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London College of Business Ltd v Tareem Ltd

Posted on 20/01/2020 · Posted in Expert Witness, Financial Litigation, Property

This case highlights the difference between a “licence” to occupy a property and a “lease” of that property. It goes some way to show, yet again, that whatever the agreement is actually called by the parties, the Courts will look to the heart of the agreement and take a pragmatic approach looking beyond the wording as to the real nature of the relationship between the parties.

Tareem owned an office complex at Monteagle Court in Barking, London and since 2006 London College of Business (‘LCB‘) had occupied some offices within it for its teaching activities. The parties used a series of short and simple agreements some of which were signed, and some not. The agreements purported to create a series of licences: the parties were described as ‘Licensor’ and ‘Licensee’, LCB paid a ‘Licence fee’ and a service charge for which it was granted “a personal privilege to use the premises“. The words ‘tenant’, ‘rent’ or ‘landlord’ were not used. 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…“.

A dispute arose in 2013/2014 regarding alleged non payment of service charge under the agreement. This culminated in Tareem entering and changing the locks of the property thereby excluding LCB from occupying the property and being able to carry on its business. An injunction was immediately applied for and granted to LCB forcing Tareem to surrender the keys and enabling the College to continue its business. LCB also brought a claim against Tareem for losses it stated it had incurred over the 3 days it was excluded from the property. The claim for wrongful exclusion and damages was for nearly £190,000. In considering the claim the Court had to look closely at the agreement and decide the true nature of the relationship between the parties. It was highly relevant as a Licence only grants the licensee a personal contractual right to occupy a property, whereas a Lease grants a proprietary right and potentially gives the tenant statutory protection.

‘Truth is ever to be found in simplicity, and not in the multiplicity and confusion of things.”
Sir Isaac Newton

When the case came before the Court, it took a pragmatic approach following precedent in earlier case law in particular, Street v Mountford 1985. Decided in the House of Lords, this stated that the characteristics of a lease were that it should grant exclusive possession, for a term and at a rent. The effect of a parties’ arrangement in practice was more important than any labels attached to it by the parties.

The court in this instance looked at the intention of the parties when making the agreement, at the parties’ conduct and at the actual facts of their relationship. Although the wording in the agreement was clear that the relationship created was one of Licensor and Licensee, the actual purpose of the agreement was to provide the College with premises from which it could run its business. The parties are assumed to mean what they say in an agreement but that can be ignored if that is not what happens in practice. It wasn’t realistic to assume that the parties genuinely intended that the College’s business could be abruptly interrupted by Tareem’s unannounced right of entry “for the purposes of exercising management and control“. In practice over the previous seven or eight years, when Tareem did need to gain entry, it contacted the College to make mutually convenient arrangements. The fact that Tareem collected a service charge and was able to terminate on 14 days notice were both characteristics of a tenancy agreement. The parties’ conduct was relevant. LCB had fitted out the premises to suit its business requirements without any formal licence from the freeholder, thereby assuming exclusive possession of the property. The Judge stated that:
…….the Court will be alert to the possibility that parties have included provisions in their written agreements whose only purpose is to disguise the fact that the reality of the situation is that a tenancy has been granted.

After considering all aspects of the relationship the Court came to the conclusion that the 2012 agreement the parties had was a Lease and not a Licence, and further that it was a business tenancy under Part 2 of the Landlord and Tenancy Act 1954. Tareem’s forced entry without notice and changing of the locks to the property therefore constituted a breach of the implied right to “quiet enjoyment” and damages were awarded to LCB.

Any property owner should take considered advice as to the legal basis on which they let others occupy their property. Ironically, had Tareem granted a conventional lease, and the parties “contracted out” of the protective provisions conveyed by a business tenancy, Tareem would have been in a stronger position as landlord.

Link: London College of Business Ltd v Tareem Ltd & Anor [2018] EWHC 437 (Ch) (07 March 2018)

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