Case No: B5/2010/0014
B5/2010/0015

Neutral Citation Number: [2010] EWCA Civ 370
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM BRENTFORD COUNTY COURT
(HIS HONOUR JUDGE POWLES QC)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Thursday, 28th January 2010

Before:

LORD JUSTICE PATTEN
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Between:

	ARBEN KATANA
and
DAN ABRAHAM	
Appellants	
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CATALYST COMMUNITIES HOUSING LTD

Respondents	

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Ms R Bailey (instructed by CL Law Solicitors) appeared on behalf of the Appellants.
Mr B Maltz (instructed by Prince Evans Solicitors) appeared on behalf of the Respondents.

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Judgment
Lord Justice Patten:

1.	This is an application by Mr Katana and Mr Abraham, who were respectively the third and sixth defendants in the County Court proceedings, for permission to appeal, and, if granted, a stay of execution in respect of an order for possession made against them by HHJ Powles QC, sitting in the Brentford County Court on 16 December last year.

2.	The claimants are the freeholders of business premises at 342 to 355 Staines Road, Hounslow.  The property in question is the site of an old filling station.  The claimants purchased it early in 2004 with a view to developing it as social housing, but, because the property lies under the flightpath to Heathrow airport, it was necessary to make a detailed planning application and, having regard to the fact that the site had been used for semi-industrial purposes and in particular as a filling station, there were also environmental issues which had to be resolved before planning permission could be granted.  That all was going to take time and, while the planning procedures were being gone through, the claimants decided to grant a short-term tenancy of the property to a Mr Roberts, who had traded as Heathside Cars.  They entered into an agreement with him on 26 November 2004 under which he was granted a tenancy of the property for a fixed term of three months from the date of the agreement.  The tenancy was not excluded from the provisions of Part II of the Landlord and Tenant Act 1954 (“the 1954 Act”), presumably because the landlords had in mind that a tenancy for a term of less than six months certain is an excluded tenancy under s.43 of the 1954 Act.

3.	However, the agreement contains in clause 2.2 a further provision which, after acknowledging that the three-month tenancy will terminate at the end of the term, goes on to provide that if the tenant were to hold over at the end of the term this tenancy would be terminable by the giving of not less than one week’s notice by either party, regardless of the way in which the rent payable in respect of their occupation was either calculated or paid.

4.	One of the issues before the judge and on this appeal is whether the effect of that clause was to convert the tenancy at will, which came into existence at the end of the fixed three months’ term, into a contractual periodic tenancy, either weekly or monthly in nature.  Alternatively, it is said that the continued occupation by Mr Roberts, after the end of the three-month term in February 2005, which subsisted until a date in 2006, of itself gave rise by implication to a new contractual periodic tenancy by the payment and acceptance of rent.

5.	The factual position is that there was no further tenancy agreement entered into between the claimants and Mr Roberts, and he continued to pay the rent provided for under the 2004 agreement until he disappeared some time during 2006. 

6.	The relevance of all this is not in respect of Mr Roberts’ security of tenure or otherwise because, although a defendant in these proceedings, he has taken no part in them, and the judge has made, so far as necessary, an order for possession against him.  The relevance is that, either at the very end of 2004 or some time during 2005, he allowed into occupation of various parts of the premises a number of other individuals, including Mr Katana and Mr Abraham, to whom he purported to grant long leases of the parts which they occupied.  

7.	The evidence before the judge was that Mr Abraham had been let into possession at the end of 2004, but on 20 May 2005 was granted a lease of the premises at 349 Staines Road for a term of eight years.  The tenancy agreement is in the standard Law Society form and contains, amongst other things, covenants on the part of the tenant to repair and maintain the property as well as to pay the rent reserved by the lease.  In the case of Mr Abraham that was a rent of some £1,100 per month.  He has occupied the premises at 349 Staines Road since then, where he runs a car sale and repair business.  It is part of his evidence that, during the period since then, he has both paid his rent to Mr Roberts as per the agreement and carried out significant works of repair and maintenance to the premises.  It also goes without saying that, having run his business there for that period of time, it is an established business with a valuable goodwill.

8.	In the case of Mr Katana, who occupies premises at the front of the site at 353 Staines Road, there is more controversy about the precise terms on which he was allowed to occupy the premises.  At the stage of disclosure in the proceedings Mr Katana’s solicitors produced a lease in writing dated in 2007, but at the trial that document was said only to relate to some residential part of 353, and, instead, his brother, who was called to give evidence, produced an agreement dated in 2005, which was said to have been the agreement originally entered into between Mr Roberts and Mr Katana.  That, I believe, was for a period of some ten years and again included provisions in the agreement for the payment of rent and for the repair of the premises.  

