England and Wales Court of Appeal (Civil Division) Decisions

Court of Appeal

		17 March 1988

1. Giving judgment, BINGHAM LJ said: This appeal raises the familiar question whether residential accommodation was let to occupiers as tenants or licensees.
2. Mr Antoniades is the freehold owner of a house at 6 Whiteley Road, Upper Norwood, London SE19. He let Mr Villiers and Miss Bridger, a young man and a young woman, into occupation of the top flat in the house. In due course he gave each of them notice to vacate the flat. Neither did so, and he sought an order for possession in the Lambeth County Court. Mr Villiers and Miss Bridger ('the occupants') resisted the claim, contending that they were tenants and so entitled to protection under the Rent Acts. Mr Antoniades ('the landlord') contended that they were licensees, not entitled to protection. His Honour Judge Macnair upheld the occupants' contention. The landlord appeals.
3. The top flat comprises four rooms: a bedroom, a room described as a bed-sitting room, a kitchen and a bathroom. The facts found by the learned judge are these.
4. The landlord had considerable experience in the management of properties. He was fully aware of the disadvantages of letting out property on tenancies and so had made a practice of granting licences. He was approached by Mr Villiers in about November 1984. The landlord told Mr Villiers that he dealt only in licences. The landlord in the course of a telephone call asked Mr Villiers whether he wanted a double bed or a single and Mr Villiers said a double. Before an agreement was signed, Mr Villiers made it clear that the flat was for him and his girlfriend. The landlord appreciated (so the judge inferred) that the occupants would share the flat and live as husband and wife. They looked at the flat and approved it in December 1984. They gave references showing that each of them was in employment.
5. On February 9 1985 the landlord with his wife and a daughter (who is a solicitor) attended at the flat. The occupants waited outside the house and were then let in and each of them signed an identical agreement. The occupants read the terms of the agreement and the landlord explained that these were licences, that the Rent Acts did not apply, that he had the right to put other people in and that no exclusive possession was given to the occupants. No finding is made whether the occupants read the agreement and the landlord gave his explanation before the occupants signed or after, but it appears to have been common ground in the evidence that the occupants read the agreement before signing and the landlord's evidence suggests that the explanation was also given before signing. The occupants knew nothing about the Rent Acts but signed because they were thankful to find somewhere to live. They did not understand the term 'exclusive possession'. The landlord made it plain that they had to go if they got married and that the flat was only for single people sharing. On July 7 1986 (after difficulties over the monthly payments) the landlord gave each of the occupants one month's notice to vacate. No effort was made by the landlord to put other occupiers into the flat or to occupy it himself. The occupants asked the landlord if a friend could stay with them in the flat and he agreed. The friend slept on a sofa bed for a period in cramped conditions. From time to time the landlord came and knocked on the door. On one occasion he entered without knocking to show people round the flat. After receiving notice the occupants took advice. They then claimed to be tenants. The rent officer upheld that claim and registered a rent substantially below the total of the payments the occupants had agreed to make.
6. The agreement signed by Mr Villiers on February 9 1985 was in these terms:

This licence is made the 9th day of February 1985 One thousand nine hundred and eighty five between A Antoniades of 152 Croydon Road, London SE20 (herein-after referred to as the 'licensor') of the one part and William Roberts Villiers of 30 Dynewood Close, Bexley Kent (hereinafter referred to as the 'licensee') of the other part.

Whereas the licensor is not willing to grant the licensee exclusive possession of any part of the rooms hereinafter referred to.

And whereas the licensee is anxious to secure the use of the rooms notwithstanding that such use be in common with the licensor and such other licensees or invitees as the licensor may permit from time to time to use the said rooms.

And whereas this licence is entered into by the licensor and the licensee solely upon the above basis.

By this licence the licensor licenses the licensee to use (but not exclusively) all those rooms (hereinafter referred to as 'the rooms') on the Top flat (One bedroom one bedsitting room, kitchen and bathroom) of the building known as and situate at 6 Whiteley Road SE19 (hereinafter referred to as 'the building') together with the use of the entrance hall and the staircase outer door and vestibule, of the building (shared with the other occupants in the house) and together with the use of the furniture fixtures and effects now in the rooms (more particularly set out in the schedule of contents annexed hereto) from 14/2/1985 for the sum of £ 87 per calendar month on the following terms and conditions:

1)    The licensee agrees to pay the said sum of £ 87 (on the 14th of each month) monthly in advance.

