AG Securities v Vaughan; Antoniades v Villiers

[1988] 3 All ER 1058
[1990] AC 417

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(Decision by: Lord Oliver of Aylmerton) Court:

Judges: Lord Bridge of Harwich
Lord Templeman
Lord Ackner

Lord Oliver of AylmertonLord Jauncey of Tullichettle

Judgment date: 10 November 1988

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Decision by:
Lord Oliver of Aylmerton

My Lords, since lettings of residential property of an appropriate rateable value attract the consequences of controlled rent and security of tenure provided by the Rent Acts, it is not, perhaps, altogether surprising that those who derive their income from residential property are constantly seeking to attain the not always reconcilable objectives, on the one hand, of keeping their property gainfully occupied and, on the other, of framing their contractual arrangements with the occupants in such a way as to avoid, if they can, the application of the Acts. Since it is only a letting which attracts the operation of the Acts, such endeavours normally take the form of entering into contractual arrangements designed, on their face, to ensure that no estate is created in the occupant for the time being and that his occupation of the land derives merely from a personal and revocable permission granted by way of licence. The critical question, however, in every case is not simply how the arrangement is presented to the outside world in the relevant documentation, but what is the true nature of the arrangement. The decision of this House in Street v Mountford [1985] 2 All ER 289 , [1985] AC 809 established quite clearly that if the true legal effect of the arrangement entered into is that the occupier of residential property has exclusive possession of the property for an ascertainable period in return for periodical money payments a tenancy is created, whatever the label the parties may have chosen to attach to it. Where, as in that case, the circumstances show that the occupant is the only occupier realistically contemplated and the premises are inherently suitable only for single occupation, there is, generally, very little difficulty. Such an occupier normally has exclusive possession, as indeed she did in Street v Mountford , where such possession was conceded, unless the owner retains control and unrestricted access for the purpose of providing attendance and services. As Lord Templeman observed in that case, the occupier in those circumstances is either a lodger or a tenant. Where, however, the premises are such as, by their nature, to lend themselves to multiple occupation and they are in fact occupied in common by a number of persons under different individual agreements with the owner, more difficult problems arise. These two appeals, at different ends of the scale, are illustrations of such problems.

The relevant facts have been fully set out in the speech of my noble and learned friend Lord Templeman, which I have had the advantage of reading in draft, and I reiterate them only to the extent necessary to emphasise the points which appear to me to be of critical importance.

Antoniades v Villiers and anor

The appellants in this appeal are a young couple who at all material times were living together as man and wife. In about November 1984 they learnt from a letting agency that a flat was available in a house at 6 Whiteley Road, London SE19, owned by the respondent, Mr Antoniades. They inspected the flat together and were told that the rent would be £ 174 per month. They were given the choice of having the bedroom furnished with a double bed or two single beds and they chose a double bed. So, right from the inception, there was never any question but that the appellants were seeking to establish a joint home and they have, at all material times, been the sole occupants of the flat.

There is equally no question but that the premises are not suitable for occupation by more than one couple, save on a very temporary basis. The small living room contains a sofa capable of being converted into a double bed and also a bed-table capable of being opened out to form a narrow single bed. The appellants did in fact have a friend to stay with them for a time in what the trial judge found to be cramped conditions, but the size of the accommodation and the facilities available clearly do not make the flat suitable for multiple occupation. When it came to drawing up the contractual arrangements under which the appellants were to be let into possession, each was asked to and did sign a separate licence agreement in the terms set out in the speech of my noble and learned friend under which each assumed an individual, but not a joint, responsibility for payment of one-half of the sum of £ 174 previously quoted as the rent.

There is an air of total unreality about these documents read as separate and individual licences in the light of the circumstance that the appellants were together seeking a flat as a quasi-matrimonial home. A separate licensee does not realistically assume responsibility for all repairs and all outgoings. Nor in the circumstances can any realistic significance be given to cll 16 and 17 of the document. It cannot realistically have been contemplated that the respondent would either himself use or occupy any part of the flat or put some other person in to share accommodation specifically adapted for the occupation by a couple living together. These clauses cannot be considered as seriously intended to have any practical operation or to serve any purpose apart from the purely technical one of seeking to avoid the ordinary legal consequences attendant on letting the appellants into possession at a monthly rent. The unreality is enhanced by the reservation of the right of eviction without court order, which cannot seriously have been thought to be effective, and by the accompanying agreement not to get married, which can only have been designed to prevent a situation arising in which it would be quite impossible to argue that the 'licensees' were enjoying separate rights of occupation.

The conclusion seems to me irresistible that these two so-called licences, executed contemporaneously and entered into in the circumstances already outlined, have to be read together as constituting in reality one single transaction under which the appellants became joint occupiers. That of course does not conclude the case because the question still remains: what is the effect?

