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Cite as: [2003] EWCA Civ 160

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Neutral Citation Number: [2003] EWCA Civ 160


Royal Courts of Justice
London, WC2
24th January 2003

B e f o r e :




Compensating Authority/Appellant


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MR J GAUNT QC (instructed by Messrs Nabarro Nathanson, London WC1X 8RW) appeared on behalf of the Appellant
MR K LEWISON QC (instructed by Messrs Hodders Solicitors, London NW10 4UA) appeared on behalf of the Respondent



Crown Copyright ©

  1. LORD JUSTICE CARNWATH: This is an appeal against a decision of the Lands Tribunal, His Honour Judge Rich QC, on a preliminary issue arising on a notice of reference to determine compensation under the Land Compensation Act.
  2. The background is that a lease originally granted in 1984 related to premises at 1-5 Parkfield Street, London N1. The claimant, Mean Fiddler Holdings Ltd acquired the residue of that 35-year term in 1996, and since then the premises have been operated as a nightclub known as "The Complex". The freehold reversion became vested in a company called Delancey Estates Plc in August 1999. The property was acquired by the London Borough of Islington, who are the Compensating Authority and the appellants before us. That was by virtue of a general vesting declaration made on 5th December 1999 pursuant to a compulsory purchase order. So the issue was the compensation for the leasehold interest.
  3. That question was referred to the Lands Tribunal in February 2001. The claimant put forward a claim for compensation which reached a total of almost £2 million, based on the profits of the establishment. That was supported by their expert, Angela Warr-King. She in turn relied on material from the accountants, and they in their report indicated the basis on which those profits had been earned. They said this:
  4. "The Complex Club was established from a period from 2 March 1996 to 5 February 2000, undertaking nightclub activities to include internal promotion of gigs and club nights.
    Towards the latter part of 1998 management made the decision to operate the venue by offering the club to external promoters who on their account would stage club nights, thus taking full responsibility for admission revenues, advertising and administration burden.
    Once the change in operating style was implemented the venue began to generate significant revenue, which in turn improved profitability. The new approach resulted in substantial cost savings in advertising, administrative expenses and more importantly the direct cost of employing DJs and promoters."
  5. That is a succinct summary of what has gone on since 1998. The evidence shows that there are in fact three main promoters who operate respectively on Thursday, Friday and Saturday.
  6. The compensating authority, faced with that evidence, took the point that the use, as it had been going on since 1998, was contrary to the terms of the lease, and therefore should not be taken into account in assessing compensation. Their expert, Mr Lambert, said that a purchaser would be reluctant to take a lease on those terms. He said:
  7. "The presence of the alienation clause would almost certainly deter the majority of operators of such clubs who would seek maximum flexibility in the lease terms when trying to generate income."
  8. So there was an issue as to how, assuming there were a breach, it should be taken account in the valuation. In addition, as I understand it, the authority take a legal point, that any additional value attributable to that use should be excluded under section 5(4) of the Land Compensation Act 1961, as being a use which is unlawful or could be restrained by a court. That question is not before us. At first sight, I find it a surprising submission, in relation to what I understand to be a provision directed to breaches of the general law, such as, for example, of planning restrictions. However, that is a matter which have may have to be determined in due course.
  9. Three issues were identified by the Tribunal for consideration at a preliminary hearing: (a) whether the claimant's occupation and/or use of the subject property was in breach of its lease; (b) if so, whether the landlord had waived such breach and/or was estopped from asserting and/or relying on such breach; (c) if not, the extent, if any, to which the profit figures should be adjusted when assessing the value of the subject property.
