Property Guardians – licence not tenancy in office building

Further to the EHN conference the Gaurdian Companies indicated that they had a case that had been to the High Court, which supported their case that they were creating a licence rather than a tenancy.

There is a nice peice done by NearlyLegal : Housing Law by Giles Peaker, which is copied below for ease of refereence.

Camelot Guardian Management Ltd v Khoo (2018) EWHC 2296 (QB) (Not on Bailii for some reason. Judgment on Lexis)

I missed this at the time (July). I might well have been on holiday, but also it didn't make the usual sources. This is quite a significant judgment on the issue of property guardians and the licence/tenancy distinction. This was Mr Khoo's appeal of a first instance possession judgment that found his occupation was under a licence, not a tenancy.

In December 2015, Mr Khoo entered into an agreement with Camelot for occupation of an office building, of which Westminster City Council were the freeholders. Numbers of guardians in the building varied between 6 and 11. Mr Khoo occupied the same room (and two storage rooms) throughout the subsequent period.

In passing, it is worth noting that Camelot's own agreement with Westminster CC appeared to be varied by Camelot's offer letter:

That agreement, which appears to have been in standard terms, contained a provision that it could be determined by Westminster City Council on not less than five weeks' notice to Camelot.  However, it also provided that, if there were an inconsistency between the standard terms and the offer letter relating to the particular premises concerned, the terms of the offer letter would prevail.  The offer letter in relation to the Property specified that the notice period was of one week "after which the Property will be delivered clean and empty on the next Monday morning".

While we are in passing we must note that this was a promise that Camelot would be at severe risk of not being able to lawfully deliver. Unless all the guardians accepted another property elsewhere, or agreed to leave on a week's notice, the minimum lawful notice - even under a licence - that Camelot could give a guardian would be 28 days. And even then, they would have to bring possession proceedings.

In August 2017, Westminster said to Camelot it would soon need the property back. In September 2017, Camelot served notice on Mr Khoo, giving a month (less a day) notice. Mr K remained in occupation and Camelot brought possession proceedings.

Mr K's agreement contained the following provisions, so far as relevant:

At the start:

"This constitutes as 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.

Our terms and conditions contain important rules about how the building is to be occupied and used.  By signing this document, you agree to keep those rules.  Please do not sign this agreement unless you have read our terms and conditions.

Licence between Camelot Guardian Management Limited (1) and your name, Heiko Khoo (2).  Licence for non-exclusive shared occupation of premises at Ingestre Court 2, London, W1F 0JL ... signed by the parties on the date inserted as the date of this agreement.

By signing this agreement, you agree to keep the rules that are set out in this agreement.  Please do not sign this agreement unless you have read it.  By signing this agreement, you acknowledge that: you have read it; the living space will be shared with other persons; you are not being given exclusive occupation of any part of the Property; you have inspected the living space as currently designated and found it in good condition and working order and satisfactory (and then a space for signatures)."

The term "Living Space" was defined as:

"Such part or parts of the Property as CGML may from time to time designate as being available for the shared residential use of the Guardian and other persons."

Under clause 2:

"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 non-exclusive 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..."

(As an aside, the CPML bit here reminds me that CPML was in voluntary liquidation in April 2017. The relation between CPML and CGM was also an oddity in the Roynon case.)

At clause 3, under '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."

At clause 4 'Permission to share the living space':

"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 ..."

At clause 10:

"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 ..."

And (finally) at clause 11:

"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 ..."

At first instance on the possession claim, the Recorder had found that Mr K did have exclusive occupation, not just de facto but as a right, because clause 4.1 effectively said that there would always be a room exclusively for the guardian. However the Recorder went on to find that the agreement was a licence, not a tenancy, apparently with the stipulations on use in clauses 10 and 11 in mind.

Mr K appealed. Camelot cross appealed the finding of 'exclusive occupation' both de facto and of right.

The High Court set out the relevant tests for a tenancy where written agreements stated otherwise from Street v Mountford and subsequent cases as follows (and this is worth quoting at length):

(1)  If an agreement confers exclusive possession of residential premises for a fixed or periodic term certain in consideration of a premium or periodical payments, then, subject to what follows, there is a tenancy (Street v Mountford (1985) 1 AC 809 at 818E-F and 827A-B perLord Templeman).

