judgment, this is a quite different case from Burrows on the facts. In agreement with the Deputy District Judge, I consider the correct analysis of the relevant events to be that the exchange of letters of 4 July and 8 July 1996 was not intended to, and did not, affect the legal relations between the parties which were then, and continued to be, governed by the terms of the order. That remained so until Leadenhall took a position inconsistent with the order, by seeking from Mr Stirling, and obtaining, an increase in the monthly payment for use and occupation. The increased payment could not be justified by reference to the order, and therefore had to be analysed on a different legal basis. It is not disputed, and could not be, that this created a new tenancy. From then on, the legal relations between the parties were affected. In my judgment, until then they were not.
I would therefore dismiss this appeal.
Lord Justice Latham
I agree. As is so often the case, the facts are all important. Lloyd J has set them out in paragraphs 2 – 4 of his judgment. It is to be noted that there is no evidence that anything was said either before or at the time of the order for possession, as to either parties’ attitude to the consequences of the order; nor was there any evidence as to what was said thereafter either orally or in writing on that subject apart from the landlord’s agents’ letters of July 1996 and June 1997.
It seems to me that the decisions of the House of Lords in Street v Mountford  AC 809 and Burrows v London Borough of Brent  1 WLR 1448 establish the following propositions which are binding upon us.
Firstly, if by contract an occupier is granted exclusive possession of premises for a fixed or periodic term certain in consideration of a premium or periodical payment, that will prima facie constitute a tenancy: see Lord Templeman in Street v Mountford at page 118 E.
Secondly, where a person is in exclusive possession of another’s land for a term in return for a periodical payment, the relationship may not amount to a tenancy if the parties did not intend to enter into a legal relationship, or where the relationship between the parties was that of a vendor or purchaser, master and servant occupier, or similar such exceptional circumstance: see Lord Templeman in Street v Mountford at page 821 B and 826 H ff.
Thirdly, parties cannot simply by choosing to describe the relationship as a licence, affect its legal nature: see Street v Mountford per Lord Templeman at page 822 F.
Fourthly, the grant of exclusive possession for the payment of a periodical sum will not however of itself amount to the grant of a new tenancy where the agreement is between the landlord and the existing occupier where the landlord is seeking or has obtained a possession order under Part IV of the Housing Act 1985 in circumstances in which s. 85(2) of the Act could revive the previous tenancy: Burrows v London Borough of Brent.
In the present case, there is no doubt that the appellant remained in exclusive occupation of the premises and paid a periodic sum in respect of that occupation. Unlike, however, the occupiers in Street v. Mountford and Burrows v. London Borough of Brent, he did not occupy the premises on the basis of any express agreement. The only clear agreement that can be deduced from the material that we have is an agreement as to payment of the arrears of rent. As to payment for his occupation, the only express provision was that the respondent be at liberty to accept a monthly sum by way of mesne profits until possession was given up. Those facts do not, in my judgment, justify the conclusion that there was any legally enforceable agreement in relation to the appellant’s continued occupation. Nor do I think that any such contract or agreement can be inferred from the surrounding circumstances. The respondents had, by taking possession proceedings, evinced an intention to bring the legal relationship to an end; there is no evidence that the appellant considered himself other than to be at the mercy of the respondents after the order for possession had been made.
I therefore agree with Lloyd J that the Deputy District Judge was correct in concluding that after the possession order, the appellant’s occupation was referable only to forbearance on the part of the respondents, and not the grant of any new entitlement to exclusive possession. Had there been material which suggested that the parties had so intended, I would have had great difficulty in avoiding the logic of Mr Luba’s argument that the relationship thereby created would have been one of landlord and tenant. None of the exceptional circumstances which would exclude that relationship exists on the facts; in particular this is not a case in which the original tenancy could have been revived under the Housing Act, so as to enable the respondents to argue that the case fell within the exceptional circumstance identified in Burrows v London Borough of Brent.
I am glad to have been able to come to this conclusion. Although the result is that the relationship was, from July 1996 to March 1998 anomalous, as pointed out by Mr Luba, it has the advantage that it has enabled the respondents to extend a helping hand to the appellant without a wholly unintended advantage accruing to the appellant which could discourage the respondents and similar landlords from acting in a similar fashion in the future.
