In this article we look at the decision of the High Court in Camelot Guardian Management Limited v Heiko Khoo [2018] EWHC 2296(QB). In particular we shall be looking at the way in which the court decided whether an agreement to provide residential accommodation created a lease or a licence and the impact of this decision on guardian schemes in general.
THE FACTS OF THE CASE
Ingestre Court 3, London W1 (‘the property’) was an office building owned by Westminster City Council (‘Westminster’). In April 2015. Westminster entered into an agreement with Camelot whereby Camelot was given possession of the property in order to secure it against trespassers and to protect it from damage.
In order to do this Camelot (through Camelot Guardian Management Limited (‘CGML’)) entered into agreements with a number of guardians to occupy the property. Mr Khoo was one of them.
The agreement under which Mr Khoo occupied the property was labeled a “Licence Agreement” and went to some considerable lengths to ensure that it did not grant a right to exclusive occupation of any part of the property.
The relevant clauses included the following:
This constitutes an agreement under which Camelot Guardian Management Limited agrees to let you share living space in a building.
You will not get a right to exclusive occupation of any part of the living space. The space will be shared with other individuals who Camelot permits to share the space.
You will have to agree with those other individuals how the space is to be used.
The extent of this space may vary from time to time as directed by Camelot.
However, there will always be at least one room for each individual or couple sharing the space.
The House of Lords has held that this sort of sharing agreement does not create a tenancy (see AG Securities v Vaughan [1991] AC 417).
You will therefore have to vacate the building as soon as the agreement is terminated.
Clause 2 is headed, “Background” and it provides:
2.1. CPML provides services to property owners to secure premises against trespassers and protect such premises from damage, among other things, and has agreed to provide such services to the Owner in respect of the Property.
2.2. To assist CPML in providing those services, the Owner has agreed that, during the period set out in CPML’s agreement with the Owner, CPML may grant permission to Camelot to enter into licence agreements with persons who will share accommodation in the Property.
2.3. CPML has given Camelot permission to grant temporary nonexclusive licences to persons selected by Camelot to share occupation of such part or parts of the Property as Camelot may from time to time designate on terms which do not confer any right to the exclusive possession of the Property or any part of it.
2.4. Neither CPML nor Camelot are entitled to grant possession or exclusive occupation of the Property or any part of it to any person …
Clause 3 then provided, under the heading, “This is not a tenancy”:
3.1. This agreement does not give a right to exclusive possession to the Guardian of the Property or any part of the Property.
3.2. As a result, the Guardian accepts that this agreement does not create a tenancy of any kind and that, on termination of this agreement, the Guardian will have no right to stay in the Property.
Clause 4 is headed, “Permission to share the living space.” It includes the following provisions:
4.1. Camelot gives the Guardian permission to share the occupation of the Living Space with such other persons as Camelot may from time to time designate, provided that there is always enough Living Space to provide at least one room for each of the Guardians who are authorised to share the Living Space.
4.2. This permission is personal to the Guardian; it may not be assigned.
4.3. This permission will last for the licence period or until termination of this agreement if that happens before the end of the licence period.
4.4. Camelot may alter the extent and location of the Living Space within the Property at any time on reasonable notice provided that there is always enough Living Space to provide at least one room for each of the Guardians who are authorised to share the Living Space.
4.5. This agreement does not give the Guardian a right to use any specific room within the Living Space. It is for the Guardians for the time being to decide where each Guardian is to sleep subject to the terms of this agreement. However, Camelot must be kept informed of which room each of the Guardians are sleeping in within the Living Space. This is to enable Camelot to manage the Property in accordance with its obligations to CPML. For example, if Camelot finds that someone has been smoking in a room, Camelot needs to be able to identify the person sleeping in that room so as to take appropriate action.
4.6. Within 24 hours of signing of this agreement, the Guardian must inform Camelot which room the Guardian will be sleeping in. If there is any subsequent change in the room which the Guardian is sleeping in at any time, the Guardian must inform Camelot immediately …
Clause 10 of the Agreement contained a number of provisions as to the use of the Property by the Guardian. They included the following:
10.5. The Guardian will not hold meetings, parties or other similar gatherings in the Property.
10.6. The Guardian will not permit any other person (other than other Guardians) to stay overnight in the Property.
10.7. The Guardian will not invite more than two guests at any one time to visit the Guardian at the Property. The Guardian will ensure that guests are not left unsupervised in the Property at any time and will always escort guests off the Property when their visit comes to an end.
10.8. The Guardian will not allow any former Guardian whose licence has been terminated access to the Property …
Under clause 11, there were provisions as to use of the Property, containing other obligations. Those included the following:
11.1. The Guardian will use the Living Space as a place for the Guardian to live in and not, without Camelot’s prior written consent, sleep away from the Living Space for more than two nights out of any seven. Camelot’s normal practice is to give such written consent when Guardians wish to travel for up to four weeks a year provided that Camelot is given reasonable advance notice, but Camelot is under no obligation to give such consent …
11.3. The Guardian will do their best to ensure that either they, or at least one other person, are present in the Property for at least one hour in every 24 hours.