The document is clearly based on the form of document which was upheld by the Court of Appeal as an effective licence in Somma v Hazlehurst [1978] 2 All ER 1011 , [1978] 1 WLR 1014 . That case, which rested on what was said to be the impossibility of the two licensees having between them exclusive possession, was overruled in Street v Mountford [1985] 2 All ER 289 , [1985] AC 809 . It was, however, a case which related to a single room and it is suggested that a similar agreement relating to premises containing space which could, albeit uncomfortably, accommodate another person is not necessarily governed by the same principle. On the other hand, in this case the trial judge found that apart from the few visits by the respondent (who, on all but one occasion, sought admission by knocking on the door) no one shared with the appellants and that they had exclusive possession. He held that the licences were 'artificial transactions designed to evade the Rent Acts', that a tenancy was created and that the appellants occupied as joint tenants.

His decision was reversed by the Court of Appeal on, broadly, the grounds that he had erred in treating the subsequent conduct of the parties as admissible as an aid to construction of the agreements and that, in so far as the holding above referred to constituted a finding that the licences were a sham, that was unsupported by the evidence inasmuch as the appellants' intention that they should enjoy exclusive possession was not shared by the respondent (see [1988] 2 All ER 309 , [1988] 3 WLR 139 ). The licences could not, therefore, be said to mask the real intention of the parties and fell to be construed by reference to what they said in terms.

If the documents fall to be taken seriously at their face value and to be construed according to their terms, I see, for my part, no escape from the conclusion at which the Court of Appeal arrived. If it is once accepted that the respondent enjoyed the right, whether he exercised it or not, to share the accommodation with the appellants, either himself or by introducing one or more other persons to use the flat with them, it is, as it seems to me, incontestable that the appellants cannot claim to have had exclusive possession. The appellants' case therefore rests, as counsel for the appellants frankly admits, on upholding the judge's approach that the true transaction contemplated was that the appellants should jointly enjoy exclusive possession and that the licences were mere sham or window-dressing to indicate legal incidents which were never seriously intended in fact, but which would be inconsistent with the application to that transaction of the Rent Acts. Now to begin with, I do not, for my part, read the notes of the judge's judgment as showing that he construed the agreement in the light of what the parties subsequently did. I agree entirely with the Court of Appeal that if he did that he was in error. But, though subsequent conduct is irrelevant as an aid to construction, it is certainly admissible as evidence on the question of whether the documents were or were not genuine documents giving effect to the parties' true intentions. Broadly what is said by counsel for the appellants is that nobody acquainted with the circumstances in which the parties had come together and with the physical layout and size of the premises could seriously have imagined that the clauses in the licence which, on the face of them, contemplate the respondent and an apparently limitless number of other persons moving in to share the whole of the available accommodation, including the bedroom, with what, to all intents and purposes, was a married couple committed to paying £ 174 a month in advance, were anything other than a smoke-screen; and the fact the respondent, who might be assumed to want to make the maximum profit out of the premises, never sought to introduce anyone else is at least some indication that that is exactly what it was. Adopting the definition of a sham formulated by Purchas LJ in Hadjiloucas v Crean [1987] 3 All ER 1008 at 1014, [1988] 1 WLR 1006 at 1013, counsel for the appellants submits that the licences clearly incorporate clauses by which neither party intended to be bound and which were obviously a smoke-screen to cover the real intentions of both contracting parties. In the Court of Appeal Bingham LJ tested the matter by asking two questions, viz ( [1987] 3 All ER 1008 at 317, [1988] 3 WLR 139 at 149): (1) on what grounds, if one party had left the premises, could the remaining party have been made liable for anything more than the £ 87 which he or she had agreed to pay? and (2) on what ground could they have resisted a demand by the respondent to introduce a further person into the premises? For my part, however, I do not see how this helps. The assumed negative answers prove nothing, for they rest on the assumption that the licences are not sham documents, which is the very question in issue.

If the real transaction was, as the judge found, one under which the appellants became joint tenants with exclusive possession, on the footing that the two agreements are to be construed together, then it would follow that they were together jointly and severally responsible for the whole rent. It would equally follow that they could effectively exclude the respondent and his nominees.

Although the facts are not precisely on all fours with Somma v Hazlehurst [1978] 2 All ER 1011 , [1978] 1 WLR 1014 , they are strikingly similar and the judge was, in my judgment, entitled to conclude that the appellants had exclusive possession of the premises. I read his finding that 'the licences are artificial transactions designed to evade the Rent Acts' as a finding that they were sham documents designed to conceal the true nature of the transaction. There was, in my judgment, material on which he could properly reach this conclusion and I, too, would allow the appeal.

