LC-2023-000815 - [2024] UKUT 263 (LC)

I find it convenient to start by identifying the general principles which apply, in considering whether an agreement has given rise to a lease or a licence. The skeleton argument prepared by Mr Holland and Mr Clark contained a very helpful summary of these general principles. What follows is drawn largely from that summary, including the classification of those principles adopted by counsel. As I understood the position this summary of the general principles was not materially disputed by Mr Radley-Gardner. The dispute lay in the application of those principles to the Agreements.

The starting point is Street v Mountford [1985] AC 809. The question of whether a contractual agreement for the occupation of land creates a lease or a licence depends upon whether the agreement grants exclusive possession of the relevant land for a term at a rent. Where the agreement does grant exclusive possession of the relevant land for a term at a rent, and provided that the grant of exclusive possession is not referable to a legal relationship other than a lease, the result will be a lease. This is so whatever label is placed upon the agreement by the parties. In order to determine whether the relevant agreement does or does not grant exclusive possession for a term at a rent, it is necessary to look at the substance of the relevant agreement.

In Street v Mountford the relevant agreement had been stated by the parties to be a licence and recorded the acceptance of Mrs Mountford, the occupier of the relevant premises, that the agreement was not intended to give her a tenancy protected under the Rent Acts. This however was not sufficient to prevent the agreement from taking effect as a tenancy, and thereby enjoying Rent Act protection. As Lord Templeman memorably explained, at 819D-F:

“In the present case, the agreement dated 7 March 1983 professed an intention by both parties to create a licence and their belief that they had in fact created a licence. It was submitted on behalf of Mr. Street that the court cannot in these circumstances decide that the agreement created a tenancy without interfering with the freedom of contract enjoyed by both parties. My Lords, Mr. Street enjoyed freedom to offer Mrs. Mountford the right to occupy the rooms comprised in the agreement on such lawful terms as Mr. Street pleased. Mrs. Mountford enjoyed freedom to negotiate with Mr. Street to obtain different terms. Both parties enjoyed freedom to contract or not to contract and both parties exercised that freedom by contracting on the terms set forth in the written agreement and on no other terms. But the consequences in law of the agreement, once concluded, can only be determined by consideration of the effect of the agreement. If the agreement satisfied all the requirements of a tenancy, then the agreement produced a tenancy and the parties cannot alter the effect of the agreement by insisting that they only created a licence. The manufacture of a five pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade.”

The Court of Appeal had decided, in Street v Mountford, that the agreement created a licence. In his judgment in the Court of Appeal Slade LJ reasoned that if the defendant (Mrs Mountford) was to displace the express statement of intention embodied in the declaration that the agreement created a licence, she had to show that the declaration was either a deliberate sham or at least an inaccurate statement of what was the true substance of the real transaction between the parties. Lord Templeman disagreed. As he explained, at 826H-827B:

“My Lords, the only intention which is relevant is the intention demonstrated by the agreement to grant exclusive possession for a term at a rent. Sometimes it may be difficult to discover whether, on the true construction of an agreement, exclusive possession is conferred. Sometimes it may appear from the surrounding circumstances that there was no intention to create legal relationships. Sometimes it may appear from the surrounding circumstances that the right to exclusive possession is referable to a legal relationship other than a tenancy. Legal relationships to which the grant of exclusive possession might be referable and which would or might negative the grant of an estate or interest in the land include occupancy under a contract for the sale of the land, occupancy pursuant to a contract of employment or occupancy referable to the holding of an office. But where as in the present case the only circumstances are that residential accommodation is offered and accepted with exclusive possession for a term at a rent, the result is a tenancy.”

Street v Mountford was concerned with residential premises. It is however clear from the subsequent case law, involving lease/licence disputes in relation to business premises, that the principles stated in Street v Mountford apply equally to business premises. I refer, by way of example only, to the judgment of Jonathan Parker LJ in Clear Channel UK v Manchester City Council [2005] EWCA 1304, a case which raised the question of whether an agreement which granted the right to use sites for advertising hoardings was a lease or a licence. In his judgment in that case, at [11], Jonathan Parker LJ recorded, without qualification, that it was common ground that the principles in Street v Mountford applied.

Two particular points follow from Lord Templeman’s explanation of the law in Street v Mountford.