  10. Judge Rich was appointed to determine the preliminary issues, but it was agreed that the third issue should be dealt with by the valuation member; and issue (b), the question of waiver, could not be decided because the authority had failed to serve the witness statements on which it wished to rely.
  11. So the issue before the Tribunal (and the issue before us) is limited to ground (a), whether the occupation and/or use of the subject property was in breach of the lease. That is a position which we have to accept. However, I would observe that it does mean that we are faced with the somewhat artificial issue. As I understand it, in practice this use has gone on for two years without objection from the landlord, although the extent of the landlord's knowledge may be in issue. We cannot go into the circumstances of that, but it seems likely that in the real world a dispute about an alleged breach of this kind would be resolved by negotiation, rather than depending on a determination of the court.
  12. I turn to the lease. The only clauses with which we need be concerned are the user clause and the alienation clause. The user clause was in fact varied in 1995 and the present clause is clause 2(19) in these terms:
  13. "Not to use the Property or any part thereof otherwise than as a licensed snooker and social club together with a restaurant discotheque and bar on the ground floor and a further bar on the mezzanine floor or such other use to which the Property in its actual condition is physically suited as may be previously approved in writing by the landlord (whose consent shall not be unreasonably withheld or delayed) within Class D2 of the Town & Country Planning (Use Classes) Order 1997."
  14. It is not suggested that what has been happening is in anyway a breach of that clause, but I think both parties accept that in looking at the alienation clause we should do so against the background of the permitted use.
  15. The other clause with which we are concerned is clause 23, which provides as follows:
  16. "(a) Save as mentioned in sub-clause (b) of this clause (23) not to assign transfer charge underlet or part with or share the possession or 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 or parts thereof whether as a licensee or otherwise nor permit or suffer any person deriving title from the Tenant so to do.
    (b) Not to assign transfer charge underlet or part with the possession or shared possession or occupation of or otherwise dispose of the whole of the Property or of the ground floor shop portion thereof edged blue on plan lettered A annexed hereto without the previous consent in writing of the Landlord."
  17. Mr Gaunt QC, for the authority, limits his submissions to sub-clause (a) which is directed to the occupation of part of the premises. He does not rely on sub-clause (b) which deals with the underletting or parting with possession of the whole of the property. It should be noted in any event that that sub-clause is qualified, in the sense that it can be departed from with the consent of the landlord, and that in turn means that the landlord cannot unreasonably refuse consent: see the Landlord and Tenant Act 1927, section 19.
  18. In addition, Mr Gaunt does not suggest that there is a parting with possession. The emphasis of his argument is that there has been a sharing of occupation or the permitting of another person to share occupation.
  19. Turning to the facts, there was before the judge some evidence called by the claimant, which was subject to cross-examination. No evidence was called by the authority, but an agreed statement was prepared by counsel during the hearing. That was appended to the Tribunal's decision and is before us. For present purposes it is sufficient to refer to two aspects. Firstly, as to the position of the tenant, the judge found as follows:
  20. "19. On the agreed facts, the claimant was in my judgment exclusively responsible for everything concerned with the property as opposed to the event. It controlled who and how many could enter, how the safety of visitors to the building were provided for, how the building and the physical equipment in it were used, how the requirements of licences affecting the building were to be complied with and how the building itself was protected and insured."

