CHAPTER TWO – TENANCIES WHICH ARE PROTECTED BY THE LTA 1954
Section 23(1) LTA 1954 states that ‘Subject to the provisions of this Act, this Part of this Act applies to any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes’. The starting point is simple: all business tenancies are protected by the LTA 1954 unless something takes them outside its protection.
Section 23(1) can be broken down as follows:
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There must be a tenancy. Licences as well as tenancies at will fall outside the protection of the LTA 1954. This can lead to difficulties where an occupier has possession of a property and pays a periodic sum as consideration for that occupation: is it a lease or a licence?
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The tenant must occupy premises within the property that is comprised in the tenancy. It is possible for a tenant to cease occupation, or to cease its business in the property, and then for it to lose the benefit of protection under the LTA 1954.
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The tenant’s occupation is for the purposes of a business. The LTA 1954 has been interpreted so that ‘business’ is given a very broad definition. For example, it can include charitable or religious use.
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The business must be carried on by him. This is broadened by a number of statutory provisions to include companies related to the tenant.
Each of these different elements, plus exclusions to the LTA 1954, are discussed below.
What is a ‘tenancy’?
The word ‘tenancy’ means a normal leasehold relationship, including a sublease.
Section 69(1) LTA 1954 gives a full interpretation of the meaning of the word within Part II:
“tenancy” means a tenancy created either immediately or derivatively out of the freehold, whether by a lease or underlease, by an agreement for a lease or underlease or by a tenancy agreement or in pursuance of any enactment (including this Act), but does not include a mortgage term or any interest arising in favour of a mortgagor by his attorning tenant to his mortgagee, and references to the granting of a tenancy and to demised property shall be construed accordingly
Ordinary landlord and tenant principles are applied to distinguish between a licensee (who is not protected by the LTA 1954) and a tenant (who is capable of being protected). In Street v Mountford [1985] AC 809 it was held that an agreement granting exclusive occupation of residential accommodation for a term at a rent (where no services are provided), where the grantor was providing neither attendance nor services, creates a tenancy, notwithstanding the use of the word ‘licence’. The position is the same whether one is looking at occupation of a residential property or at occupation of a commercial property: London & Associated Investment Trust Plc v Calow [1986] 2 EGLR 80. A draftsman of a licence needs to be careful to ensure that a tenancy is not inadvertently granted which is then not contracted out of the LTA 1954. It is the true substance of the relationship that will determine whether the relationship is really one of licence or tenancy.
A genuine tenancy on sufferance or a tenancy at will is also excluded from statutory protection: Wheeler v Mercer [1957] AC 416. Although an express agreement for a tenancy at will falls outside the protection of the LTA 1954 the court will consider the reality of the situation applying normal Street v Mountford principles.
What are ‘premises which are occupied’?
The term ‘premises’ acquires an important meaning in the LTA 1954. The subject matter of the tenancy must be property which is capable of being occupied. For example, a lease of an easement does not, by itself, attract the protection of the Act, unless it is property that it is actually possible to occupy.
In Land Reclamation Co. Ltd v Basildon District Council [1979] 1 WLR 767 the tenant had a tenancy of a right of way along a private road which it used exclusively for business purposes. It was held that the right of way was not protected by the LTA 1954 as an easement (by itself) could not be ‘occupied’. The Court of Appeal referred to Stumbles v Whitley [1930] AC 544, which was a case under the Landlord and Tenant Act 1927, where it was held that fishing rights were not ‘premises’, although the tenant was able to obtain a grant of such rights as part of the grant of a new lease of a hotel.
An easement of a car parking space can, however, be occupied, if the right conferred on the tenant was to the effect of excluding the landlord, and hence falls within the LTA 1954: Pointon York Group v Poulton [2006] 3 EGLR 37.
Land Reclamation was considered by the Court of Appeal in Nevill Long & Co (Boards) Ltd and another v Firmenich & Co [1983] 2 EGLR 76. In that case, there had been a severance of the reversions so that the rights of way that were part of the business lease now passed over land that was owned by a different freehold owner. It was held that the severance of the reversions did not create a separate tenancy in respect of each severed part of the reversion as a consequence of the provisions of section 140(1) Law of Property Act 1925. Notwithstanding the severance of the reversions, there continued in existence under each of the leases a single tenancy of the property thereby demised including the right of way. As in each lease the actual land was occupied for the purpose of the lessee’s business, each such tenancy was within section 23. The problem of split reversions for the landlord when serving a section 25 notice is discussed in Chapter 10.
As for occupation itself, this is a matter of fact, giving the words their ordinary meaning. In Graysim Holdings Ltd Respondent v P. & O. Property Holdings Ltd [1996] AC 329 Lord Nicholls held at 334 that the concept of occupation is not a legal term of art, with one single and precise legal meaning applicable in all circumstances. However, the LTA 1954 does not allow for two persons (such as the tenant and a subtenant), other than persons acting jointly, being in occupation of the same property for the purpose of the legislation. In Bagettes Ltd v G.P. Estates Ltd [1956] Ch 290, the tenant sublet unfurnished residential flats for business purposes: the Court of Appeal held that the common parts then fell outside the LTA 1954 as once the flats were gone, the business for the purpose of which the tenant occupied the retained parts was also gone. See also the section below on the definition of ‘holding’.
On the other hand, some businesses, such as hotels and storage units, are in the business of providing accommodation or space: the business owner is still in occupation. If the landlord’s use of the retained parts is merely ancillary to the subtenants’ use of their units, providing access and facilities, it is difficult to see how the tenant has ‘retained’ occupation for the purpose of the LTA 1954. The extent of presence by the tenant required to fall within the protection of the LTA 1954 is a matter of fact and degree.