First, the label or labels (if any) attached by the parties to the relevant agreement may be indicative, but they are not determinative. As Jenkins LJ explained, in Addiscombe Garden Estates Ltd v Crabbe [1958] 1 QB 513, at page 522:

“As to the first question—whether the so-called licence of 1957 April 12, 1954, in fact amounted to a tenancy agreement under which the premises were let to the trustees—the principles applicable in resolving a question of this sort are, I apprehend, these. It does not necessarily follow that a document described as a licence is, merely on that account, to be regarded as amounting only to a licence in law. The whole of the document must be looked at; and if, after it has been examined, the right conclusion appears to be that, whatever label may have been attached to it, it in fact conferred and imposed on the grantee in substance the rights and obligations of a tenant, and on the grantor in substance the rights and obligations of a landlord, then it must be given the appropriate effect, that is to say, it must be treated as a tenancy agreement as distinct from a mere licence.”

This leads on to the second point, which is that it is necessary to look at the whole of the relevant agreement and analyse the substance and effect of the rights granted and the obligations undertaken.

This approach is not of course peculiar to the determination of the question of whether an agreement creates a licence or a tenancy. In Global 100 Ltd v Laleva [2021] EWCA Civ 1835 [2022] 1 WLR 1046 the Court of Appeal had to consider the lease/licence question in the context of a dispute over whether an agreement for the occupation of property by a property guardian had created a tenancy rather than (as the agreement was described) a licence. After quoting from Lord Templeman in Street v Mountford, at page 819, Lewison LJ made the point that Lord Templeman’s approach was not confined to the lease/licence question. As Lewison LJ explained, at [36]:

“36 This approach is not peculiar to the question whether an agreement creates a licence or a tenancy. In Secret Hotels2 Ltd (formerly Med Hotels Ltd) v Revenue and Customs Comrs [2014] 2 All ER 685, para 32 the Supreme Court approved an observation of mine in an earlier case:

“The court is often called upon to decide whether a written contract falls within a particular legal description. In so doing the court will identify the rights and obligations of the parties as a matter of construction of the written agreement; but it will then go on to consider whether those obligations fall within the relevant legal description. Thus the question may be whether those rights and obligations are properly characterised as a licence or tenancy (as in Street v Mountford [1985] AC 809); or as a fixed or floating charge (as in Agnew v Comr of Inland Revenue [2001] 2 AC 710), or as a consumer hire agreement (as in TRM Copy Centres (UK) Ltd v Lanwall Services Ltd [2009] 1 WLR 1375). In all these cases the starting point is to identify the legal rights and obligations of the parties as a matter of contract before going on to classify them.”

In the present case, if the totality of the rights and obligations in each Agreement had the effect of a grant to Orange of exclusive possession of the relevant Site for a term at a rent, the result will be that each Agreement took effect as a lease, even though each Agreement was not described as a lease and notwithstanding that each Agreement may not have contained the conventional language of a lease.

This leads into the question of construction of the provisions of the Agreements. What principles apply? The answer is that ordinary principles of contractual construction apply. Leases and licences are construed according to the same principles as apply to any other contract. As Lord Clarke explained in Mexfield Housing Co-operative Ltd v Berrisford [2011] UKSC 52 [2012] 1 AC 955, at [107]:

“107 As I see it, the ordinary principles governing the true construction of a contract apply to tenancy agreements and leases. The principles have been discussed in many cases, notably of course, as Lord Neuberger MR said in Pink Floyd Music Ltd v EMI Records Ltd [2010] EWCA Civ 1429 at [17], by Lord Hoffmann in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, passim, in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912F—913G and in Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101, paras 21—26. I agree with Lord Neuberger MR (also at para 17) that those cases show that the ultimate aim of interpreting a provision in a contract is to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant. As Lord Hoffmann made clear in the first of the principles he summarised in the Investors Compensation Scheme case, at p 912H, the relevant reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.”

The Agreements were commercial agreements, in the sense that there were entered into for business purposes by Orange, a commercial entity. In these circumstances I accept that business common sense has a role to play in the construction process. This role was explained by Lord Clarke in Rainy Sky SA v Kookmin Bank [2011] UKSC 50 [2011] 1 WLR 2900, at [21]:

“21 The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.”