Lord Justice Judge
I gratefully adopt the narrative of facts set out in Lloyd J’s judgment. As nothing turns on the identity of the landlord, I shall refer to it throughout as a single entity. In summary, on 21 June 1996 an order for outright possession was granted to the landlord by District Judge Palmer. Rent arrears, providing a mandatory basis for the order, were established. Possession was to be given 28 days later, on 19 July. On that date the original tenancy ended. District Judge Palmer further entered judgment for £2,832.63 arrears of rent. According to the order as drawn up, this accrued debt was to be paid at the rate of £411.66 monthly, an instalment figure plainly based on the monthly rental payments during the tenancy. As drawn, the order did not refer to mesne profits. When, however, in April 2000, the issues which now arise for consideration were before Deputy District Judge Turner, he sensibly checked the terms of the order as drawn against District Judge Palmer’s note of the order he had actually made, and discovered that as drawn the order was inaccurate. It said nothing about arrears of rent, but referred simply to mesne profits. So Deputy District Judge Turner amended the order to reflect precisely the order made by District Judge Palmer: that the landlord should be "at liberty to accept mesne profits at the rate of £411.66 per month until possession is given". It was not argued that this amendment was impermissible or indeed open to question.
As Lloyd J’s judgment explains, on 4 July Mr Stirling made proposals in writing for repayment of rent arrears. We do not know the precise terms of his offer, but the fact that it was made at all, when the order as drawn up initially purported to have dealt with the issue, underlined not only that the amendment made by Deputy District Judge Turner was rightly made in April 2000, but also that Mr Stirling understood that the issue of arrears had not been addressed in the order made on 21 June. We also know that while the tenancy was still subsisting, that is before 19 July, the landlord’s response was headed "Arrears repayment proposal". The text of the letter is concerned exclusively with a proposal of this nature, and nothing more can be read into it, in particular nothing which can be said even to hint at tenancy issues.
19 July came and went. As a matter of day to day reality Mr Stirling continued to enjoy unbroken and exclusive possession until after March 1998. In the meantime, £411.66 monthly continued to be paid directly to the landlord through housing benefits. In this respect there were no defaults. On the other hand, arrears of rent, on which the original order for possession was based, were more problematic. Again I shall not repeat the narrative set out in Lloyd J’s judgment. In March 1998, Mr Stirling was given notice that the monthly payments would be increased to £433. It is accepted by the landlord that this figure represented rent paid in consideration of a tenancy. Thereafter, as before, there were continuing problems with payment of rent but repetition of the details does not assist in the analysis of the nature of Mr Stirling’s occupation of 2 Linford Court, 14 Appleton Square, Mitcham between 19 July 1996, when the order for possession made against him on 21 June was ordered to take effect, and 1 March 1998, from when, whatever the basis of his continued occupation since July 1996, he admittedly was a tenant.
From Mr Stirling’s point of view, the striking features of this period are that he remained in continuous and exclusive occupation of the premises and that the landlord was paid a monthly sum which mirrored the original rental payment, and was due to be paid monthly sums in reduction of rent arrears, some of which were undoubtedly paid. Although he enjoyed a tenancy until 19 July 1996, and again from March 1998, if the landlord’s argument is correct it follows that, notwithstanding the continuity of his physical occupation and the monthly payments of housing benefit to the landlord, together with occasional payments off the arrears, between these dates, he did not occupy as a tenant.
Deputy District Judge Turner rejected the contention that Mr Stirling’s occupation during the disputed period was a tenancy. He thought that there was no intention to affect the legal relationship consequent on District Judge Palmer’s order. Judge Coningsby QC reached the same conclusion, but on the basis that Mr Stirling enjoyed not a tenancy, but a conditional right of occupation, based on the landlord’s forbearance to enforce the order for possession, similar to a licence.
The essential thrust of the submission by Mr Jan Luba QC, on behalf of Mr Stirling, was that although the original tenancy was terminated on 19 July, the effect of the correspondence before that date established that a new tenancy, taking effect immediately after the original tenancy came to an end, had been created. Mr Paul Morgan QC argued that this correspondence reflected the arrangements by which the arrears of rent were to be paid. Subsequent events simply confirmed that the landlord was determined that Mr Stirling should comply with the arrangement for payment of arrears. Importantly, given that Mr Stirling was bankrupt, and that he had allowed substantial arrears to accumulate, the sanction was understood to be the issue of a warrant for possession based on the order of 21 June 1996. Mr Stirling did not suggest, either in further correspondence, or in evidence, that there could have been any defence to such a warrant, or that he understood that the sanction based on the order for possession had been abandoned by the landlord before 1 March 1998.
