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Subletting, sharing possession or occupation

This page deals with three issues
  • Was sharing of occupation a breach of the lease?
  • What did it mean to share possession or occupation?
  • A case in which the court, at the request of the head landlord, ordered an unlawful sub-tenant to give the property back to the tenant
See also the pages dealing with Consents and the Landlord and Tenant (Covenants) Act 1995 in this section of the site.


Sharing occupation - breach of covenant?

Mean Fiddler Holdings Ltd v Islington Borough Council
[2003] EWCA Civ 160

Question: Was there a sharing of occupation in breach of the lease?

The user clause provided that the tenant was not to use the property or any part of it "otherwise than as a licensed snooker and social club together with a restaurant discotheque and bar on the ground floor".

The alienation clause provided that the tenant was no to "share the possession of occupation of part only of the Property nor permit nor suffer any other person company or firm to occupy or share the occupation of the Property or any part of parts thereof whether as a licensee or otherwise".

T operated the venue by offering the club to external promoters who on their own account would stage club nights, taking full responsibility for admission revenues, advertising and administration burden. The promoters and artists were admitted one hour before the nightclub opened to prepare and set up. They were not provided with keys nor did they have access to any private parts of the club. The judge held that there was no breach of covenant and the Court of Appeal agreed.
    ".. this is one of those questions .. sometimes described as one of mixed fact and law, where there is no precise test... In my view, the starting point here was the nature of the permitted use, which involved such things as a social club, a discotheque and a restaurant... It involved the admission of the public ..[the judge] was entitled to treat the fact that the respondent in this case remained 'exclusively responsible for everything concerned with the property as opposed to the event' as being indicative of the fact that it had not shared occupation." (Carnwath LJ at paras 31-35)

    "This was a question of interpretation of a contract, and therefore a question of law.. The test, in my opinion, is whether the promoter ... is operating a separate business on the premises from that carried on by the tenant... If, on the other hand, the tenant is carrying on a business and the promoter participates in that business under the tenant's supervision and control, I would not say that the promoter is sharing the occupation of the property. There would simply be one business run by the tenant and the promoter is participating in it." (Sir Christopher Staughton at paras 39 to 41).

Sharing possession

Akici v LR Butlin Ltd
[2005] EWCA Civ 1296

The covenant in the lease was in the following terms:
    Not to .. part with possession of a part of the demised premises nor to share possession of the whole or any part of the demised premises nor to part with possession of the whole of the demised premises (except as hereinafter permitted) all of which are expressly prohibited.
It was held that there is a distinction between possession and occupation so that the covenant would only be breached if T parted with, or shared possession, but was not infringed if T merely parted with, or shared, occupation:
    Neuberger LJ: .. it is perfectly possible for a lessee to permit a company, in which he has an interest, to occupy the demised premises for the purpose of its business, without parting with possession of those premises to that company.
In fact T had shared possession with a limited liability company, and that represented a breach of the covenant. The "elusive nature of the distinction" between sharing occupation and sharing possession; or between sharing possession or parting with possession was difficult to assess. The question boiled down to this:
    "Did Mr Akici retain possession in himself alone and merely permit the company to occupy the premises or did the company share possession with Mr Akici?" (Neuberger LJ at para 44)
The company ran a takeaway pizza business from the premises. In coming to the conclusion that there had been a sharing of possession the following factors were relevant: the company enjoyed a degree of control over the premises that amounted to its having possession (albeit non-exclusive); the business was a relatively intensive one involving employees, all of whom were employed by the company; both the tenant and at least one of the employees of the company had a key; the company paid the rent directly to the landlord; and although at the relevant time the tenant did not have a direct interest in the company there was "little doubt that there was something of value to Mr Akici in this arrangement".

(See also the forfeiture page for consideration of whether or not the breach was capable of remedy and the inaccurate s146 notice that landed the landlord in a lot of trouble.)