As Lord Clarke explained, construction of a contract involves ascertaining what a reasonable person would have understood the parties to have meant. The relevant reasonable person is one who has all the background knowledge available to the parties in the situation in which they were at the time of the contract. This requires examination of the circumstances in which the agreement was made. Returning specifically to the lease/licence context and to Global 100, Lewison LJ confirmed the requirement to consider the surrounding circumstances. At [37] Lewison LJ quoted Lord Templeman, in explaining the requirement to consider the circumstances in which the relevant agreement was made, in the following terms, at [37]:

“37 As well as what is written on the page, the court may consider the circumstances in which the agreement was made. In AG Securities v Vaughan [1990] 1 AC 417, 458 Lord Templeman put it this way:

“In considering one or more documents for the purpose of deciding whether a tenancy has been created, the court must consider the surrounding circumstances including any relationship between the prospective occupiers, the course of negotiations and the nature and extent of the accommodation and the intended and actual mode of occupation of the accommodation.”

There is a further point which can usefully be made at this stage, in relation to the question of the correct approach to determining whether the Agreements created leases or licences. Both of the Agreements gave rise to rights under the Old Code. Both of the Agreements are now subsisting agreements within the meaning of paragraph 1(4) of the transitional provisions in Schedule 2 to the Digital Economy Act 2017. As such, and subject to the transitional provisions, the Agreements are subject to the Code. This engages the question of what role, if any, the application of the Old Code to the Agreements plays in the process of determining whether the Agreements created leases or licences.

The answer to this question can, it seems to me, be found in the decision of the Court of Appeal in Vodafone Ltd v Potting Shed Bar and Gardens Ltd [2023] EWCA Civ 825. The question before the Court of Appeal in the Potting Shed case was a very different one, concerning the question of whether a person with an interest in land, derived from the original grantor of an agreement subject to the Code or derived from a successor of the grantor, could be treated as a party to the agreement by virtue of paragraph 10(3) of the Code. The Court of Appeal answered this question in the affirmative, deciding that the wording of paragraph 10(3) was not intended to be exhaustive and could apply to a person who, as in that case, was entitled to the benefit and burden of the relevant leasehold interest held by the site operator by virtue of a concurrent lease granted by a successor in title of the freehold owner of the site and original grantor of site operator’s lease. Nugee LJ explained this conclusion in the following terms, at [75]:

“75.

Applying that approach, it seems to me that the regime is intended to work in such a way that the person currently entitled to the benefit and burden of the agreement as operator, and the person currently entitled to the benefit and burden of the agreement as site provider, are parties to the agreement and can exercise the rights conferred by Part 5 of the Code. That can in my judgement be achieved by construing paragraph 10(3) as not intended to define exhaustively who is to be treated as a party to the agreement. On that basis APW, being currently entitled to both the benefit and the burden of the Lease by virtue of the Concurrent Lease, is to be regarded as a “party to the agreement” with the result that it can invoke paragraph 31 by serving notice on Vodafone, and both it and Vodafone can invoke paragraph 33 by serving notice on each other as “the other party to the agreement.””

In rejecting the arguments of Vodafone, the site operator, Nugee LJ said this, at [78]:

“78.

Mr Read said that the Code created “a sui generis form of statutory rights” (Compton Beauchamp at [117] per Lady Rose), and was “designed to be, so far as possible, a self-contained Code” (Cornerstone Telecommunications Infrastructure Ltd v University of London [2019] EWCA 2075 at [34] per Sir Terence Etherton MR, Lewison and Arnold LJJ). It was intended to be a unified set of rules that covered all situations from a one-off licence in relation to tree lopping to a long-term full-blown lease. That I accept. The Code has to be applied both to contractual arrangements such as licences or wayleaves and to the grants of property rights such as leases. But I do not accept that this means that one jettisons the ordinary law of landlord and tenant, or, as Lewison LJ put it in argument, that the Code exists in a legal vacuum.”

So far as the present case is concerned, I derive the following guidance from what was said by Nugee LJ at [78]. First, the Code does not exist in a legal vacuum. It is subject to the ordinary law of landlord and tenant, where this is relevant. The same, it seems to me, should apply equally when considering an agreement which was, when it was entered into, subject to the Old Code. Second, in considering whether an agreement subject to the Code (or the Old Code) created a lease or a licence, the principles set out in Street v Mountford and subsequent case law continue to apply. They are not ousted by the Code (or the Old Code). The fact that the agreement was subject to the Code (or the Old Code) may be relevant context, but it does not alter the overall approach.

Finally, it is convenient to mention, in the context of the correct approach to the lease/licence question, two general principles of construction to which Mr Radley-Gardner made reference.

