Periodic Business Tenancy: Court of Appeal considers appeal against grant of injunction in possession proceedings (Avondale Park Ltd v Miss Delaney’s Nursery School Ltd – 2023)

In a case where a landlord wished to take possession of nursery school premises, the Court of Appeal considers an application by the nursery for an injunction against forfeiture, the effect of the periodic tenancy on proceedings and considers the established principles of estoppel by convention, and that parties should not profit from wrongdoing.

The background

In Avondale Park Ltd v Miss Delaney’s Nursery School Ltd [2023], Avondale held a lease of premises from the Royal Borough of Kensington and Chelsea which expired on 13 September 2022.

Miss Delaney’s, a nursery school, took a lease of the premises from Avondale’s predecessor dated 9 September 2014, expiring prior to the headlease on 29 August 2022.

The sublease to Miss Delaney’s was to be terminated immediately in the event that the landlord did not supply to Miss Delaney’s a completed Deed of Variation by 14 December 2014, whereby the freeholder gave consent for the premises to be used as a nursery school. No Deed was produced, but nevertheless Miss Delaney’s went into occupation and Avondale accepted rent until 2022.

In August 2022, Avondale took steps to forfeit the sublease on the basis of non-payment of rent (a security deposit had been paid by Miss Delaney’s to discharge the rent). It was common ground between the parties that Avondale waived its right to forfeit as it had commenced commercial rent arrears recovery (“CRAR”).

An application was made by Miss Delaney’s for an injunction that returned possession of the premises to them in time for the start of the school year. The injunction was granted in September 2022. In its appeal, Avondale argued that the sublease had expired by the time the injunction hearings took place and that therefore the injunction should not have been granted.

Miss Delaney’s argued that their tenancy had been a periodic tenancy, which was not terminated and was protected by security of tenure under the 1954 Landlord and Tenant Act 1954. Their rationale was that the sublease had ended on Avondale’s failure to produce the Deed of Variation; Miss Delaney’s continued occupation, and Avondale’s continued acceptance of rent, established the protected periodic tenancy.

At the second injunction hearing, Avondale contended that Miss Delaney’s had been estopped by convention from arguing this point as both parties had behaved as if the sublease had been in place.

Avondale’s headlease was to expire 5 days after the second injunction hearing, and Avondale argued that the grant of an injunction would mean it lost the opportunity to claim security of tenure itself. In response, Miss Delaney’s argued that Avondale clearly had no intention of running a nursery school business from the premises. The judge held that damages would be an adequate remedy for Avondale, but would not be adequate for Miss Delaney’s which required the use of the property to run its business.

The injunction was granted. Avondale appealed on three grounds:

1. That an ‘automatic termination’ provision did not exist; instead, one of the parties was required to elect to terminate the sublease;
2. That estoppel by convention was an argument without any realistic challenge; and
3. That the court should more thoroughly consider both parties’ arguments given that the award of an injunction disposed of proceedings altogether.

The decision

The Court of Appeal dismissed the appeal, upholding the grant of the injunction. In considering each of the grounds of appeal:

1. On the first ground, Avondale relied on authorities including 19^th and early 20^th century mining leases, which found that tenant default resulting in a void lease could not be relied upon by a tenant to automatically end the lease and discharge the tenant from its obligations; instead, the tenant default gave the landlord the opportunity to choose whether to terminate the lease on the principle that a party should not profit from its own wrongdoing.

The Court of Appeal upheld the earlier decision, agreeing with Miss Delaney’s that the intention of the parties should be considered. Miss Delaney’s argued that, unlike the cases referred to by Avondale, the termination provision in this case concerned a matter that was outside the control of both parties, the grant of the Deed of Variation being for the freeholder to make, and was not intended to benefit only one party. Neither party was taking advantage of its own wrongdoing in this case.

2. On the second issue, the Court of Appeal determined whether a fixed term tenancy was created by Miss Delaney’s continued occupation, on the terms of the sublease, rather than a periodic tenancy created where the lease was void.

The Court referred to the Supreme Court’s decision in Tinkler v HMRC [2021] which set out a number of requirements when determining estoppel by convention. Estoppel could not override statute, and therefore if Miss Delaney’s occupied under a periodic tenancy, estoppel could not override a statutory right to security of tenure.

In considering whether Avondale’s director believed that a sublease subsisted, and whether Miss Delaney’s actions influenced that belief, the Court of Appeal found Avondale’s evidence to be unsatisfactory.

The Court of Appeal found it difficult to identify detriment suffered by Avondale. There was scant evidence to show that Avondale would operate a nursery in the event that it could claim protection by way of security of tenure, or to show that Avondale wished to bring in contractors to redecorate.

3. Assessing the third issue, the Court of Appeal did not believe that the injunction hearing judge should have applied any different test. The court should consider ‘all the practical realities’, which in this case did not support Avondale’s argument particularly given that Avondale was not the operator of a nursery school and evidenced little intention that it would do so were possession of the premises recovered. Indeed, the Court of Appeal was sceptical about this argument, which Miss Delaney’s Counsel argued was created ‘for tactical reasons’.

Advice and action for landlords

This decision addresses some interesting points, particularly around the creation of a periodic tenancy and estoppel by convention.

Miss Delaney’s could not be shown to be benefiting from any wrongdoing on the part of either party. A periodic tenancy had been created by default when the freeholder failed to produce the Deed of Variation which would have enabled the sublease to subsist.

The nursery school therefore enjoyed security of tenure, a statutory benefit which could not be overridden by estoppel by convention.