11.4. The Guardian will do their best to share the Property amicably and peaceably in common with such other persons as Camelot shall from time to time permit to make use of the Property. The Guardian will not interfere with such occupation in any way whatsoever …
11.1. The Guardian will use the Living Space as a place for the Guardian to live in and not, without Camelot’s prior written consent, sleep away from the Living Space for more than two nights out of any seven. Camelot’s normal practice is to give such written consent when Guardians wish to travel for up to four weeks a year provided that Camelot is given reasonable advance notice, but Camelot is under no obligation to give such consent …
11.3. The Guardian will do their best to ensure that either they, or at least one other person, are present in the Property for at least one hour in every 24 hours.
11.4. The Guardian will do their best to share the Property amicably and peaceably in common with such other persons as Camelot shall from time to time permit to make use of the Property. The Guardian will not interfere with such occupation in any way whatsoever …
Mr Khoo went into occupation in December 2012. In September 2017, CGML served a Notice to Quit and issued possession proceedings. Mr Khoo defended those proceedings on the basis that, notwithstanding the terms of the agreement, he occupied the property under a tenancy and the NTQ was ineffective.
In the County Court the judge found that Mr Khoo not only had ‘de facto’ exclusive possession of a single room and two storage rooms but that he had a right to that exclusive possession. Notwithstanding this finding, the Judge concluded that the agreement was nevertheless a mere licence.
Unsurprisingly, Mr Khoo appealed. I say ‘unsurprisingly’ because a finding that an occupier has ‘exclusive possession’ would usually lead to the conclusion that he was, indeed, a tenant under a lease.
THE DECISION
The legal question in this case was simply this: did Mr Khoo occupy his room(s) under a licence (as per the agreement) or was this, in reality, a tenancy/lease?
The question of whether someone occupies a dwelling under a lease or a licence is significant primarily because there are a number of statutory protections which only apply where the dwelling is ‘let’. In particular the Housing Act 1988 (under which the tenancy would be an Assured Shorthold Tenancy (‘AST’)) and the Landlord and Tenant Act 1985 (under which certain repairing obligations are implied into the agreement).
In this case, if Mr Khoo were occupying under an AST, then the Notice to Quit would have been invalid and he would have a complete defence to the possession claim.
Lease or Licence
Both a lease and a licence are created by contract. A lease creates a ‘proprietary right’ in the property: a leasehold interest (or ‘term of years’) whereas a licence merely creates a ‘personal right’, eg permission to occupy or use.
Although it is often referred to as ‘a term of years’, a lease can theoretically be of a very short duration (eg one day) and can extend to a very small demise (eg a singe room). A periodic letting (eg weekly/monthly) also falls within the definition.
The hallmark of a lease is the grant of a right to ‘exclusive possession’ in return for payment. (Street v Mountford [1985] AC 809)
Exclusive possession
When it comes to land, ownership (title), possession and occupation are all different things and may be enjoyed by different parties simultaneously.
Ownership is ‘relative’. At any one time there may be a number of parties with title over a given property: a feeholder, a leaseholder, a sub-leaseholder etc.
However, at any one time, only one party will be ‘in possession’ of a property or a part of a property. A right of ‘possession’ is the right to manage and control the property to the exclusion of all others – including anyone with a superior title. A tenant’s possession will displace the possession of the landlord. To this extent, therefore, possession is always ‘exclusive’. Indeed, some argue that the expression ‘exclusive possession’ is a tautology (See eg. Grey, the Elements of Land Law).
Although only one party can be in possession at any one time, a number of different parties may simultaneously have a right to exclusive possession of different parts of a single property – individual rooms in a shared house for instance.
‘Exclusive possession’ compared to ‘exclusive occupation’
‘Exclusive occupation’ does not equal ‘exclusive possession’ and visa-versa. A lodger may have exclusive use of a room or rooms but will not have a right to exclusive possession. Similarly, someone with a right to exclusive possession may never go into occupation. They may, for instance, grant a licence to occupy it to someone else.
It could be said that occupation is a matter of fact but possession is a matter of law. As Lord Hoffman explained in Bruton: “the classification of an agreement as a lease … is simply a question of characterising the terms which the the parties have agreed. This is a question of law.” (Bruton v London & Quadrant Housing Trust [1999] UKHL 26)
In order to determine whether a lease has been created or not therefore, it is necessary to see who, under the terms of the contract, has the right to manage and control the property. As the judge in this case states at paragraph 19 “The court will begin by construing the agreement between the parties to consider whether it creates a tenancy, including in particular construing it to see whether it confers a right to exclusive possession.”