AG Securities v Vaughan and ors

The facts in this appeal are startlingly different from those in the Antoniades case. To begin with the appeal concerns a substantial flat in a mansion block consisting of four bedrooms, a sitting room and usual offices. The trial judge found, as a fact, that the premises could without difficulty provide residential accommodation for four persons. There is no question but that the agreements with which the appeal is concerned reflect the true bargain between the parties. It is the purpose and intention of both parties to each agreement that it should confer an individual right on the licensee named that he should be liable only for the payment which he had undertaken and that his agreement should be capable of termination without reference to the agreements with other persons occupying the flat. The judge found that the agreements were not shams and that each of the four occupants had arrived independently of one another and not as a group. His finding was that there was never a group of persons coming to the flat altogether. That has been challenged because, it is said, the evidence established that initially in 1977 and 1978 there was one occupant who was joined by three others who, although they came independently and not as a trio, moved in at about the same. Central heating was then installed, so that the weekly payments fell to be increased and new agreements were signed by the four occupants contemporaneously. Speaking for myself, I cannot see how this can make any difference to the terms on which the individuals were in occupation. If they were in as licensees in the first instance, the mere replacement of their agreements by new agreements in similar form cannot convert them into tenants, and the case has, in my judgment, to be approached on the footing that agreements with the occupiers were entered into separately and individually. The only questions are those of the effect of each agreement vis-à-vis the individual licensee and whether the agreements collectively had the effect of creating a joint tenancy among the occupants of the premises for the time being by virtue of their having between them exclusive possession of the premises.

Taking first, by way of example, the position of the first occupier to be let into the premises on the terms of one of these agreements, it is, in my judgment, quite unarguable, once any question of sham is out of the way, that he has an estate in the premises which entitles him to exclusive possession. His right, which is, by definition, a right to share use and occupation with such other persons not exceeding three in number as the licensor shall introduce from time to time, is clearly inconsistent with any exclusive possession in him alone even though he may be the only person in physical occupation at a particular time. He has no legal title which will permit him to exclude other persons to whom the licensor may choose to grant the privilege of entry. That must equally apply to the additional licensees who join him. None of them has individually nor have they collectively the right or power lawfully to exclude a further nominee of the licensor within the prescribed maximum.

I pause to note that it has never been contended that any individual occupier has a tenancy of a particular room in the flat with a right to use the remainder of the flat in common with the tenants of other rooms. I can envisage that as a possibility in cases of arrangements of this kind if the facts support the marking out with the landlord's concurrence of a particular room as the exclusive domain of a particular individual. But to support that there would, I think, have to be proved the grant of an identifiable part of the flat and that simply does not fit with the system described in the evidence of the instant case.

The real question, and it is this on which the respondents rely, is what is the position when the flat is occupied concurrently by all four licensees? What is said then is that, since the licensor has now exhausted, for the time being, his right of nomination, the four occupants collectively have exclusive possession of the premises because they can collectively exclude the licensor himself. Because, it is argued, (1) they have thus exclusive possession and (2) there is an ascertainable term during which all have the right to use and occupy and (3) they are occupying in consideration of the payment of periodic sums of money, Street v Mountford [1985] 2 All ER 289 , [1985] AC 809 shows that they are collectively tenants of the premises. They are not lodgers. Therefore they must be tenants. And, because each is not individually a tenant, they must together be joint tenants.

My Lords, there appear to me to be a number of fallacies here. In the first place, the assertion of an exclusive possession rests, as it seems to me, on assuming what it is sought to prove. If, of course, each licence agreement creates a tenancy, each tenant will be sharing with other persons whose rights to be there rest on their own estates which, once they have been granted, they enjoy in their own right independently of the landlord. Collectively they have the right to exclude everyone other than those who have concurrent estates. But if the licence agreement is what it purports to be, that is to say merely an agreement for permissive enjoyment as the invitee of the landlord, then each shares the use of the premises with other invitees of the same landlord. The landlord is not excluded for he continues to enjoy the premises through his invitees, even though he may for the time being have precluded himself by contract with each from withdrawing the invitation. Second, the fact that under each agreement an individual has the privilege of user and occupation for a term which overlaps the term of user and occupation of other persons in the premises does not create a single indivisible term of occupation for all four consisting of an amalgam of the individual overlapping periods. Third, there is no single sum of money payable in respect of use and occupation. Each person is individually liable for the amount which he has agreed, which may differ in practice from the amounts paid by all or some of the others.

The respondents are compelled to support their claims by a strange and unnatural theory that, as each occupant terminates his agreement, there is an implied surrender by the other three and an implied grant of a new joint tenancy to them together with the new incumbent when he enters under his individual agreement. With great respect to the majority in the Court of Appeal, this appears to me to be entirely unreal. For my part, I agree with the dissenting judgment of Sir George Waller in finding no unity of interest, no unity of title, certainly no unity of time and, as I think, no unity of possession. I find it impossible to say that the agreements entered into with the respondents created either individually or collectively a single tenancy either of the entire flat or of any part of it. I agree that the appeal should be allowed.