Possession Claims – Court Of Appeal Provide Guidance On What Constitute A Licence Or Lease

A recent Court of Appeal case has provided guidance on what might constitute a licence or a lease. Whilst the case centred on the occupation of professional property guardians, the guidance has a potentially wider application and the Court confirmed that exclusive possession, by itself, is not necessarily determinative.

The Court also considered what ingredients were required to create a “sham” arrangement.

Global 100 Ltd v Maria Laleva

Case summary

The owners of a vacant building entered into an agreement with Global Guardians Management Ltd (an associate company of the Claimant at first instance) for the provision of guardian services. Under the guardianship model, a licence would permit individuals to occupy the vacant building to prevent it from being squatted or damaged.

In April 2020, a licence was granted to Maria Laleva. Under the terms of the licence:

When the licences came to be terminated, Ms Laleva argued that the agreements amounted to tenancies rather than licences since she had been granted exclusive occupation of a lockable room and had been paying rent in respect of that space since April 2020. In the alternative, Ms Laleva argued that the agreements amount to a “sham” arrangement.

Both of these arguments were dismissed at first instance and Ms Laleva then appealed.

The Court of Appeal decision

The Court of Appeal found that Ms Laleva’s argument that the agreement created a tenancy, instead of a licence could not succeed. Whereas the Court accepted that the grant of exclusive possession for a term at a rent would usually create a tenancy, the presence of exclusive possession is not always determinative. Importantly here, the ability of the licensor to alter the extent and location of any living space provided was seen as incompatible with the grant of exclusive possession.

Moreover, the Court found that the purpose of Ms Laleva’s occupation was also relevant. Here, her presence was to provide guardian services and, as such, she was a “service occupier” as opposed to a class of occupiers that would enjoy any special occupiers’ rights. It was also essential for the provider of the guardian services to be able to “hand back” the property as and when the owner required it. For all of these reasons, the Court found that Ms Laleva was a licensee as opposed to a tenant.

As to Ms Laleva’s alternative argument that the agreement was a “sham”, the Court of Appeal dismissed this argument as well. In order to be a sham, 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. Since Ms Laleva admitted that the purpose of her occupation was to provide the provision of guardian services, there could have been no shared intention of a sham agreement.

Comment

In this case, despite the Court of Appeal saying that exclusive possession is not necessarily conclusive in determining whether a tenancy has in fact been created, it remains an important ingredient within the lease/licence distinction and it will remain important to make it clear when a licence is intended rather than a tenancy to avoid disputes.

It would appear that the Court drew a distinction between having the “sole use” of a space and having “exclusive possession” of it. Notwithstanding the fact that the “reason” for the occupation, in this case, was considered relevant, one wonders whether a different decision may have been reached if Global 100 did not possess the right to alter the “extent” and “location” of the living space.