9.	Mr Katana’s case is that, in addition to rent of some £18,000 a year, he also paid to Mr Roberts some £35,000 in order to acquire the goodwill of the business.

10.	The relevance of all this to the 2004 agreement and to the basis on which Mr Roberts occupied the premises himself is that the judge found that the effect of clause 2.2 of the 2004 agreement was simply to continue in operation the tenancy at will which came into existence in February 2005 at the end of the three-month fixed term tenancy.  On established principles, which the judge refers to in his judgment (see the decision of the Court of Appeal in Javad v Aqil [1991] 1 WLR 1007 at page 1012), the law presumes the creation of a tenancy at will following the expiry of fixed term tenancy.  The question in every case is whether that arrangement is displaced by some alternative contractual arrangement between the parties amounting to a periodic or some other form of tenancy.  

11.	In this case, as I have already indicated, there was no further tenancy agreement entered into between Mr Roberts and the claimants, and the case in favour of there having been a periodic contractual tenancy has to be based either on the effect of clause 2.2 itself or on the payment and acceptance of rent after the February date.  

12.	If the effect of these arrangements was that from February onwards Mr Roberts was no more than a tenant at will, it follows necessarily that the leases which he granted in 2005 or perhaps in 2007 to Mr Abrahams and Mr Katana were not capable, whatever their terms may have been, of creating anything more than a tenancy at will in their favour.  On that basis, neither Mr Roberts nor the two appellants before me would have obtained protection under Part II of the 1954 Act in respect of their tenancies, the tenancy at will not being included within the protection afforded by Part II.  If, on the other hand, the effect of the arrangements was to create a periodic contractual tenancy in favour of Mr Roberts from February onwards, then the effect of the 2005 or 2007 tenancy agreements would, by the same process, have been to have given the subtenants periodic tenancies of the same kind which, although entered into in breach of a covenant in the 2004 agreement not to assign or to let or part with possession without consent, would nonetheless been protected under Part II of the 1954 Act: see D’Silva v Lister House Development [1971] 1 Ch 17.  

13.	That is the first issue on this application: was the judge entitled to find on the evidence before him that the arrangements that I have outlined amounted to no more than tenancies at will?

14.	There are two other issues which I will come to shortly.  The first is, if the judge was arguably wrong about that -- and the tenants do have a realistic case for contending that they had in fact obtained periodic tenancies in respect of their properties -- was the claimant able to bring those tenancies to an end by the service of a s.25 notice?  So far as that is concerned, it is common ground that in March 2008 the claimants, through their solicitor, served s.25 notices by leaving them at the site in a kiosk on the forecourt in part of the premises which were occupied by Mr Katana as part of his carwash business.  Mr Best’s evidence to the judge was that he stuck copies of the various notices on the window of that kiosk and put copies through a letter box in the kiosk itself.  

15.	The issue therefore is whether or not that constituted good service within the provisions of s.66 of the 1954 Act which themselves incorporate by reference the provisions of s.23 of the 1927 Act.  If service has been carried out in compliance with those provisions then there is deemed service regardless of whether or not the notices did in fact reach the tenants to whom they were directed.  But, over and above that, it is possible for the claimants to succeed in the proceedings if the court can be satisfied that, whatever may have been the position in relation to deemed service under s.23, the notices did in fact come to be received by the tenants in question.  The judge made various findings of fact about that, including one in terms that the third and sixth defendants received the notices, but that finding is challenged on this application.

16.	The third point on the appeal is a point based on an argument of proprietary estoppel.  If Miss Bailey is successful in relation to the points I have already mentioned, this point really adds nothing to an appeal.  She relies on it, I think, in circumstances where she is otherwise unsuccessful as a matter of law in order to found an argument that, as a result of the landlord’s conduct vis-à-vis these defendants in the period between 2005 and the present time, the landlord is estopped from asserting its legal rights against them and is required, as a matter of equity, to vest in those tenants leases equivalent to the ones which Mr Roberts granted to them.  It is clearly possible for the equity to be satisfied in other ways short of the grant of full leases for those terms, but Miss Bailey’s submission, I think, is that the minimum that would be required in order to satisfy the equity in this case would be the grant of a lease lasting for a reasonable period of time.

17.	Dealing with the three points in that order, the first question therefore is whether the judge was entitled to come to the conclusion which he did in relation to the question of whether there was a tenancy at will.  It needs to be emphasised that the question of what the legal relationship subsisted between the landlord and Mr Roberts as from February 2005 falls to be determined by looking at the evidence of the dealings between the parties up to, but no later than, the expiry of the three-month tenancy in February 2005.  If the question turns on how one construes clause 2.2, that is something which has to be determined by reference to the position as of the date of the agreement; but, if the argument is that the payment and acceptance of rent itself created a new periodic tenancy, then that, as I say, has to be looked at having regard to the position in February 2005.  