2)    The licensee shall be responsible for the payment of all gas electric light and power which shall be consumed or supplied in or to the rooms and shared parts of the house used by the licensee during the licensee's occupation thereof.

3)    The licensee shall use his best endeavours amicably and peaceably to share the use of the rooms with the licensor and with such other licensees or invitees whom the licensor shall from time to time permit to use the rooms and shall not interfere with or otherwise obstruct such shared occupation in any way whatsoever.

4)    The licensee shall keep the interior of the rooms and all fixtures and fittings therein and all other shared parts of the house used by the licensee in good and clean condition and complete repair (fair wear and tear and damage by accidental fire only excepted) and immediately replace all broken glass.

5)    The licensee shall preserve the furniture and effects in the said rooms from being destroyed or damaged and make good pay for the repair of or replace with articles of a similar kind and of equal value such of the furniture and effects as may be destroyed lost broken or damaged (fair wear and tear thereof only excepted).

6)    The licensee shall leave the furniture and effects at the expiration or sooner determination of this licence in the rooms or places in which they were at the commencement thereof.

7)    On notice in writing being given to the licensee by the licensor of all wants and repairs cleansings amendments and restorations to the interior of the rooms and of all such destruction loss breakage or damage of or to the furniture and effects as the licensee shall be bound to make good found therein the licensee shall repair cleanse amend restore or make good the same within three weeks of the giving of such notice.

8)    The licensee shall not remove any furniture and effects from the rooms without the previous consent in writing of the licensor and neither will move in other furniture.

9)    The licensee shall not carry on or permit to be carried on in the rooms any profession trade or business whatsoever.

10)  The licensee shall not do or suffer to be done in the rooms any act or thing which may be a nuisance cause of damage or annoyance to the licensor and the other occupiers or users of the rooms or the building or of any adjoining premises or which may vitiate any insurance of the building against fire or otherwise or increase the ordinary premiums thereon.

11)  The licensee shall not hang or allow to be hung any clothes or other articles on the outside of the rooms or the building but can install a washing line properly supported for this purpose in the back garden.

12)  The licensee shall not keep any combustible or offensive goods provisions or materials in the rooms and will not use the rooms in any illegal or immoral way.

13)  The licensee shall not cause or permit any damage spoil or destruction to the rooms or to the building (including gardens, fences and gates).

14)  The licensee shall not pull down alter or add to or in any way interefere with the locks construction or arrangements of the rooms and the house without the previous consent in writing of the licensor.

15)  The licensee shall not keep any animals or birds in the rooms nor shall the licensee permit any child or children to reside or stay in the rooms.

16)  The licensor shall be entitled at any time to use the rooms together with the licensee and permit other persons to use all of the rooms together with the licensee.

17)  This licence is personal to the licensee and shall not permit the use of the rooms by any person whatsoever and only the licensor will have the right to use or permit the use of the rooms as described in clause 16. The licensee under no circumstances will have the right to allow any other people of his choice to use the rooms in any way.

18)  The deposit held of £ 30 (Thirty pounds) will be returned on vacation if no damages or losses occur and if the flat and shared parts are left clean and no such dispute about the deposit will entitle the licensee to remain on the premises.

19)  The licensee will inform the licensor immediately by recorded delivery in case of any damage or losses to the rooms buildings and contents.

20)  The licensee having inspected the rooms and the shared parts of the building and the furniture and fittings declares that he found them in good order and satisfactory.

21)  Upon the licensee being in breach of any of the conditions referred to above this licence shall immediately determine without prejudice to any other remedies of the licensor and the licensee shall immediately cease his use of the rooms and the building as permitted hereunder.

22)  The licensee (occupier) declares that he is over 18 years old and understood this licence and found flat and shared parts, furniture and fittings all in good state of repair, tidy, clean and satisfactory.

23)  The real intention of the parties in all surrounding circumstances is to create this licence which is not coming under the Rent Acts and is binding as written.

24)  This licence represents the entire agreement of the parties and no oral or other agreements were made and no different explanations or representations were made and only agreements in writing will be legally binding.

25)  The licensee read and understood this licence and received copy and the licensee understands that all rooms and all parts of the dwelling will be shared and no exclusive possession of any part or the whole will be allowed to the licensees by the licensor under any circumstances.