(2)  There are exceptional 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 (Street v Mountford at 821A-C and 827A-B) and it was common ground before me that the categories of such exceptional cases are not closed.

19. In determining whether an agreement creates a tenancy or a licence, the approach of the courts is, as I understand it, as follows:

(1)  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 (Street v Mountford at 819D-G and 825C).

(2)  In the process of construction, the court will consider the words used in the document in its context by reference to its subject-matter and in light of other relevant circumstances known, or which may be presumed to be known, to both parties at the time of the conclusion of the agreement, other than prior negotiations as to the terms of the agreement.  In this respect, the process of construction of such agreements is not different from that of other contracts and the proper approach is that which has been considered by the Supreme Court in inter alia Arnold v Britton (2015) UKSC 36; (2015) AC 1619 and Wood v Capita Insurance Services Limited (2017) UKSC 24.

(3)  In this exercise of construction, there is no requirement that, before considering the context and background circumstances in which the agreement was entered into, there should be a finding of ambiguity in the words used in the agreement.  On the other hand, it is normally safe to assume that the parties intended to give the words they chose their natural meaning and that the clearer the natural meaning of the words used, the less willing the court will be to depart from it.  The court will not, however, be bound by the label which the parties have attached to their agreement.

(4)  Furthermore, in this area, the court will also consider whether the terms of the agreement are what Lord Templeman described in Street v Mountford as "a sham device" (825H) or, as he put it in AG Securities v Vaughan (1990) 1 AC 417 at 462H, "a pretence whose object is to disguise the grant of a tenancy and evade the Rent Acts".

(5)  For the purposes of this exercise of identifying sham devices or pretences whereby the true bargain between the parties is other than that which appears in the written document, but not for the purposes of construing the agreement, it is permissible to have regard not only to matters predating the conclusion of the agreement but also to how the arrangements were operated in practice afterwards (AG Securities v Vaughan at 469C per Lord Oliver; 475E-F per Lord Jauncey).  The justification for this is that that conduct may indicate that the parties never intended that the obligations imposed by the terms of the agreement should be honoured or the rights conferred thereby should be enjoyed (see National Westminster Bank plc v Jones (2001) 1 BCLC 98 at (45) per Neuberger J).  Accordingly, such conduct may give rise to the inference that, at the time it was entered into, the agreement was a pretence.

(6)  The production of a sham device or of a pretence ordinarily involves a degree of dishonesty. The court is slow, but not naively or unrealistically slow, to find dishonesty (Westminster Bank plc v Jones at (46) and (68)).

Applying this, the High Court found that the natural meaning of the head note and clauses 2.4, 3.1, 4.1, 4.4 and 4.5 was that Mr K did not have a right to exclusive possession. The right conferred by the agreement was to the property as a whole and these were clearly not exclusive, give the other guardians with the same right. There was not 'two elements' to the agreement - exclusive possession of part and shared right to the rest of the living space. The clauses allowing for the alteration of extent or location of living space within the property were consistent with that.

Clause 4.1, which the judge below had placed importance on for exclusive occupation, gave a right to share the living space with others. The only restriction on Camelot was that they would not put more guardians in than there were rooms, not that a room was granted exclusively.

Clauses 10 and 11 were also consonant with this reading of the agreement.

The degree of control as to what a Guardian should and should not do, for example clause 10.6 and clause 11.1, would constitute unusual restrictions in an agreement which conferred a right to exclusive possession.  They are consistent with an arrangement which is not intended to confer exclusive possession but to be a licence and add support to a construction of the Agreement as conferring a licence without exclusive possession.