    That is a brief summary of a somewhat longer statement in the agreed statement of the various aspects of the claimant's control of the building, but it is a summary which Mr Gaunt accepts as accurate.

  21. The promoter's position was set out in the agreed statement:
  22. "Where the contract was between the Claimant and a promoter, the following arrangements were made-
    (a) The promoter undertook the responsibility for producing the production on the evenings covered by his arrangement, for hiring bands or DJ's, for choosing the music, for choosing the sound and lighting effects (subject to the ability of the Claimant's equipment and technicians to provide them) and for promoting the show and attracting the clientele.
    (b) By prior arrangement the promoter and artistes were admitted about one hour before the nightclub opened to prepare and set up.
    (c) Artistes provided their own musical instruments and records. All the sound and lighting equipment was provided by the Claimant and operated by the Claimant's technicians. Those technicians would endeavour to provide the particular sound or lighting effects instructed by the promoter.
    (d) The promoter controlled the choice of music.
    (e) Neither promoters nor artistes were provided with keys nor did they have access to any private parts of the nightclub or behind the bars.
    (f) The promoter was responsible for engaging, negotiating with and paying the fee to the artistes.
    (g) The promoter was responsible for advertising and promoting the event on that night at The Complex.
    (h) The Claimant engaged and paid personnel to control access to The Complex to manage any disturbances, evict any troublemakers and generally, provide security.
    (i) The promoter set the admission charge for that night at The Complex and either retained all box office takings and paid a pre-determined fixed fee to the Claimant or the box office takings were shared between the Claimant and the promoter on a pre-determined basis.
    How these arrangements are to be characterised is in issue."
  23. In addition to those facts, which Mr Gaunt accepted covered all the material points, he drew our attention to certain aspects of the evidence which explained the relationship of the claimant and promoter. There was a witness statement from a Mr Morjaria, who was employed by the claimant as manager of The Complex nightclub. He said this:
  24. "Although we both booked directly and negotiated with promoters, as time went by, we found that dealing with promoters was more profitable and so a greater proportion of nights were organised this way. The reason that dealing with promoters was more profitable was that they had better contact with particular sections of the public than we did and they could bring in more people than we could. We could hire Groups or DJs who appealed to either the Afro-Caribbean community or the Gay community but then had to advertise those Groups or DJs within that community. We were simply not as effective in doing this as the specialist promoters who worked within that community. By using these specialist promoters for one night a week or one a month, more people came through the door and so the Claimant made more money at the bars. As The Complex became better known and more popular, so we could open on more nights each week and charge the promoters larger fees."
  25. Mr Gaunt also referred us to extracts from the transcript, which made clear that the attraction of using the promoters was that they were able to bring "their own crowd" with them, in what was described as this "niche market". Mr Gaunt also showed us the accounts of the claimant from which, not surprisingly, one sees that after 1998 the figure that the claimants themselves were paying for disc jockeys and royalties dropped to nil, and also the advertising expenses were very substantially reduced.
  26. The judge considered the legal submissions and submissions on the facts made by the parties, which appear to have been substantially the same as were made to us. He looked at the cases to which he had been referred to see what help could be gained. The answer was not very much. He referred to Graysim Holdings Ltd v P & O Property Holdings Ltd [1996] 1 AC 329, 334G, where Lord Nicholls said that:
  27. "... the concept of occupation is not a legal term of art, with one single and precise meaning applicable in all circumstances. Its meaning varies according to the subject matter."
  28. The judge referred to the respective submissions of the parties. Mr Lewison QC, for the claimant, had said that the clause was directed principally to the question of control. The purpose is "concern to prevent property being vested in or controlled by someone whom the landlord has not approved". Mr Gaunt, on the other hand, was relying on a "business test". He identified the test as being "concerned with the restricting of persons operating a business from the present premises". The judge noted that both those tests involved a gloss on the words of the clause.
  29. Two other cases were referred to by the judge, which involved similar issues but in very different factual contexts. The first was Tulapam Properties Ltd v De Almeida [1981] 2 EGLR 55. That case concerned office premises. It appears that the lessee had allowed various businesses to occupy the offices, and this was alleged to be contrary to a covenant against "sharing possession" of a part of the premises. The report does not give much detail about the nature of the use or how the occupations were physically arranged. The judge, Sir Douglas Frank QC, sitting in the High Court, said this:
  30. "The first question I have to determine is whether there has been a breach of the covenant against sharing possession. It is not contended, nor could it be contended, that the defendants have parted with possession, on the facts, and particularly having regard to the guidance given in the Privy Council case on appeal from Malaysia of Lam Kee Ying Sdn Bhd v Lam Shes Tong [1975] AC 274.
    That the use of the premises has been shared by Interbank and, to a lesser extent, by other companies and, indeed, by Mr Perestrello's son, is beyond dispute. The office use of the basement and first floor and probably the upper floors has been shared. Does that amount to a sharing of possession? In a strict legal sense the word 'possession' has a highly technical meaning, and the sharing of possession is an unknown concept. It has been said that a possession is single and indivisible. So when you get what might be termed a sharing of possession, the two sharers became one as, say, joint tenants, and one is back to the original concept. But 'possession' also has a broader popular meaning, and it means the sharing of the use or occupation.
    It falls to the court if possible to give a meaning to the expression in the lease rather than to say that it can have no meaning, because clearly the words would not be there unless they were intended to have a meaning. Nor should the court rest on the easy pillow of uncertainty. I think that sharing possession here means, and would have been taken by the parties to mean, sharing the use of these premises with somebody else. What the plaintiffs as landlords, must have been concerned with was that there should not be what is commonly called multi-occupation, as occurred here. In my judgment, there was and is a breach of that covenant."

    It can be said that there the judge is equating possession with "use or occupation", but as I understand it he was doing so in the context of that particular case, and should not be taken as proposing a more general principle of law.