18.	The judge, of course, heard no evidence from Mr Roberts who, as I have said, did not participate in the proceedings but did hear evidence from Mr Nathan on behalf of the claimant in relation to the factual background at the relevant time.  His evidence -- and this is not really in dispute in these proceedings --  is that the landlord wished to develop the property once it had got planning permission but envisaged that there would be a period of time before that was achieved.  His evidence, which the judge accepted, was that it was clearly in the landlord’s interest not to create a tenancy to which Part II protection would apply, and indeed that is evident from the terms of the agreement of November 2004 which clearly granted a term of only three months in order to take advantage of the provisions of s.43 of the Act.  The judge is criticised by Miss Bailey for his construction of clause 2.2 and for appearing to rely on the contra proferentem principle in construing that clause of the agreement.  For my own part, I think that the contra proferentem rule, so far as it is relevant at all, is very much a matter of last resort and is not in fact a necessary aid to construction in this case.  It is clear that from the first sentence of clause 2.2 that the parties were confirming that the three-month tenancy would end as at 26 February 2005.  The words “should there be any holding over by the tenant at the end of the term” make it clear that they were not agreeing that there would be any holding over, but merely that, were the tenant to be allowed to remain in occupation after the February date, it would be on the basis of a tenancy term of one week’s notice.  

19.	Those provisions are not, in my view, inconsistent with the continuation of a tenancy at will, which, as I have already indicated, would be the position that the law would assume on the end of a fixed term tenancy.  It is perfectly true that the clause does not in terms say that any subsequent holding over would be as a tenant at will, but, equally, it does not say that it would be as anything more than one, and in order to give substance to the clause one has to look at all the relevant background circumstances, which is what the judge did.  

20.	As far as I can see, the judge had no evidence before him which would have led him to conclude that it was right to infer that the parties were intending to grant Mr Roberts anything more than a tenancy at will.  There was, as I have said, no evidence by him and there was evidence by Mr Nathan that the landlord wished to keep the position as fluid as possible to enable the property to be developed as and when it obtained planning permission.  

21.	The test for this court on an appeal is not what view it would have taken of the evidence at the trial, but whether the judge was entitled on the evidence that was before him to reach the conclusion which he did.  In my judgment, the judge did have evidence which supported the conclusion that these arrangements gave rise to no more than a tenancy at will and I do not consider that an appeal on that issue, which is essentially a challenge to the judge’s findings of fact, would have any real prospect of success. 

22.	It follows from that that the protection afforded by Part II of the 1954 Act, as the judge found, would not apply in this case either to Mr Roberts’ tenancy or to the sub-tenancies in question.

23.	In those circumstances I can deal with the second issue, which is about the s.25 notices, relatively shortly.  It is, I think, common ground again that s.23 of the 1927 Act deems good service to be affected if the s.25 notices are left at the tenant’s business premises, although s.23 refers in terms to the tenant’s last known place of abode.  So the issue, therefore, is whether or not they were left at Mr Abrahams’ and Mr Katana’s premises.  So far as that is concerned, it is difficult to see how it can sensibly be said that the s.25 notices were not served by being left at Mr Katana’s premises, although it is true as Ms Bailey has told me, that there was an office on the forecourt with a letterbox.  The kiosk through which the notices were posted and on which they were stuck was clearly part of the carwash premises, and the Act does not seem to me to make any distinction between one part of the premises and another for the purposes of deemed service.  There was therefore deemed service of the s.25 notice in any event in respect of Mr Katana. 

24.	The position, so far as Mr Abraham, is, however, different.  Access to his premises lies through a gate to the side of the building which is not open except during business hours.  When Mr Best went there, which was after the close of business, the gate was locked and it was not physically possible to get round to Mr Abraham’s property.  In those circumstances, it seems to me that there is a real argument as to whether or not leaving Mr Abrahams’ Section 25 notice in the kiosk at the front in Mr Katana’s part of the property could properly be regarded as deemed service on Mr Abraham, and my own view, for what it is worth, is that it could not.  Therefore, in relation to Mr Abraham, the case, if it depended upon the service of the Section 25 notice, could only succeed if the judge was able to find that the notice had in fact been received by Mr Abraham, notwithstanding that it was put and left on Mr Katana’s own premises.