However, construction of the agreement must also take into account the background and other circumstances known to both parties when the agreement was concluded. The terms of Camelot's websites did not take matters much further. They did refer to 'let' but also 'property guardianship' as alternative to rental. The way the letting took place was not enough to move matters towards a tenancy either. Mr K was shown a particular room and asked to occupy it, but this did not negate the meaning of the terms of the agreement. Beyond the matters considered as 'context' by the judge below, it was also necessary to take into account the nature of the property guardianship scheme. The importance of this was made clear by its inclusion at clause 2 of the agreement. It was clearly known to Camelot and must have been known to Mr K that

it was essential to the operation of the guardianship scheme that the relevant premises should be able to be returned to the owner of the Property, with vacant possession.  This might well be at short notice and clause 5.2 of the Agreement makes it clear that, whenever CGML's permission to use the Property is terminated, the Agreement will come to an end.

The operation of the scheme, its commercial purpose and indeed the continued existence of such scheme depends upon the terms of the contract meaning what they say and not creating a tenancy.  Given that the commercial purpose of the transaction would be undermined if the terms of the Agreement were given a strained or artificial meaning, then that supports the construction of those terms which accords with their natural meaning.  Accordingly, as a matter of construction, taking both a textual and contextual approach, I consider that the Agreement does not confer legal exclusive possession.

Finally, turning to the question of whether the agreement was in relevant terms  a sham or pretence.

as it was put in Street v Mountford, the court should be:

"... astute to detect and frustrate sham devices and artificial transactions whose only object is to disguise the grant of a tenancy and to evade the Rent Acts."

For this purpose, it is permissible to take into account not only what occurred before but also what happened after the Agreement was entered into.

The High Court found that the suggestion of sham or pretence was not made out.

I consider that a case that there was a relevant sham or pretence in the present case was not made out.  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.

By way of example, I do not consider that there is any adequate basis on which to conclude that CGML did not intend clause 4.5 to be enforceable against it such that, if the Guardians at any time decided that where they were to sleep should be different from what had been initially indicated in discussions between a particular Guardian and CGML, they would be entitled to insist on doing so subject to informing CGML of what had been decided in this regard.  The fact that this did not actually occur does not mean that CGML did not intend to honour that term.  Equally, there is no adequate basis on which to conclude that CGML did not intend clause 4.4 to be effective so that it could decide that a particular room or rooms did not fall within the Living Space.

The Judge below had not made findings on sham or pretence, but had suggested some clauses were almost certainly misleading on the part of Camelot, while reaching his conclusion on exclusive possession. But given the conclusions on exclusive possession in the present judgment, that fell away. Although Mr K may in practice have enjoyed exclusive possession of a room, this did not overcome that presumption that the parties to a transaction intended its terms, rights and obligations, to be effective.

Appeal dismissed

Comment

Well...

This is, to some degree, a statement of orthodoxy, albeit Street v Mountford read through an Arnold v Britton approach to contractual interpretation. A non-residential property, overtly temporary occupation, a general 'living space', access for the property owner and so on, all leaned towards a licence. What is perhaps new in terms of an approach to property guardians is the degree of attention applied to the purpose of the guardian scheme, both overall and as set out in the licence agreement.

There are two things to note as a result. One is that my view on the 'sky is falling' approach taken by Camelot to the Bristol case has turned out to be merited. That view was wrong, as that case turned on its facts (and possibly didn't include the question of sham sufficiently.)

The second is that the emphasis on the purpose of the scheme - the temporary protection of property - would lend support to the position taken by the Valuation Tribunal that such occupation is not straightforwardly (or indeed at all) 'domestic' for the purpose of changing the property from commercial rates to 'domestic use' and council tax.

For Guardian firms, this is a bit snakes and ladders. The more that guardian occupation is clearly not under a tenancy because of the purpose of the scheme, the less likely their property owner clients are to get the desired pay-off of not having to pay commercial rates on an empty commercial property.

And lastly, none of this judgment changes the 'grey areas'. For instance, Guardian occupation of what was a residential property (flats, houses, arguably former care homes or staff accommodation) will not have some of the factors identified here. Guardians being offered specific rooms with 'rent/licence fee' rates varying by room size would go a long way to an intention to give exclusive occupation, and undermine as a potential sham clauses allowing guardians to be moved around a living area. Some Guardian firms do this variable charging. That strikes me as a high risk approach.

So, while de facto exclusive occupation in practice will not be enough, by itself, to establish a tenancy - which was in the end, the issue here - there remain plenty of uncertain areas at the edge of property guardian situations.

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