       Schedule of furniture:

       1 Wardrobe, 1 Dressing table, 1 Double-bed with mattress and mattress cover, 1 Tablebed, 1 Electric Cooker, 1 Kitchen cabinet, 1 Fridge, 1 Sink unit, 1 Sinkheater, 1 Table, 4 chairs, 1 Bed settee, 1 Armchair, 1 Sideboard, 2 Double-bar Electric fires, 1 Bathroom suite, 1 Bath heater electric, Carpets, Lampshades, Bulbs, Curtains, Net curtains everywhere, 2 keys.

26)  Subject to clause 21 this licence may be terminated by one months notice in writing given by either party at any time and the licensor reserves the right of eviction without court order.

There was an addendum, which Mr Villiers signed on the same date and at the same time:

The undersigned Mr Villiers hereby agrees that the licence signed on the 9 2 1985 does not come under the Rent Acts and the flat is for single people sharing and if Mr Villiers marries any occupier of the flat then Mr Villiers will give notice and vacate the flat at 6 Whiteley Road, London SE19. The owner Mr Antoniades did not promise any other accommodation in any way. No person will have exclusive possession of above flat as agreed.

The documents signed by Miss Bridger were, save for her name, in identical terms.

7. The judge held that the main agreement was drawn up with the Court of Appeal decision in Somma v Hazelhurst [1978] 1 WLR 1014 in mind.* That is plainly so. When the terms of the present agreement are compared with those of the Somma agreement (see pp 1017 E - 1019 F of the report of that decision), it is plain that most of the terms of the present agreement have been closely modelled (subject to some modifications, additions and omissions) on the Somma agreement. The reason for this is obvious. The Court of Appeal held that the Somma agreements created licences not tenancies. That decision stood as good law when these agreements were made in February 1985. That was the result the landlord wanted to achieve. So he based his form of agreement on the Somma agreement to gain the protection of the Court of Appeal ruling, no doubt taking advantage of his daughter's legal knowledge.
8. A month after the landlord and the occupants signed these agreements, Street v Mountford [1985] AC 809 was argued before the House of Lords. In his leading speech delivered in May 1985, with which the other members of the House concurred, Lord Templeman stressed that the letting of residential accommodation with exclusive possession for a term at a rent ordinarily gives rise to a tenancy.
9. In Street v Mountford it was accepted by the landlord (Mr Street) that Mrs Mountford was entitled under her agreement to enjoy exclusive possession of the premises and the case was not complicated by the presence of other occupiers. But in the course of reviewing the authorities Lord Templeman said:

In Somma v Hazelhurst [1978] 1 WLR 1014, a young unmarried couple H and S occupied a double bedsitting room for which they paid a weekly rent. The landlord did not provide services or attendance and the couple were not lodgers but tenants enjoying exclusive possession. But the Court of Appeal did not ask themselves whether H and S were lodgers or tenants and did not draw the correct conclusion from the fact that H and S enjoyed exclusive possession. The Court of Appeal were diverted from the correct inquiries by the fact that the landlord obliged H and S to enter into separate agreements and reserved power to determine each agreement separately. The landlord also insisted that the room should not in form be let to either H or S or to both H and S but that each should sign an agreement to share the room in common with such other persons as the landlord might from time to time nominate. The sham nature of this obligation would have been only slightly more obvious if H and S had been married or if the room had been furnished with a double bed instead of two single beds. If the landlord had served notice on H to leave and had required S to share the room with a strange man, the notice would only have been a disguised notice to quit on both H and S. The room was let and taken as residential accommodation with exclusive possession in order that H and S might live together in undisturbed quasi-connubial bliss making weekly payments. The agreements signed by H and S constituted the grant to H and S jointly of exclusive possession at a rent for a term for the purposes for which the room was taken and the agreement therefore created a tenancy. Although the Rent Acts must not be allowed to alter or influence the construction of an agreement, the court should, in my opinion, be astute to detect and frustrate sham devices and artificial transactions whose only object is to disguise the grant of a tenancy and to evade the Rent Acts. I would disapprove of the decision in this case that H and S were only licensees and for the same reason would disapprove of the decision in Aldrington Garages Ltd v Fielder (1978) 37 P & CR 461 and Sturolson & Co v Weniz (1984) 72 EG 326.