25.	As far as that is concerned, I have been provided with a note of the judgment in which, in paragraph 25, the judge finds as a fact that there were discussions between Mr Abrahams and the other tenants about the notices, and also finds that all of the occupants knew what was going on.  The note records that the judge found as a fact that the third and sixth defendants received the Section 25 notices, but this is not a precise transcription of the judge’s own words and, having heard from Mr Maltz as to what the judge actually inquired into and what Mr Abraham was cross-examined about, I am not presently satisfied that the judge in fact made a finding that the physical document comprising the  Section 25 notice was necessarily ever handed to Mr Abraham and therefore received by him.  Therefore, if the question of the legal tenancy and its termination had turned in relation to Mr Abraham, on whether or not there had been service of the s.25 notice, my own view is that there would have been an arguable ground of appeal in respect of that particular finding.  In the light, however, of my view about the tenancy at will point, that issue does not assist Mr Abrahams.

26.	The position of the defendants in relation to an appeal therefore depends on whether or not they can satisfy the Court of Appeal that, whatever may be the position at common law, and in relation to the 1954 Act, they would be entitled to assert a right in equity based on proprietary estoppel to compel the landlords to grant to them new tenancies in satisfaction of the equity. 

27.	As far as this ground of appeal is concerned, the judge gave it relatively short shrift by saying that, in his view, silence on the part of a landlord could not amount to either a representation or encouragement to the tenant absent an obligation on the part of the landlord, so to speak, to make its position known in relation to the legality of the defendant’s occupation of the premises.  

28.	The argument, however, before me has been put on a slightly broader basis, which is that the defendants have a case based not merely on acquiescence (where the duty to speak is undoubtedly a critical part of the conditions required) but on proprietary estoppel which is perhaps a more flexible rule.  Ms Bailey relies on the line of authority that can be found in cases such as Crabb v Arun District Council [1976] Ch 179 and which is summarised in the terms of the following proposition: 

“When an owner of land stands by when another person incurs expenditure or detriment and he knows that the other person believes that he is, or will be, entitled to an interest in the land, the court, with equitable jurisdiction, may require the owners to give effect to that belief by not asserting inconsistent rights or even by transfer of legal title. This equity ass sometimes been described as proprietary estoppel.  It arises only if the parties have so acted that it would be unconscionable for the owner to assert the inconsistent rights and not to transfer title, as the case may be, and hence not only the circumstance of standing by on the one hand and of reliance on the other but also general considerations, such as fairness and which is relevant.”

29.	It is clearly right that there may be cases where merely standing by does undoubtedly cause the person seeking to assert the estoppel to change his or her position to their detriment, thereby giving rise to the equity.  The obvious case is where somebody begins to build on somebody else’s land and the landowner, knowing that the person is acting in the belief that he or she has a right to build on the land and in the expectation that they would be entitled to remain there, nonetheless remains silent.  But in my judgment those principles are difficult to apply to the present case.  The position on the ground was that from 2004 the whole site had been let to Mr Roberts under the terms of the 2004 agreement.  It is perfectly true that that agreement contained an absolute covenant against under letting; it is also true that there was evidence before the judge that the claimants were aware at least from 2005 onwards that the defendants were occupying various parts of the premises and were carrying on their own businesses there.  It is clear from those facts that the claimants must have appreciated that, if those defendants had tenancies or sub-tenancies, they had been granted breach of covenant. 

30.	But what the landlords did not know, or rather, there was certainly no evidence before the judge that they knew, were the terms upon which the various defendants had been allowed into occupation of the property.  In those circumstances it seems to me very difficult to say that the landlord should be taken to have known that, by being permitted to remain there, the defendants believed that the landlord was in some way affirming not merely their right to be there as subtenants but their right to be there under terms of eight and ten years respectively.  The landlord was entitled to assume that even if sub-tenancies had been created they would have been no more extensive than the one enjoyed by Mr Roberts.  The reality of this case is that the defendants had been put into a difficult position not by the landlords but by Mr Roberts, who has effectively deceived them into believing that he was capable of granting them the long leases which they had received and for which they had paid.  But for those facts to be allowed to set up an equity against the landlords it would be necessary, in my judgment, to show that the landlords knew of that position, knew that the tenants were spending money on their business in the belief that they would be entitled to enjoy the property for the full term granted by Mr Roberts and acquiesced in that knowledge.  As I have already said, the evidence was not before the judge which could justify that kind of finding.

31.	In those circumstances, it seems to me that the defence based on proprietary estoppel is not realistically arguable.  

32.	So, much as I sympathise with the defendants’ position, the law, I am afraid, is clear. They are not entitled to protection under Part II of the 1954 Act and an appeal against the judgment would not have any real prospect of success.

33.	So, for those reasons, the applications fail.

Order:  Applications refused