Lease or Licence? Further clarification given by the Court of Appeal in property guardian case

Hogan Lovells

Hogan Lovells

[author: Lucy Royle]

The Court of Appeal has held that a property guardian occupied a property as a licensee, not a tenant, allowing the licensor to obtain possession from the guardian. The Court of Appeal further dismissed arguments that the arrangement between the guardian and licensor was a sham. This case provides further guidance on what might constitute a licence versus a lease, confirming that exclusive possession by itself is not necessarily sufficient to answer this question.

The owner of a vacant property entered into an agreement with Global Guardians Management Ltd (GGM) for the provision of property guardian services. GGM selected working individuals to occupy the property, each to live in their own lockable space under weekly licences which stated that no tenancy was to be created. Upon termination of the agreement, the guardians were to vacate the property.

To assist with provision of guardianship services, GGM entered into an inter-company agreement with Global 100 Limited (G100), granting G100 the right to confer temporary, non-exclusive licences to persons selected to share occupation of the property.

In April 2020, G100 and Ms Laleva entered into a temporary licence agreement, under which Ms Laleva was to pay a weekly licence fee for use and occupation of a designated space so that she might perform guardian functions. This agreement gave G100 the right to alter the extent and location of the living space, required amicable and peaceful sharing of the property with others selected by G100, and contained a description of the rights granted as “non-exclusive occupation” of the whole property, rather than any particular part of it. Ms Laleva was given a set of keys to the property and her allocated space. Both parties had a right to terminate the agreement on giving 28 days’ notice, and on termination the guardian would immediately cease to be entitled to the use of the property.

On termination of the original agreement between the property owner and GGM, the parties entered into another agreement granting GGM a right of possession of the property for the sole purpose of enabling eviction of GGM’s former licensees and any other occupant of the property.

Was the guardian a tenant or licensee?

Ms Laleva asserted that rather than be evicted as a licensee, she was instead entitled to an assured shorthold tenancy, due to the fact that she had been granted exclusive occupation to a lockable room which she had occupied since April 2020 at a weekly rent.

The Court of Appeal accepted that if an agreement grants an occupier the right to exclusive possession, for a term at a rent, then it is likely that a tenancy has been created. However, the Court went on to say that exclusive possession is not necessarily conclusive in determining whether a tenancy has, in fact, been created. It found that the terms of the agreement were inconsistent with the grant of exclusive possession, such as G100’s entitlement to alter the location and extent of the living space.

A key point is that sole use of a space is not the same as exclusive possession, and that the reasons why the occupier has been allowed into occupation must be considered.

The reason why Ms Laleva was permitted to occupy the property was to provide guardian services to the property owner. To provide the guardian services, it was both necessary that Ms Laleva would occupy the property and that G100 be able to return the property as and when the property owner required it.

Considering this, the Court held that no tenancy had been created and that Ms Laleva, as a property guardian, was a licensee.

Was there a sham arrangement?

Ms Laleva also alleged that the agreement between herself and G100 was a sham arrangement, the purpose of which was to create the appearance of a personal licence, when in reality it was a tenancy. She also pointed to the fact that not all rights in the licence agreement had been exercised as evidence of a sham.

For there to be a sham arrangement, it must be shown that there is a common intention shared by the parties that the arrangement does not create the legal rights or obligations which it gives the appearance of creating.

Whilst the Court accepted that Ms Laleva may be able to establish that her intention was to obtain a tenancy rather than a licence, she was not able to establish that G100 shared that intention; it was common ground that the purpose of the agreement between G100 and Ms Laleva was that she would occupy the property as a licensee to facilitate G100’s provision of guardian services. The Court also commented that even if there were rights in the licence agreement which had not been exercised, this was not proof of sham; to the contrary it is expected that not all rights will be exercised in most agreements.

Next steps

Despite the Court accepting that exclusive possession is not conclusive for a tenancy, it remains important to make clear when a licence is intended rather than a tenancy to avoid any potential future disputes.

Case: Global 100 Limited v Maria Laleva [2021] EWCA Civ 1835

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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