10. Against that background of authority the learned judge considered the present case. He asked himself whether in truth this was a licence or a tenancy. He acknowledged Street v Mountford as the clear authority on the question whether an occupation is by virtue of a tenancy or a licence. He said that one of the essential features of a tenancy is exclusive possession. He referred to Lord Templeman as making it clear that the question of exclusive possession is a question of fact not necessarily to be determined by what is in an agreement between the parties. Then, according to the approved note of the judgment, which is no doubt a truncated version of what was actually said, the judge concluded:

Mr Antoniades insists he has made a Licence. House of Lords tell me to ignore the assertions in the document that it is a licence. What difference does it make here that this is a sharing agreement. It seems clear to me that apart from a few visits by Mr Antoniades no one shared with them during period of occupation, they had exclusive possession (Street v Mountford comments) (reads re Somma v Hazelhurst). Hold that these licences are artificial transactions designed to evade the Rent Acts. Finds that there is a tenancy - claim for possession dismissed.

11. Making (I hope) fair allowance for the abbreviated note of the judgment and for the circumstances in which the judgment was probably given, I none the less conclude that the judge has in this passage fallen into error:

(1) The House of Lords has not, I think, held that assertions in a document that it is a licence should be ignored. It has held that the true legal nature of a transaction is not to be altered by the description the parties choose to give it. A cat does not become a dog because the parties have agreed to call it a dog. But in deciding whether an animal is a cat or a dog the parties' agreement that it is a dog may not be entirely irrelevant.

(2) Court of Appeal authority since Street v Mountford shows that sharing agreements do raise rather different questions: see, for example, Hadjiloucas v Crean (1987) 284 EG 927.*

(3) The judge has, I think, overlooked the fundamental rule of construction that it is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made. Subsequent actions are therefore inadmissible except as evidence of a new agreement or as the basis of an estoppel, neither of which is suggested here: see Chitty on Contracts, 25th ed, vol 1, p 447, para 825.

(4) To stigmatise these agreements as 'artificial transactions designed to evade the Rent Acts' (unless this amounts to a finding that the agreements were a sham) is to leave unanswered the question whether they succeed in their object. The task of the court, where this issue arises, is to decide whether the owner has succeeded or not.

12. I do not, therefore, think that the judge's reasons are enough to support his decision. But that does not mean that his decision is wrong, still less that the contrary decision is right.
13. The broad approach to be adopted in resolving a question of this kind is, I think, well settled:

(1) The court should be astute to detect and frustrate sham devices and artificial transactions whose only object is to disguise the grant of a tenancy and to evade the Rent Acts (Street v Mountford at p 825H). The court has to be especially wary and especially careful to see that things like premiums are not being used to conceal payments of rent and so on (Aldrington Garages v Fielder (1978) 37 P & CR 461* at p 499 per Geoffrey Lane LJ as he then was).

*Also reported at (1978) 247 EG 557.

(2) A written agreement is a sham where it incorporates clauses by which neither party intends to be bound and which is obviously a smokescreen to cover the real intentions of both contracting parties (Hadjiloucas supra at p 929 per Purchas LJ). The accepted definition of a sham is that given by Diplock LJ, as he then was, in Snook v London & West Riding Investments Ltd [1967] 2 QB 786 at p 802C:

As regards the contention of the plaintiff that the transactions between himself, Auto Finance and the defendants were a 'sham', it is, I think, necessary to consider what if, any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the 'sham' which are intended by them to give to third parties or to the Court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities (see Yorkshire Railway Wagon Co v Maclure and Stoneleigh Finance Ltd v Phillips), that for acts or documents to be a 'sham', with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.

Put more shortly, a sham exists where the parties say one thing while really intending another (Donald v Baldwyn [1953] NZLR 313, at p 321 per F B Adams J).

(3) 'There is no reason why, if it is possible and properly done, agreements should not be entered into which do not fall within the Rent Acts, and the mere fact that those agreements may result in enhanced profits for the owners does not necessarily mean that the agreements should be construed as tenancies rather than as licences' (Aldrington Garages, supra, per Geoffrey Lane LJ at p 468); '. . . persons are entitled to arrange their affairs to their best advantage so long as the law allows it. That has long been the position in tax cases, and equally long been the position in landlord and tenant and Rent Acts cases' (ibid, per Roskill LJ, as he then was, at p 473). It is not a crime nor is it contrary to public policy for a property owner to license occupiers to occupy property on terms which do not give rise to a tenancy.

