Landlord and tenant relationship

Whether a lease or a licence was in place and therefore whether a freeholder could re-enter

The background

In London College of Business Ltd v Tareem Ltd & another [2018], the claimant college occupied office premises owned by the defendant. The agreements under which the claimant occupied stated that it did so on the basis of a licence, creating a relationship of licensor and licensee. Express wording stated that ‘…this agreement constitutes a personal Licence to occupy by the Licensee and shall not be deemed to constitute a tenancy within the meaning of the Landlord and Tenant Act 1954…’.

Following a dispute over arrears, the freeholder changed the locks of the property, therefore excluding the claimant from occupying. An injunction was granted by the County Court which enabled the college to continue to operate, but the college brought a claim for losses it stated it had incurred over the period of 3 days that it could not access the property amounting to £189,415. The Court had to consider whether a licence or a lease was in fact in place between the parties, determined by reference to exclusive possession.

The decision

The Court considered the entirety of the agreement between the parties, concluding that the agreement conferred the right of exclusive possession and was therefore a tenancy rather than a licence.

Although the agreement’s wording in creating a licence was clear, the parties’ conduct and agreement granted possession to the college for it to operate from the premises, and the college subsequently fitted out the premises to suit its business requirements without any formal licence from the freeholder. It could not have been in either party’s interests for the freeholder to interrupt the college’s business at the premises, and the college was allowed to continue its occupation for the payment of a sum. Further, the freeholder collected a service charge and was able to terminate on 14 days’ notice was consistent with the terms of a tenancy.

Advice and action for landlords

Many parties will favour the creation of a licence above a tenancy, in particular where a landlord wishes to retain access rights and control over the premises. However, Courts will consider the reality of the arrangement and the circumstances surrounding the agreement; where the conduct of the parties and the effect of the agreement is such that exclusive possession is conferred on the occupier, even where wording expressly creates a licence, the Court is likely to find that a tenancy is in operation.

In this case, the freeholder was found to be in breach of the tenant’s implied right to quiet enjoyment when it changed the locks and damages were awarded to the college (albeit not in the full amount claimed).