Our attention was drawn to a number of authorities. For my purposes, the starting point is Street v Mountford  AC 809. Notwithstanding occupation in accordance with what was expressly described as a "licence" it was held that a tenancy had been created. In an opinion with which each member of the House of Lords agreed, Lord Templeman summarised what he described as the "traditional distinction between a tenancy and a licence", which he said, at 816, "lay in the grant of land for a term at a rent with exclusive possession".
He repeated, at 818, that
If - .... residential accommodation is granted for a term at a rent with exclusive possession, the landlord providing neither attendance nor service, the grant is a tenancy.
This combination of exclusive possession and payment of rent providing the characteristics of a tenancy represent a recurring theme of his opinion, illustrated in the observation towards the end, at 826,
The only intention which is relevant is the intention demonstrated by the agreement to grant exclusive possession for a term at a rent.
Lord Templeman explained that exclusive possession on its own was not conclusive of the issue. Quite apart from the payment of rent, he identified the "owner in fee simple, a trespasser, a mortgagee in possession, an object of charity or a service occupier" as occupiers with exclusive possession who were not tenants. His analysis went on to acknowledge that:
Sometimes it may appear from the surrounding circumstances that there was no intention to create legal relationships. Sometimes it may appear from the surrounding circumstances that the right to exclusive possession is referable to a legal relationship other than a tenancy.
Applying these principles to the present case, District Judge Palmer’s order permitted the landlord to accept mesne profits until possession was granted. It was "at liberty" to do so. No authority has been drawn to our attention which suggests that the acceptance of mesne profits from a former tenant currently enjoying exclusive possession, thereby creates a new tenancy, or revives an old one. Indeed, although the point was not considered in detail in argument, it is perhaps necessary to highlight the distinction between payments of rent and payments of mesne profits. Mesne profits are emphatically not rent, and payment of mesne profits is inconsistent with the existence of a tenancy, or occupation by right. This broad view is reinforced by the language of s85(3)(a) of the Housing Act 1985 and s9(3) of the Housing Act 1988, both of which, unsurprisingly, identify "payments in respect of occupation after the termination of the tenancy" as mesne profits.
As there was no evidence from Mr Stirling to suggest that he believed or intended that the monthly payments from housing benefits after July 1996 represented, or was intended to represent, anything other than mesne profits, in accordance with District Judge Palmer’s order, perhaps it is sufficient simply to notice, in addition, that in any event, a degree of caution is required before treating "the payment and acceptance of a sum in the nature of rent" as sustaining the "old common law presumption of a tenancy". (See Longrigg, Burrough and Trounson v Smith  251 EG 847, applying Marcroft Wagons Limited v Smith  2 KB 496; and the observations of Nicholls LJ in Javad v Mohammed Aqil  1 WLR 1007 at 1017, and his salutary reminder that it is for the individual who asserts a tenancy to establish it.)
In my judgment, in this case, Mr Stirling’s exclusive possession and the payments to his landlord as mesne profits after 19 July 1996 of sums equivalent to the rent payable before that date, and the acceptance of those payments by the landlord under and in accordance with the order of the court do not establish the creation or existence of a new tenancy.
I must now consider whether the decision of the House of Lords in Burrows v Brent London Borough Council  1 WLR 1448 must lead, as Mr Luba suggested it did, to the conclusion that a new tenancy was created. In that case, after the council had obtained an order for possession which brought a secure tenancy to an end, Miss Burrows agreed to pay the council a weekly "rent charge", that is, a payment to cover future occupation, and to make instalment payments to reduce existing arrears. The question for decision involved analysis of the Housing Act 1985, rather than the Housing Act 1988, with which this litigation is concerned.
There are two significant differences. The first was referred to both in the Court of Appeal and in the House of Lords in Burrows. In the Court of Appeal, at 27 HLR 748, at 752, Auld LJ said:
The distinction between a tenancy and the licence of a dwelling house in the context, as here, of security of tenure under Part IV of the 1985 Act is immaterial, for - .... the provisions of that Part apply to a licence to occupy as they apply to a tenancy.
In the House of Lords Lord Browne-Wilkinson,  1 WLR at 1451, emphasised:
It is important to note that - .... the provisions of Part IV of the Act apply to a ‘licence to occupy a dwelling house - .. as they apply in relation to a tenancy.’ Therefore nothing in this case turns on the distinction between a licence and a tenancy; if, by making an agreement not to enforce a possession order, the local authority is to be taken to have granted a licence for the tenant to continue in occupation the position will be just the same as if they had granted a tenancy.