  31. The other case referred to before Judge Rich was Jackson v Simons [1923] 1 Ch 373. The facts in this case were that the defendant was a lessee of a ground-floor shop, which was subject to a covenant against sharing possession of or occupation of any part of the premises. He agreed to allow the proprietor of a nightclub, carried on in the basement under the shop, to use the front part of his premises for a period each night for the sale of tickets of admission to the club. That part was in the front of the shop and was petitioned off from the rest of the shop by a removable screen erected every evening, to which the proprietor of the nightclub had a key. Romer J noted in his judgment that it had been admitted that on those facts there was a sharing of the possession of part of the demised premises, and he went on to consider the remaining issues on that basis.
  32. The judge understandably did not think that either of those cases gave great assistance. In paragraph 17 of his decision he noted some of the analogies that had been prayed in aid in discussion by counsel; for example, concessionaires or franchisees in a department store, business conferences in a hotel, or front-of-house concessions in a theatre. He did not find it necessary or helpful to reach a view on those different facts. His conclusion comes at paragraph 18, where he said:
  33. "I prefer to consider the extreme cases rather than other hypothetical borderline cases. Certain kinds of presence by third parties most clearly are not to be treated as occupation: the clubber in a nightclub, the hotel guest in a hotel are examples. Certain kinds of presence clearly are to be so treated: there was no need for discussion in regard to the companies sharing office space in the Tulapam case or the nightclub ticket office in Jackson's case where the sharing was admitted. For the intermediate case, I think the touchstone has to be not, as Mr Gaunt contends, the significance of the presence in terms of the business carried on or the use of the premises, but, as Mr Lewison submits, its significance in terms of control of the premises. The covenant is concerned with alienation of the property. It is the effect of physical presence upon the property not upon its use, that seems to me to be the context in which I must determine whether, as a matter of fact and degree, the carrying on of the claimant's business by permitting an external promoter to promote virtually all events at the premises in their regular weekly slots, involves sharing occupation."
  34. He then reached his conclusion where, having set out his summary of the claimant's control of the premises in the terms that I have already quoted, he continued as follows:
  35. "The promoter certainly had a leading role in the exploitation of the building to make money, because he provided the attractions which were essential to what might even, without too much exaggeration be categorised as a joint business venture. The claimant's share indeed was limited to the provision of drinks in the bar and not much else by way of entertainment. Sharing a business or its profits is not however the same as sharing occupation. Consideration particularly of the question of whether the hiring by the tenant of a band leader with his band, would involve sharing occupation, leads me to the conclusion that these aspects of the promoters' control are not determinative of the question of occupation. The true question must in my judgment be, whether a third party has been allowed to have such share of control of the property itself as to amount to occupation, in the context of this covenant. I have concluded that the claimant's arrangements with its external promoters did not involve a sharing of occupation or any other breach of clause 2(23)(a) of the lease."
  36. Turning to the discussion in this court, it must be emphasised that this is an appeal on a point of law and Mr Gaunt has to show such an error in the judge's conclusions. The parties in substance repeated their submissions as made to the judge. The only additional case to which we were referred was the decision of this court in International Drilling Fluids Ltd v Louisville Investments Uxbridge Ltd [1986] 1 Ch 513. That of course is an important authority on the circumstances in which a lessor may be held to have refused consent unreasonably under a covenant against assignment, but the issue in this case was not directly in point.
  37. However, Mr Gaunt relies on the discussion by Balcombe LJ of the relevant principles. At page 519 he set out certain propositions, the first of which was this:
  38. "The purpose of a covenant against assignment without the consent of the landlord, such consent not to be unreasonably withheld, is to protect the lessor from having his premises used or occupied in an undesirable way, or by an undesirable tenant or assignee: ..."

    Mr Gaunt relies on that as showing that the emphasis is on the nature of the use, and that control does not form part of the test.