The first principle is the principle that while documents forming part of the same transaction may be used to construe a document in that transaction, documents outside that transaction cannot be used in the same way; see the judgment of Jessel Mr in Smith v Chadwick (1882) 20 Ch D 2 27, at pages 62 and 63 of the report. I accept this principle, but I do not think that it is of much relevance in the present case. It seems to me that the 1997 Agreement and the 2002 Agreement were clearly not part of any single or continuous transaction, with the consequence that one Agreement cannot be used to construe the other Agreement. The same applies to other agreements entered into between the parties or other parties. I did not however understand the arguments of APW in the Appeal to attempt to do any of these things and, if and in so far as APW did attempt to do any of these things, I do not consider that it was entitled to do so. It is an important feature of the present case is that there are considerable similarities, both as between the terms of the 1997 Agreement and the terms of the 2002 Agreement, and as between the evidence of the circumstances in which each of the Agreements was entered into. This does not however mean that one Agreement or the circumstances in which that Agreement was entered into can be relied upon to construe the other Agreement. What it does mean is that the bulk of the arguments in the Appeal raised points common to both Agreements. This was however the consequence of similarity of terms and circumstances. It was not the consequence of one Agreement and the circumstances in which it was entered into being available to construe the other Agreement.

The second principle is the principle that the conduct of parties subsequent to their entering into an agreement cannot, as a general rule, be relied upon for the purposes of construing the agreement itself; see Sattar v Sattar [2009] EWHC 289 (Ch). In his judgment in that case, at [35] and [36], Sales J (as he then was) explained the principle in the following terms:

“35.

Mr McPherson, for Bashir, sought to rely upon what happened after the making of the Agreement as indicating what the parties’ intentions were regarding the proper interpretation of clause 5. I do not accept these submissions, for three reasons.

36.

First, in my judgment these were not matters which could properly be prayed in aid to establish the true objective construction of clause 5. It was common ground that the general rule is that the parties’ conduct after the making of a contract cannot be taken into account to indicate what its true meaning is, judged on an objective standard: see e.g. James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 572; Chitty on Contracts, 13th ed., vol. 1, para. 12-126. A party’s later conduct might indicate what that party’s own subjective understanding was of what had been agreed. However, as a matter of principle, the meaning of a contract is not given by reference to the parties’ subjective understandings (even if, as it so happens, they might coincide) but by the objective interpretation which the court gives to the words used in their factual and legal context. Conduct of a party after the making of the contract does not provide relevant factual context to explicate the meaning with which the parties used the words at the time they made the contract.”

I accept this principle. Again, however I do not think that the principle has much relevance in the present case. In their submissions, counsel for APW did seek to derive some assistance from the documents by which subsequent assignments of the Agreements were expressed to have been made, but I accept that subsequent documents of this kind cannot be relied upon for the purposes of construing the Agreements. It seems to me that they fall into the category of subsequent conduct of the kind referred to in Sattar. Where the principle is potentially relevant is in relation to the 2000 Supplemental Agreement. Even in this respect however it seems to me that the 2000 Supplemental Agreement is of limited relevance. I do not think that the actual provisions of the 2000 Supplemental Agreement throw light on the meaning and effect of the provisions of the 1997 Agreement, even if it would be legitimate to rely on the terms of the 2000 Supplemental Agreement for this purpose. In construing the words used in the 1997 Agreement I do not think that there is assistance to be gained from the provisions of the 2000 Supplemental Agreement, independent of the point that the principle of construction identified by Sales J in Sattar would appear to preclude this.

Where however the 2000 Supplemental Agreement is relevant is in the evidence contained in the 2000 Sandbach Plans. The reason for this is that the 2000 Sandbach Plans provide evidence as to the content of the missing 1997 Sandbach Plan and as to the situation on the ground when the 1997 Agreement was entered into; see my earlier analysis of the 2000 Sandbach Plans. It seems to me that the general principle articulated in Sattar does not preclude the use of the 2000 Sandbach Plans and the 2000 Supplemental Agreement for these evidential purposes; that is to say as evidence of what land was shown as the Sandbach Site on the 1997 Sandbach Plan and as evidence of what the situation on the ground was when the 1997 Agreement was entered into. Nor does this general principle seem to me to preclude the use of the evidence of Mr Powell and the photographs for the same purpose.