This consideration does not apply to the 1988 Act, where the security of tenure provided by the 1985 Act does not extend to a licence to occupy a dwelling house under an assured tenancy. In Burrows, for the purposes of the relevant statutory protection, a licence, in effect, was deemed to be a tenancy. It is hardly surprising that when considering the argument advanced to the Court of Appeal in Burrows, Lord Browne Wilkinson held that their conclusion was inevitable. The Court of Appeal was invited to conclude that although the termination of Miss Burrows’ tenancy by a court order was followed by an express agreement that she should enjoy exclusive possession of the premises, provided she paid rent charges as well as arrears of rent by instalments, she was a mere trespasser, and remained so, notwithstanding subsequent increases in the rent payable by her. The rejection of that contention does not, in my judgment, establish any principle of law applicable to cases arising under a different statutory regime, where the facts are similar but not identical to those which arose in Burrows.
In the House of Lords, in Burrows, but not the Court of Appeal, s85 of the 1985 Act was said to produce a "far more compelling argument" in favour of the council than it had advanced before the Court of Appeal. In this case, as the order made by District Judge Palmer was made on mandatory grounds, s9 of the 1988 Act, the equivalent provision to s85 of the 1985 Act, had no application. As explained in Burrows, the effect of s85 enabled a defunct secure tenancy to be revived by a subsequent court order. Mr Luba suggested that, absent s85, the decision of the Court of Appeal in Burrows would not have been over-ruled. Therefore the decision of the Court of Appeal in Burrows, that a new tenancy had been created by operation of law, applied here, and accordingly a new tenancy had been created. I do not accept that the decision in Burrows has this effect.
The starting point in Lord Browne-Wilkinson’s analysis of the legal position when a former tenant is "by agreement allowed to remain in possession of the demised property after the termination of the tenancy", identifies the critical question in each case as
quo animo the parties have so acted: depending upon the circumstances, their conduct may give rise to a new tenancy, a licence or some other arrangement.
In Burrows he concluded that:
The parties plainly did not intend to create a new tenancy or licence but only to defer the execution of the order so long as Miss Burrows complied with the agreed conditions. It cannot be right to impute the parties an intention to create a legal relationship such as a secure tenancy or licence unless the legal structures within which they made their agreement forced that conclusion.
Accordingly, the answer to the critical question in each case depends on the terms of the agreement itself, (if any) the intentions of the parties, and the inferences to be drawn from their conduct, a question not of law but of fact. Ms Burrows was held to be a "tolerated trespasser, a former tenant who the landlord had agreed not to evict", pending either the revival of the old tenancy or the breach of the agreed conditions, or, I would add, as happened here, the eventual creation of a new tenancy.
Mr Luba used the correspondence and subsequent conduct of the parties as the basis for his submission that a new tenancy was created. His submission involved attaching little, if any, weight to the fact that Mr Stirling’s proposals for the payment of arrears of rent were no more than proposals to make payments in satisfaction of an accrued debt, and were accepted as such by the landlord. The monthly payments through housing benefits represented the implementation of the order made by District Judge Palmer granting the landlord liberty to accept mesne profits. In my judgment there is no sufficient evidence that either Mr Stirling or the landlord contemplated a new tenancy taking effect after 19 July 1996, or that the landlord waived its right to apply for a warrant of possession of the premises before the arrangements for rent were renegotiated in March 1998.
Accordingly, for these reasons as well as those given by Lloyd J in his judgment, I too would dismiss this appeal.
Greenwich LBC v. Regan (1996) 28 HLR 469; Street v. Mountford  AC 809; Booker v. Palmer  2 All ER 674; Murray Bull & Co Ltd v. Murray  1 QB 211; Marcroft Wagons v. Smith  2 KB 496; Errington v. Errington  1 KB 290; Javad v. Aqil  1 W.L.R. 1007; Capital Prime Plus plc v. Wills (1998) 31 HLR 926; Burrows v London Borough of Brent  1 WLR 1448; Longrigg, Burrough and Trounson v Smith  251 EG 847.
Housing Act 1985: s.85(3)(a)
Housing Act 1988: s.9(3)
Authors and other references
Jan Luba Q.C. and Alison Rowley instructed by Stanfords for the Appellant
Paul Morgan Q.C. and Nicholas Allen instructed by Henriques Griffiths for the Respondent
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