There are, however, 2 distinct caveats to this process: the first is ‘mislabeled’ agreements, the second, ‘sham devices’.
Mislabeling is calling a ‘lease’ a ‘licence’. As Lord Hoffman says in Bruton: “The court will not … be bound by the label which the parties have attached to their agreement. It is the legal consequences of the agreement which is determinative rather than the label which the parties have chosen to attach to it.” So, an agreement which calls itself a “Licence Agreement” which, nevertheless (properly construed) grants a right of exclusive occupation will be a lease.”
This is so whether there has been dishonesty or not.
A ‘sham device’ is a contract where the terms purport to exclude the grant of exclusive possession but the reality is otherwise. Given the fact that an occupier who occupies under a lease has a good deal more statutory protection than one who occupies under a licence, there is an obvious temptation for landlords to draft an agreement which not only labels itself a licence but also purports to limit the level of control and management that it grants to the occupier. However, if the reality is that what is being granted is residential accommodation for a rent in premises which are the usual type of residential premises, then such an agreement is a sham.
The production of a sham device or of a pretence ordinarily involves a degree of dishonesty. Drafting a contract in a way to avoid statutory protection for no proper reason is dishonest.
When determining whether the agreement is a sham, the court may look beyond the contract and may take into account all the surrounding circumstances, including, whether as a matter of fact the occupier had exclusive occupation, use and control of some part of the dwelling house and/or whether the occupier was, in fact, ever obliged to re-locate or allow un-fettered access.
However, as the judge points out in this case, “the fact that a contractual right is not exercised does not of itself mean that it ceases to exist. The relevant party may be entitled subsequently to insist on its performance nevertheless…Although Mr Khoo may in fact have been permitted exclusive occupation of a room or rooms, that does not in the circumstances of this case overcome the strong presumption that parties to a transaction intend its terms, both as to rights and obligations, to be effective.”
Having taken into account all the relevant circumstances, the judge found that the agreement was not a sham. He says at para 34 “In entering into the Agreement, as both parties knew and must be taken to have intended, the basis of the arrangement was that CGML was providing some protection to temporarily-vacant premises against vandals and trespassers by arranging for accommodation by Guardians. As I have set out above, it was essential to such an arrangement that the Guardians should not have tenancies. The inference I would draw is that CGML did indeed intend, when entering into the Agreement, that its terms would be enforceable by and capable of being enforced against it. It was in its interests that they should be…this was an unusual arrangement whereby office accommodation would be occupied by a number of different people who might be entire strangers to each other at the outset of their occupation, where their presence was desirable because of concerns as to the security of the premises, and where it was essential that the building should be capable of being restored to its owner at short notice.”
Although the principles that the court will apply to determine whether a give agreement amounts to a lease or a licence are of general applicability, it is clear from this that the particular circumstances of this case were central in the judge’s reasoning. In light of this, I doubt there is any further principle of universal application that can safely be taken from it. Had Mr Khoo occupied a self-contained unit in a residential building the conclusion as to whether the agreement was a sham or not might have been quite different.
OPEN QUESTION – Does a guardian scheme amount to a special case where the grant of exclusive possession does not create a lease?
At paragraph 18, the court referred to a secondary issue. In Street v Mountford is was accepted that here are special cases in which, even though there has been a grant of legal exclusive possession, the circumstances show that that right is referable to a legal relationship other than a tenancy and that the categories of such exceptional cases are not closed.
There was a question, therefore, as to whether a guardian scheme might fall into this category. However, in the light of the judge’s findings in this case, it proved unnecessary to address that question in this case.
However, the House of Lords in Bruton were unpersuaded by arguments that Social Housing providers who operating schemes to provide accommodation to homeless persons would fall into the category of special cases. Lord Hoffman states: “Mr. Henderson Q.C. argued that the fact that the Trust was a responsible charitable organisation performing important social functions and that it was merely a licensee of the subjects, inhibited by the terms of that licence from granting tenancies, amounted to such special circumstances. My Lords in Family Housing Association v. Jones [1990] 1 W.L.R. 779, where the facts were very similar to those in this case, the association as licensee of a local authority granted what was described as a licence to the defendant to occupy premises on a temporary basis. Following Street v. Mountford [1985] A.C. 809, the Court of Appeal held that the agreement constituted a tenancy and Slade L.J. at p. 793 rejected the argument that there existed special circumstances whereby the defendant, albeit in exclusive possession of the premises, was not a tenant. In my view Slade L.J’s rejection was correct and his reasoning equally applicable to the present case.”
Given this reasoning, it is difficult to imagine a more favourable outcome for guardian schemes.
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The content of this article reflects the view of the author at the time of writing and is not to be taken as legal advice.
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