Unlawful subletting - order to restore

Crestfort Limited v Tesco Stores Limited
[2005] EWHC 805 (Ch); [2005] 37 EG 148.

Summary

L managed to obtain an order requiring a sub-tenant to surrender the property to the tenant that had been sublet in breach of covenant.

Facts

The lease required any underlease to be on like terms to that of the lease:
    Any permitted Underlease shall be granted subject to like covenants and conditions as are herein contained except as to the rent thereby reserved and the length of the term thereby granted."
The headlease contained a standard form full repairing covenant. The sublease included a repairing covenant but it was subject to the limitation that the subtenant was not required to put the premises into any better state of repair and condition than as at the date of the Underlease as evidenced by a schedule of condition that was attached.

The property was in a bad state of disrepair and a schedule of dilapidations had been served on T. L sought an injunction requiring that the underlease be surrendered. T sought a declaration that L had unreasonably refused consent to sublet so that it was free to do so without consent. (The reason given in fact had nothing to do with repair. T was in breach of an insurance obligation contained in the licence to assign under which T had taken the tenancy).

Held

(1) The sub-lease was not in like terms to the head lease. Lightman J:
    The term "like" does not import "identical" covenants, as is imported by the term "same": it imports similarity in substance without the need of similarity in form, detail or wording. Tesco plainly failed to include the "like" covenant in respect of repairs in the Underlease. The limitation by reference to the schedule of condition was substantial and meaningful: it was necessitated by the continuing default by Tesco to comply with its repairing covenant in the Lease.
(2) The requirement that the sublease be on like terms was a condition precedent to the ability to ask for consent to assignment. As the sublease did not satisfy the condition the question of reasonableness of Ls refusal did not arise (Allied Dunbar applied).
    Accordingly by reason of the absence of a like repairing covenant in the Underlease the condition precedent to the existence of any obligation on the part of the Landlords to consider the application for consent to the grant of the Underlease to Magspeed was never satisfied. Tesco at all times therefore remained subject to an absolute obligation not to underlet and the Landlords at no time were under any obligation to consider Tesco's application for consent to underlet, section 1 of the Landlord and Tenant Act 1988 had no application and the grant of the Underlease to Magspeed constituted a breach of covenant by Tesco
(3) It was possible to grant a mandatory injunction against the sub-tenant requiring it to give up the sub-lease because by agreeing to take the sublease it had committed the tort of wrongful interference with a contract. It was right to grant the injunction because the interference had been done knowingly and intentionally in the financial interests of T and the subtenant. Lightman J at paras 69 and 70:
    The Landlords have accordingly in my judgment established that Tesco knowingly in breach of contract granted, and Magspeed tortiously accepted, the Underlease. In the circumstances in the absence of any equitable defence and any plea that its grant would be oppressive (and there is none pleaded, established or maintained) the Landlords are prima facie entitled to mandatory orders for surrender of the Underlease and should not be required to accept damages in its place.

    the Landlords in justice should be granted the mandatory order which they seek and the grant of any lesser relief would be inadequate, for interference with their rights was knowing and deliberate to serve the Defendants' financial interests.
(4) The judge also awarded L damages against both T and the subtenant, to be assessed by reference to the sum L might reasonably have demanded at the date of the breach of covenant, or commission of the tort, for relaxing the alienation covenant so as to permit the underletting. However, Im not quite sure why the judge considered that damages should be awarded given that he granted an injunction and damages are usually awarded on the basis suggested in lieu of an injunction. He simply said this at para 75.
    Tesco then took the point that the experts in their joint report contemplate the award of damages in lieu of and not in addition to an injunction. This is correct, but the failure to contemplate the eventuality of an award of damages in addition should not preclude such an award unless to make such an award would occasion injustice to the Defendants. It has not been suggested that the award would occasion any injustice. No injustice can be occasioned so long as the Defendants are afforded the protection which they are afforded by this judgment.

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