  39. Mr Lewison, on the other hand, draws our attention to the context of that case, which concerned a user clause limiting the use to office use. He refers to a later passage of Balcombe LJ (at page 522) where he makes it clear that, in considering whether consent is reasonably withheld, a very material factor is the nature of the permitted user, and that prima facie within that permitted user the landlord has a relatively confined right to refuse consent.
  40. Again, I do not find that case of great assistance on the very different facts of this case. It does certainly emphasise the need to look at the lease as a whole and to take account of the nature of the user. But by contrast we need to bear in mind that we are here directing our attention to a clause which restricts parting with or sharing possession of part of the premises. The contrast between sub-clauses (a) and (b) in this case tends to suggest that (a) is concerned particularly with the physical splitting of occupation, rather than the nature of the overall use. The lessor cannot unreasonably object to someone who takes over the whole property, but when it comes to (a) he has an unqualified right to object to the splitting of occupation or possession.
  41. So I come back to the judge's reasoning. One notes the lack of decided cases. Mr Gaunt has suggested that there is a need for guidance. However, it seems to me that the lack of cases may be because the market recognises that this is indeed a somewhat grey area, in which negotiation rather than litigation will provide the best answer. I do not think it is helpful or possible to attempt to draw very strict dividing lines in construing the clause, particularly in the somewhat artificial circumstances in which this case comes before us. I also note that Mr Gaunt accepts that in general such clauses are construed against the lessor, because technically a breach may lead to forfeiture. If the lessor wants a clear prohibition he can insist on it in the lease.
  42. In my view this is one of those questions, not infrequent in the law -- sometimes described as ones of mixed fact and law -- where there is no precise test. There will be extremes where the position is clear, and a grey or intermediate area in between, where the appeal court is unlikely to interfere with the conclusion of the trial judge unless there is a clear error of law (cf Ransom v Higgs [1974] 1 WLR 1594, 1618C-E, per Lord Simon).
  43. 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 is quite different from offices or shops. It involved the admission of the public. It involved parts being used for different purposes within the general use; for example the kitchen, the disc jockey on the stage, and so on.
  44. I do not understand Mr Gaunt to suggest that the mere fact that a disc jockey takes over the stage or that he uses a dressing room results in him sharing occupation. Nor do I think it makes any difference if he is a regular visitor to the site and is given a key to his dressing room. I put to Mr Gaunt by analogy the position of a symphony orchestra taking over the stage of the Festival Hall for an evening. As I understand it he did not submit that that would involve a sharing of occupation, even if the symphony orchestra had an arrangement whereby it used the dressing rooms and did so on a regular basis. In my view, these matters have to be looked at in a common sense way.
  45. Mr Gaunt sought to refine his version of the correct test as follows. He said:
  46. "If a business enterprise which is independent of the tenant uses the premises for the purpose of its business, as opposed to merely visiting to do a job for the owners, then there is shared occupation."
  47. No doubt, as he says, a mere visitor doing a job will not be treated as occupying, but it does not seem to me that that can be regarded as a complete test. Nor does it seem to me that one can get such a test out of the wording of the clause. In the example I have given, the symphony orchestra would not be regarded as a mere visitor doing a job.
  48. So I come back to the simple view taken by the judge. In my view he approached the facts in a fair and sensible way. He was entitled to treat the fact that the claimant 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.
  49. In my view that conclusion shows no error of law and I would dismiss this appeal.
  50. SIR CHRISTOPHER STAUGHTON: The lease in this case is not a lease of a dwelling house. Indeed, it contains in clause 2(21) a provision that the tenant is:
  51. "Not to reside or sleep or permit anyone to reside or sleep on any part of the property ..."

    There is also a provision in clause 2(19), or was when it was first agreed, that the tenant was:

    "Not to use the Property or any part thereof otherwise than as a licensed snooker and social club and that part of the ground floor edged green on plan lettered A annexed hereto as an amusement arcade."
  52. So when we are looking at clause 2(23)(a) we must bear in mind that the occupier is likely to be carrying on a business of some kind. That may not be essential, but it is probable.
  53. Mr Lewison says that whether the promoter of an entertainment can be said to be sharing the occupation of the property is a question of fact. If that is right, then in the days when we had juries in civil cases the jury would be asked the question whether the lease meant that the promoter was sharing the occupation of the property, always assuming that they were able to read the lease or some of them. It would also have been necessary, I suppose, to have evidence from people who know about these things as to what was meant by sharing the occupation of the property. That does not seem right to me. This was a question of interpretation of a contract and therefore a question of law. It was not merely a question as to the meaning of an ordinary English word.
  54. That is just as well for the present case, as we are told that there can only be an appeal from the Lands Tribunal on a question of law.
  55. The test, in my opinion, is whether the promoter (or one of the promoters, if more than one) is operating a separate business on the premises from that carried on by the tenant. Those would be the circumstances in which the landlord would wish to have some right of approval of the business and some right to turn it down. If, on the other hand, the tenant is carrying on a business and the promoter participates in that business under the landlord's supervision and control, I would not say that the promoter is sharing the occupation of the property. There would be simply one business run by the tenant and the promoter is participating in it.
  56. In those circumstances, there was not, in my opinion, any breach of clause 2(23)(a) and this appeal should be dismissed.
  57. ORDER: Appeal dismissed with costs; costs assessed at £12,000 plus VAT (if so entitled); leave to apply to Carnwath LJ in writing on notice to the other side about the VAT point.
    (Order not part of approved judgment)

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