(4) The Rent Acts must not be allowed to alter or influence the construction of an agreement (Street v Mountford, supra at p 825G). As Buckley LJ said in Shell-Mex & BP Ltd v Manchester Garages Ltd [1971] 1 WLR 612 at p 619:

It may be that this is a device which has been adopted by the plaintiff company to avoid possible consequences of the Landlord and Tenant Act 1954, which would have affected a transaction being one of landlord and tenant; but, in my judgment, one cannot take that into account in the process of construing such a document to find out what the true nature of the transaction is.

14. (5) Where a written agreement made between the parties is held to be a sham, the task of the court is to identify and give effect to the true bargain between the parties which the written agreement was intended to conceal. Where a written agreement is not held to be a sham, the task of the court, as with any other agreement, is to construe it and give fair effect to its terms in the context of all relevant surrounding circumstances (Shellmex & BP, supra, at p 619; Aldrington Garages, supra, at pp 463, 467 and 473).
15. I am not quite sure whether the learned judge in this case intended to hold that the agreements were a sham. He describes them as 'artificial transactions designed to evade the Rent Acts', thus adopting part of Lord Templeman's language in Street v Mountford when he referred to 'sham devices and artificial transactions whose only object is to disguise the grant of a tenancy and to evade the Rent Acts'. I do not know whether the words omitted are significant or whether they simply represent a defect in the note of the judgment. What the judge said was undoubtedly true. The agreements certainly were the produce of considerable artifice. The landlord's object certainly was to give the occupants the rights of licensees and not the rights of tenants in order that the transaction should not be subject to the Rent Acts. But the words which the judge omitted - if he did omit them - are very significant because they involve a finding that what had in truth been granted was a tenancy, and such a finding is essential to the occupants unless the agreements themselves, properly construed, create a tenancy.
16. This last point can be disposed of shortly. The written agreements cannot possibly be construed as giving the occupants (jointly or severally) exclusive possession of the flat or any part of it. They stipulate with reiterated emphasis that the occupants shall not have exclusive possession. The lack of exclusive possession is fatal to any claim of tenancy. The occupiers can therefore succeed only by showing that the agreements were a sham. It may be that this is what the judge held, even though he did not use the word. Certainly it was the case expressly pleaded by the occupants.
17. Before us counsel for the occupants urged that the written agreements were a sham and that there was a joint tenancy granted to the occupants, each of whom was jointly and severally liable for the whole monthly payment of £ 174. He relied in particular on:

(1)  the conversation about the bed. (The landlord told us that there was already a double bed in the flat so that he had not had to put one in specially. There is no finding to this effect. We have no reason to disbelieve him. But I do not think it much matters.);

(2)  the fact that the occupants, a young man and a young woman, approached the landlord together, making it plain they intended to occupy the accommodation jointly;

(3)  the fact that the occupants attended to sign the documents together and that they signed identical documents.

18. If the issue had been whether the landlord appreciated that the occupants proposed to live together as husband and wife, no possible fault could be found with the judge's conclusion that he did. But that was not the issue. The issue was whether (the written agreements apart) the landlord agreed to give the occupants, jointly or severally, exclusive possession of the flat or any part of it. He plainly did not so agree in express terms. It is not suggested that he did. I do not think the facts relied on could be held to give rise to an implied agreement, particularly having regard to the facts (a) that the flat contained two rooms (apart from the kitchen and bathroom), (b) that there were two beds in the flat (apart from the double bed), and (c) that the landlord orally insisted on his right to put other people in.
19. The occupants' contention can be tested by considering two hypothetical situations:

(1) Suppose that the occupants had quarrelled and one had left the flat. Suppose further that the landlord had sought payment of the full monthly rent of £ 174 from the survivor and that that claim had been resisted. It seems to me that any court would have been bound to uphold the survivor's plea that he or she had agreed to pay £ 87 monthly in advance and not a penny more.

(2) Suppose that the landlord had proposed to introduce a third occupant into the flat to occupy a bed in the bed-sitting room. Suppose further that the occupants had moved for an injunction to restrain him on the ground that such conduct would be a breach of the agreement between them. Would they have succeeded? In my view they plainly would not. The written agreements gave him that right. I do not see how the occupants could begin to show any contrary agreement on his part.