It is possible for a tenant to occupy premises through an agent or manager: Parkes v Westminster Roman Catholic Diocese Trustee (1978) 36 P & CR 22.
What is a ‘business’?
Section 23(2) states that, in Part II of the LTA 1954, the expression ‘business’ includes ‘a trade, profession or employment and includes any activity carried on by a body of persons, whether corporate or unincorporate.’
On the other hand, the subletting of parts of premises as flats with a view to making a profit from the rentals is not a business in respect of which the person carrying it on is entitled to security of tenure under the LTA 1954: Bagettes Ltd v. G.P. Estates Ltd [1956] Ch 290. In Trans-Britannia Properties v Darby Properties [1986] 1 EGLR 151 it was noted that even if the majority of the premises are sub-let, so at first blush it might appear difficult for the lessee to assert that they are in occupation of the site, the court needs to consider the degree of control and extent of the services provided by the tenant company.
This definition includes ‘businesses’ whose affairs are not strictly profit-making: for example, see Hawkesbrook Leisure Ltd v Reece-Jones Partnership [2004] 2 EGLR 61, a case where sports grounds were managed with a view to making a profit or surplus, albeit not distributable to members or shareholders, and the business was carried on as a trading activity. In Parkes v Westminster Roman Catholic Diocese Trustee (1978) 36 P & CR 22, the Court of Appeal confirmed that the provision and running of a community centre run by the local parish priest was a ‘business.’ Lord Denning MR analysed the legal structure of the Roman Catholic Church, noting that it had a structure which is very common to charitable organisations. A body of trustees (which, in this case, was a company limited by guarantee) held the legal title in the property and all of the assets. The trustees were given power by a trust deed to hold property and to use and apply it as capital and income. To the Court of Appeal, the activities of the Church were quite clearly a ‘business’ for the purpose of section 23(2) LTA 1954. Bridge LJ went so far as to confirm that ‘“Business” of course is extremely widely defined in the Act as including any activity-carried on by a body of persons corporate or unincorporate.’ In Ruby Triangle Properties Ltd v Jesus Sanctuary Ministries Ltd [2020] EWHC 2247 (Ch) it was conceded that an evangelical church was a business for the purpose of 23(2) LTA 1954 and that the rental agreement in question amounted to a tenancy as opposed to a licence.
In Panton v Brophy [2019] EWHC 1534 (Ch), Master Clark considered whether or not the unincorporated association constituting the famous Thames Tradesmen’s Rowing Club constituted a ‘business’: it was held that it was (at [95]).
A property can be occupied for the purpose of a business even if it is not used for business activity itself or if is ancillary to the business, such as a store room, a car park or a parking space. This line does have limits however: in Hillil Property & Investment Co Ltd v Naraine Pharmacy Ltd (1979) 39 P & CR 67, the tenant owned two adjoining shops, and used one of the shops as a dumping ground for waste materials from other shops. It was held that an activity within section 23(2) must be at least something correlative to the conceptions of ‘trade, profession or employment,’ rather than a casual operation, and therefore this use fell outside the LTA 1954. This is, however, a question of fact and degree.
Companies and businesses
The business must be carried on by the tenant. This is subject to a number of statutory provisions that broaden and explain this phrase.
Section 23(1A) broadens the definition of ‘the carrying on of a business’. Where:
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a company in which a tenant has a controlling interest in a company which is in occupation or carries on a business, or;
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where the tenant itself is a company and the person with a controlling interest in the company is the occupier or carries on the business;
their occupation of the premises or carrying on of the business is equated with the tenant. This equivalency is extended throughout Part II of the LTA 1954 by subsection 23(1B).
A tenant can conduct business in a partnership. Goulding J held In re Crowhurst Park [1974] 1 WLR 583 that the carrying on of a business by the defendant in partnership with his wife was a carrying on of a business by the defendant himself.
If, however, the tenant sublets the property to a company that they control, and that company carries on business in the demised premises, section 23(1A) will not assist the tenant. In Smyth-Tyrrell v Bowden [2018] EWHC 106 (Ch), [2018] 2 P & CR D12, it was held that, by virtue of the subtenancy, the company was carrying out business on the company’s property, and not the tenant’s.
Premises that cease to be occupied
A tenancy for a fixed term cannot be continued under section 24(1) unless, immediately before the term would at common law expire by effluxion of time, the tenancy is one to which the Act applies: Esselte v Pearl Assurance [1997] 1 WLR 891, CA. If the tenant vacates the property before the contractual term date the tenancy will not be one to which Part II of the LTA 1954 applies and it will come to an end, even if the tenant has already applied to the court for the grant of a new tenancy. This means that he or she does not need to serve notice under section 27. This is confirmed in section 27(1A):
(1A) Section 24 of this Act shall not have effect in relation to a tenancy for a term of years certain where the tenant is not in occupation of the property comprised in the tenancy at the time when, apart from this Act, the tenancy would come to an end by effluxion of time.
The question of whether a property ‘ceases’ to be occupied was explored in Aspinall Finance Ltd v Viscount Chelsea [1989] 1 EGLR 103. The mere fact that the tenant is not occupying at the relevant date is not conclusive. Tenants do not have to occupy and carry on business for every hour of every day. Some breaks are inevitable. For example, some businesses that are only open in the summer months and are closed throughout all the winter months; alternatively, there may be a need for urgent structural repairs and the tenants had to go out of physical occupation in order to enable them to be effected. The test is whether the thread of continuity of business user continues or whether it has been broken: I&H Caplan Ltd v Caplan (No 2) [1963] 1 WLR 1247. The court will look at whether the tenant has an intention to resume occupancy, although this by itself is probably insufficient. Other, non-conclusive, factors include the…