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Lease? Licence? Injunction? Helpful High Court commentary on recent occupation dispute

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04/04/2019

Specialist Real Estate Litigator David Manda explains a recent occupation dispute which highlights important legal issues of which property owners and occupiers should be aware.

Why is this case important?

The case of Woww Ltd v Gani [1] is the latest in a line of cases which demonstrate that the legal distinction between a lease and a licence is a crucial one, which can have very significant practical implications for property owners and occupiers.

The case also provides a helpful worked example of how the court will approach the question of whether to award an injunction to preserve the occupation of premises.

Lease/licence distinction, and why it matters

It is common for property owners to let others in to occupation of their premises on the basis of informal discussions as to terms and payment, without that arrangement ever being formally documented.

Case law [2]  confirms, however, that if a person or business occupies premises, the freehold or superior interest of which is owned by somebody else: (a) for a term (that is, for a fixed period or for a period which can be ascertained by reference to a termination notice period); and (b) exclusively (that is, without interruption and with the ability to exclude the owner or any other party at any or at certain times) then, regardless as to how the occupation arrangement is named, documented or otherwise referred to, it will be a lease, as opposed to a mere licence.

The distinction is important. In particular, a licence is simply a personal, contractual permission for the licensee to do something – in this context to occupy land.  A licence does not confer any proprietorial rights, it cannot be assigned and it does not survive any change in the ownership of the freehold/superior interest.  Crucially, a licence does not confer any security of tenure, and so a licensee’s position is precarious.

In contrast, a lease (or a tenancy, those terms are interchangeable) is much more than a contractual permission – it is an estate in land. A lease can therefore be bought and sold; it survives changes in ownership of any superior interests in the land; and, where it is a lease of commercial premises and the requirements of Part II of the Landlord and Tenant Act 1954 (the 1954 Act) are met, it affords the tenant security.  That means that the tenant’s occupation cannot be brought to an end, even following expiry of the lease term, unless and until the landlord can establish (at court if necessary) one or more of certain limited statutory grounds for repossession.

A misunderstanding on the part of the land owner or occupier as to the correct legal nature of any occupation of commercial premises can have devastating consequences.

What happened in Woww v Gani?

Legal status of occupation?

In this case, in the absence of any formal documentation, the occupier claimed to have either an oral lease for a term of 10 years or, alternatively, a periodic tenancy.  In either case, the occupier claimed security of tenure under the 1954 Act and applied to the court for an injunction to protect its occupation pending resolution of the legal position.  The property owner applied for the occupier’s claim to be struck out or alternatively for it to be summarily dismissed.

The High Court highlighted an important point, which could be of huge practical value to landlords facing occupation/security claims: the Street v Mountford lease/licence test is subject to any relevant statutory requirements, which must still be complied with.

In relation to the occupier’s claim that it had an oral lease for a 10 year term, relevant statutory provisions were: section 52 of the Law of Property Act 1925 (which requires that any lease for more than 3 years be in writing and executed as a deed); and section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (which can have the effect of validating leases not executed as a deed, but only where there is a written document incorporating all terms).  The lack of written deed or document, and the relevant statutory provisions which cannot be ignored, together meant that the occupier’s claim to have a 10 year oral lease failed as a matter of law.

The High Court did find, however, that there was an arguable case that the occupier might have a periodic tenancy which, in turn, could have security of tenure protection.  The owner’s application for strike out or summary dismissal was therefore refused and the question of the legal status of the occupier’s occupation will be determined at a future full trial.

Should an injunction be granted?

It followed that the High Court then had to consider whether to award an injunction to preserve the occupation of the premises in the meantime.  Reported cases considering injunctive relief in the context of an occupation dispute are relatively rare, and so this case provides a useful worked example of the courts’ approach.

An injunction is an equitable remedy. That means it is underpinned by fundamental fairness and awarded by the court at its discretion, as opposed to a legal remedy that is available as of right to a successful claimant.  When exercising its discretion, the court will apply certain key principles of equity, including:

  • the equitable maxim of clean hands. That is, anyone looking to equity for a remedy must be free of wrong doing him/herself;
  • equity will not suffer a wrong to be without a remedy. Where fairness requires, a remedy will be provided even if one does not exist by right at law; and
  • the doctrine of ‘laches’ (delay). Delay can cause unfairness in itself and so an equitable claim may be barred if it is not brought within a timely manner.

The American Cyanamid [3] guidelines are also used by the courts when deciding whether to grant an injunction. The guidelines consider:

  • whether there is a serious, arguable case to be tried;
  • whether damages would be adequate as a remedy;
  • the ‘balance of convenience’ (i.e. which party would suffer the greatest prejudice were an injunction to be granted or not to be granted); and
  • whether the status quo should be maintained.

In Woww v Gani, having already decided that there was an arguable case to be tried in relation to the claim for a periodic tenancy, the High Court held:

  • damages may not be an adequate remedy. Of particular relevance to property cases, the court went on to say “damages may not be an adequate remedy in circumstances where a business would, in the absence of an injunction pending trial, be denied access to its place of business and need to relocate“;
  • in relation to the ‘balance of convenience’ consideration, the court stated “[a]gain, assuming some business is being or will be undertaken [at the premises], the inconvenience to the Claimants of interrupted possession would be likely to be significant“; and
  • in this case preservation of the status quo would minimise future complications and uncertainty with regard to the occupation of the premises and was therefore the preferable option.

The High Court therefore exercised its discretion to grant an injunction to preserve the occupation pending resolution of the periodic tenancy and security of tenure claims.

Practical advice

A common consequence of informal occupation arises where a freehold owner wishes to recover possession of its premises quickly, but plans are then be scuppered when it comes to light that the occupation arrangement is, in fact, a 1954 Act-protected lease.  In those circumstances the owner cannot terminate without giving a minimum of six months’ notice and being able to prove (if necessary at a full court trial which could take many months to prepare and to come to fruition) one of the statutory grounds.  In some circumstances, even where a statutory ground is made out, the owner/landlord can also be liable to pay financial compensation to the protected occupier/tenant when the lease finally does come to an end.

From an occupier’s perspective, one of a business’ most valuable assets can be its goodwill which, more often than not, attaches to its premises and location. If an occupier is unexpectedly forced to depart where it thought it had a lease but in fact only has a licence, the disruption and damage to its business can be significant.

Particular areas of risk (non-exhaustively) include where businesses occupy premises and commence trading/operating prior to completion of formal documentation; short-term, seasonal or pop-up arrangements; and space-sharing, concession or ‘sub-letting’ arrangements which are not properly documented.

In any event, the resolution of an occupation dispute inevitably entails significant time, cost and inconvenience for both parties.

In an uncertain climate, landlords can increasingly face void units – along with the rates and repair liability that that entails; and occupiers can be reluctant to enter formal long-term leases. Financial pressures and the desire for flexibility therefore often prompt parties to enter informal occupation arrangements.  If done properly, those solutions can represent a real win:win; but if not, the consequences can be devastating.  When it comes to occupation arrangements, therefore, remember the adage ‘a stitch in time saves nine‘ – seek specialist advice and put the proper documentation in place.

For further information or advice, please do not hesitate to contact David Manda or any member of Walker Morris’ Real Estate Litigation Team.

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[1] [2018] EWHC 3550 (Ch)
[2] Street v Mountford [1985] 1 EGLR 128
[3] [1975] UKHL 1

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