20. If the written agreements are to be discarded as a sham, it must be shown not only that the occupants intended to enjoy a right to exclusive possession but also that the landlord shared that intention. In my view, he plainly did not. He was determined that they should not enjoy that right. Doubtless his determination was conditioned by his desire that the relationship between himself and the occupants should not be governed by the Rent Acts, but that consideration must
    be understood as fortifying rather than undermining his intention that the occupants should have no right to exclusive possession.
21. If, as the House of Lords held in Street v Mountford (at p 825F), and the Court of Appeal in Hadjiloucas (at p 929) agreed, the agreements in Somma v Hazelhurst were an obvious sham, I was at first inclined to think that the same result must follow here. But there are significant differences. Somma concerned a single room with two beds in it. In that situation the right reserved by Miss Somma to use the room herself (in addition to the two licensees) could well be regarded as physically impracticable. Here there was a bed-sitting room and two beds in addition to the double bed and the bedroom which the occupants used. The introduction of an additional sharer would not have been physically impracticable, as the sojourn of the occupants' guest (however uncomfortably) shows. The landlord in argument drew attention to various differences in the agreements: for example, he pointed out that his clause 16 (unlike Somma clause 19) contained no limit on the number of licensees; he relied on his clause 24, which had no parallel in the Somma agreement; and he relied on his clause 25, which had no exact parallel in the Somma agreement. He also relied on the marriage agreement (the public policy implications of which we were not asked to consider). I do not, however, think that these textual points are of major significance. But the facts found by the judge did not, in my judgment, justify him in finding, if he did find, that these agreements were a sham designed to disguise or conceal the true bargain between the parties.
22. It follows that, in my judgment, the landlord should have obtained an order for possession. I would accordingly allow the appeal, set aside the judge's order and make an order that the occupants give up possession of the flat in 28 days from today.
23. This order will affect the sum payable by the occupants to the landlord as at the date of the judge's order. I invite the parties to tell us what sum was properly payable in the light of this judgment.
24. The landlord complained that the learned judge had not made an order in his favour for payment of interest on the sum in court which was ordered to be paid out to him. I do not know the reason for the judge's decision, but I am not prepared to assume that he exercised his discretion wrongly and I would not therefore disturb his order. The landlord may address us concerning interest on any additional sum which may now be payable to him.
25. The landlord complained of the judge's order concerning costs, but this was not raised in the notice of appeal and I can see nothing whatever wrong with the order made in the light of the judge's decision as it stood.
26. Agreeing that the appeal should be allowed, MANN LJ said: I gratefully adopt and endorse the statement of the facts which are relevant to this appeal contained in the judgment of Bingham LJ.
27. The issue in the appeal is simply stated. The appellant contends that the respondents are each licensees of the top flat at 6 Whiteley Road, London SE19. The respondents contend that they are joint (and protected) tenants of that flat with a joint and several liability to pay the rent. His Honour Judge Macnair decided in favour of the respondents' contention. The approved note of his judgment leaves me in doubt as to the basis or bases of his decision. The relevant passage is as follows:

House of Lords tell me to ignore the assertions in the document that it is a licence. What difference does it make here that this is a sharing agreement. It seems clear to me that apart from a few visits by Mr Antoniades no one shared with them during period of occupation, they had exclusive possession . . . Hold that these licences are artificial transactions designed to evade the Rent Acts. Finds that there is a tenancy . . .

If the consequence in law of a transaction is the avoidance of the application of the Rent Acts, then that is not a ground on which the transaction can be flawed (see Shell-Mex & BP Ltd v Manchester Garages Ltd [1971] 1 WLR 612 at p 619). Accordingly, if, and I emphasise 'if', the learned judge based his decision on a design to avoid the application of the Rent Acts, then that basis could not be sustained. A licence to occupy is as legitimate as the grant of exclusive possession.

