England and Wales Lands Tribunal

[2002] EWLands ACQ_29_2001 (31 May 2002)

ACQ/29/2001

LANDS TRIBUNAL ACT 1949

Accounts for assessment of profits on extinguishment of business – Method of conducting business said to be in breach of covenant – Meaning of "sharing possession or occupation" in alienation clause in lease.

IN THE MATTER of a NOTICE OF REFERENCE

BETWEEN MEAN FIDDLER HOLDINGS LTD Claimant

and

LONDON BOROUGH OF ISLINGTON Compensating

Authority

Re: 1a & 1-5 Parkfield Street

Islington

London N1

Before: His Honour Judge Michael Rich QC

Sitting at 48/49 Chancery Lane, London WC2A 1JR

on 29 and 30 May 2002

The following cases are referred to in this decision:

Graysim Holdings Ltd v P & O Property Holdings Ltd [1996] AC 329

Jackson v Simons [1923] 1 Ch. 373

Tulapam Properties v De Almeida [1981] 2 EGLR 55

Wheat v E Lacon & Co Ltd [1966] AC 552

Kim Lewison QC, instructed by Hodders for the Claimant

Jonathan Gaunt QC, instructed by Nabarro Nathanson for the Acquiring Authority


 


DECISION ON PRELIMINARY ISSUE

Issue for determination

1. On 19 February 2002, the Tribunal (Mr Norman Rose FRICS) directed a preliminary hearing of three questions which arose in the reference by the claimant of its claim for compensation on the extinguishment of its business of a night club carried on at premises acquired by the acquiring authority under the London Borough of Islington (Parkfield Street Phase II) Compulsory Purchase Order 1998. By virtue of a General Vesting Declaration the claimant's leasehold interest became vested in the authority on 6 December 1999 and the premises were closed shortly thereafter and the business could not be relocated.
2. For the purpose of assessing compensation, evidence was adduced as to the profits made and likely to be made by the claimant at the premises. A report prepared by accountants for the claimant recorded that

"1.2 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.

1.3 Once the change in operating style was implemented the venue began to generate significant revenue, which in turn improved profitability…"

The authority challenged the relevance of such improved profitability on the ground that, as they alleged, the change in operating style, as the accountants called it, involved a breach of the alienation covenant contained in the claimant's lease.

3. In these circumstances Mr Rose directed

"The following three questions to form an issue to be disposed of 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 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."

I was appointed to determine the preliminary issues, but, by agreement with Mr Rose and with the parties, it has been agreed that question (c) should be determined as part of the main hearing by Mr Rose.

4. The acquiring authority wished to adduce evidence on question (b) in respect of which it had failed to serve witness statements within the time limited by Mr Rose's directions. In those circumstances I agreed to determine question (a) alone, adjourning question (b) until after I had issued an interim decision on question (a). If thereafter the parties wish me to determine question (b) I will give further directions accordingly.

Facts

5. The authority failed to respond to a draft statement of facts prepared by the claimant. Accordingly no agreed statement of facts relating to the preliminary issues was lodged in accordance with Mr Rose's direction. Counsel have nevertheless agreed a statement of facts relating to question (a), It recites at paragraph 5, the covenant which the authority alleges was broken by the method of operation adopted by the claimant. The method of operation is itself described in paragraphs 9 and 12 of the statement.
6. This statement was prepared and agreed after the conclusion of the evidence called on behalf of the claimant. No evidence was called on behalf of the acquiring authority and the agreed statement appears to me sufficiently to set out the effect of the evidence given in witness statements and in cross-examination, for it to be unnecessary for me to find other facts. I do however record that Mr Lewison QC for the claimant emphasised the claimant's exclusive responsibility for security and access, including sole responsibility for the admission of "clubbers" (that is the paying public) and for hygiene and safety. Mr Gaunt QC for the authority, emphasised that when events were promoted by an external promoter, as was the predominant practice in 1999, the claimant hired out the package of the venue and services and it was promoter who was exclusively responsible for attracting clientèle and for all the creative aspects of the event, even if sound and lighting equipment were operated by the claimant's employees.

Analysis of covenant

7. Mr Gaunt does not allege that the arrangements described amounted to assigning, transferring, charging, underletting or parting with possession of the whole of the property [which would be the subject of a separate covenant from that recited] nor of part. Attention has therefore been concentrated exclusively on the covenant not to

"(1) part with or share the possession or occupation of part only of the Property …

(2) [not to] permit [or] suffer any 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 …"

As will be apparent from the Agreed Statement, I have in identifying these phrases from clause 2(23)(a) of the lease sought to identify the relevant parts of the covenant relied upon by the authority and inserted numbers, which I find convenient for the purposes of reference.