28. The critical question in any case must be what is the transaction? The judge had before him the two licences of February 9 1985 and regarded the House of Lords' decision in Street v Mountford [1985] AC 809 as directing him to ignore the assertions in the documents that they were licences. He seems to have regarded himself as subject to such a direction because the documents were modelled upon the documents which this court in Somma v Hazelhurst [1987] 1 WLR 1014 had decided to be licences but which decision was disapproved in Street v Mountford at p 825H. The disapproval was because the arrangements between the owner of the single room and the unmarried but cohabiting couple, whereby each licensee was obliged to share with such other person as the owner might nominate, demonstrated that the arrangement was a sham to disguise the conferment of exclusive possession upon the licensees 'in order that H and S might live together in undisturbed quasi-connubial bliss' ([1985] AC at p 825G).
29. Mr James Harris for the respondents submitted that the transactions here were a sham to disguise the conferment of a joint tenancy (ie of a right of exclusive possession), and that the learned judge had so found. There are two important passages in the authorities which deal with 'sham'. In Snook v London & West Riding Investments Ltd [1967] 2 QB 786 at p 802C, Diplock LJ, as he then was, said:

As regards the contentions of the plaintiff that the transactions between himself, Auto Finance and the defendants were a 'sham', it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the 'sham' which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities (see Yorkshire Railway Wagon Co v Maclure and Stoneleigh Finance Ltd v Phillips) that for acts or documents to be a 'sham', with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.

30. In Hadjiloucas v Crean (1987) 284 EG 927 at p 931* Mustill LJ said:

By way of preface it is necessary to distinguish between three situations in which, aside from any question of rectification, the court may take an agreement otherwise than at its face value. The first exists where the surrounding circumstances show that the arrangement between the parties was never intended to create any legally enforceable obligation. The second is the case of the 'sham', in the sense in which that word has been used in numerous cases, including Snook v London & West Riding Investments Ltd [1967] 2 QB 786, 802. Correctly employed, this term denotes an agreement or series of agreements which deliberately are so expressed with the object of deceiving third parties as to the true nature and effect of the legal relations between the parties. The third situation is one in which the document does precisely reflect the true agreement between the parties but where the language of the document (and in particular its title or description) superficially indicates that it falls into one legal category, whereas when properly analysed in the light of the surrounding circumstances it can be seen to fall into another.

31. I suspect that Mr Harris would have suggested, had he not been economic in the citation of authority, that the instant case was an example of Mustill LJ's second situation. I suspect that he would probably say the same of Somma v Hazelhurst and Street v Mountford. If my suspicions are correct, then I would agree with him. Whether or not a case is a second situation is a question of fact. In Street v Mountford there was a concession that exclusive possession had been conferred; in Somma v Hazelhurst the inference was irresistible from the surrounding circumstances at the time of the arrangements. That the matter is one of fact is to be derived from the speech of Lord Templeman in Street v Mountford at p 826H and from the judgment of O'Connor LJ in Brooker Settled Estates Ltd v Ayers (1987) 19 HLR 246† at p 252 and of Purchas and Mustill LJJ in Hadjiloucas v Crean at pp 930 and 932.
32. I regret that I do not think the learned judge addressed himself to the factual question of whether the apparent corresponded to the real. He seems rather to have assumed that the condemnation of the arrangements in Somma v Hazelhurst was fatal to the appellant's cause regardless of any difference in the factual matrix. He also seems to have had regard to the fact that the respondents' enjoyment of the flat was not in the event disturbed by the appellant or by any other licensee. However, subsequent conduct, or its absence, cannot assist in the identification of the terms of a transaction.
33. I cannot, with respect to him, sustain the learned judge's decision on any basis which I can identify. What then is to be done? To remit the matter for a fresh hearing would not reveal any novelty, for none was suggested. In my judgment, on the evidence which we have before us, there was here no sham. The real transaction corresponded with the apparent transaction which the parties voluntarily entered into. There was here neither concession of exclusive occupation nor inference to be drawn from the grant of one twin-bedded room. Here was a flat with beds in separate rooms; a table, bed and a bed-settee could have been occupied without embarrassment to the two licensees in their separate double-bedded room. Indeed a friend of the respondent ('Angela') did sleep on the bed-settee for a time, albeit in a cramped condition but with the consent of the appellant.
34. I would allow this appeal and hold that the respondents were each licensees of the premises and that their licences were each effectively determined by notices in writing dated July 7 1986. I agree with the orders proposed by Bingham LJ.
35. Mr Antoniades asserts that he has a claim in respect of the general rate and water rate. No such claim is before the court and I say nothing about it.

The appeal was allowed with costs, not to be enforced without leave of the court. Possession to be given in 28 days, but stay of execution ordered pending application for leave to appeal to the House of Lords. Legal aid taxation of the defendants' costs ordered.

The electronic text of this judgment was provided by Estates Gazette, whose assistance is gratefully acknowledged.