8. It is accepted on both sides that "possession" in its proper legal sense cannot be shared. If covenant (1) prohibits sharing possession, it is, in strict legal language, an oxymoron. As Sir Douglas Frank QC in construing in Tulapam Properties Limited v De Almeida and Others [1981] 2 EGLR 55, a covenant against parting with or sharing possession without reference to occupation, observed at p.56A.

"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."

He went on however to say that "possession also has a broader popular meaning, and it means the sharing of use or occupation". Thus in my judgment he construed sharing possession as meaning the same as sharing occupation. It is right of course that he referred to "use", but this was not, I think the result of analysis of the meaning of the words, but rather a description of the subject matter of the complaint, whose effect he had to consider.

9. In Jackson v Simons [1923] 1 Ch 373, the covenant under consideration was, as in the subject lease, not to "part with or share the possession or occupation". It was admitted, and apparently accepted by the Court, that the use of a ground floor shop between the hours of 10.30 and 2 am for the sale of tickets to a night club in the basement, amounted to a sharing of possession of the shop. No attention was given to the word "occupation". In that case

"the part so used was the front of the shop, entered through the front door, and was partitioned off from the counter and the rest of the shop by a movable screen erected every evening and removed the following morning when the shop reopened…"

I can understand why, where the space was thus partitioned, it might well be thought that sharing possession was a more apt concept than sharing occupation: "possession" has a clearer connotation of control than does occupation, and the presence on the property of the sharers was not simultaneous, so that their sharing was more that of Box and Cox than direct mixing of occupations. Nevertheless, I doubt that occupation can sensibly be distinguished from possession in that broader popular meaning, which must be given to that word in order to give the concept of sharing possession meaning. At most it may extend and broaden the concept of occupation, but in my understanding the concept of occupation, in at least some aspects of its meaning, for example military, involves the taking of possession. Possession may not be necessary to occupation, but I think it is included within it.

10. Although a covenant not to part with or share possession or occupation is by no means unknown in leases, as the Jackson case illustrates, I think careful analysis shows it to be either tautologous or to involve misplacing the verbs. Just as in a strict sense possession cannot be shared, so also, in any ordinary English usage I do not think that occupation can be parted with. The concept of parting with something is applicable to a right or an object not to a state of affairs. When I note that covenant (2) as I have set it out, is clearly repetitious of the covenant not to part with, if that is possible, or share occupation, I conclude that the words of this covenant are not necessarily each to be given a separate and distinct meaning. The draftsman has used words inaptly and repetitiously for emphasis. The covenant against sharing means no more than what is spelt out distinctly in the words of covenant (2). In my judgment the requirements of covenant (1), will, at least for present purposes, be sufficiently expressed as a prohibition against parting with possession, or sharing occupation.
11. Mr Gaunt accepts that the claimant remained in occupation of the whole property notwithstanding the presence of external promoters on the property. That is why the allegation of breach has been put in terms of sharing "possession or occupation". If one construes those words as I have propounded, the issue for the Tribunal is whether an external promoter promoting an event in the manner set out in the agreed statement, is properly to be described as himself occupying the property or part of it, even though not exclusively, and even in the extended meaning I have advanced in paragraph 9 of this decision, but which meaning I now turn to consider further.

Meaning of occupation

12. The difficulty of establishing any simple criteria for answering that question is explained in the course of the speech of Lord Nicholls in Graysim Holdings Ltd v P & O Property Holdings Ltd[1996] 1 AC 329, when he said at p.337G:

"As has been said on many occasions, the concept of occupation is not a legal term of art, with one single and precise legal meaning applicable in all circumstances. Its meaning varies according to the subject matter. Like most ordinary English words "occupied", and corresponding expressions such as occupier and occupation, have different shades of meaning according to the context in which they are being used. Their meaning in the context of the Rent Acts, for instance, is not in all respects the same as in the context of the Occupiers' Liability Act 1957.

This is not surprising. In many factual situations questions of occupation will attract the same answer, whatever the context. A tenant living alone in a detached house under a residential lease would be regarded as the sole occupier of the house. It would need an unusual context to point to any other answer. But the answer in situations which are not so clear cut is affected by the purpose for which the concept of occupation is being used. In such situations the purpose for which the distinction between occupation and non-occupation is being drawn, and the consequences flowing from the presence or absence of occupation, will throw light on what sort of activities are or are not to be regarded as occupation in the particular context."

Graysim was concerned with occupation of an enclosed market hall, in which 35 individual stalls were let out, for the purposes of the Landlord and Tenant Act 1954. As the House of Lords held, there could not be more than one occupier of the same holding for the purposes of that Act. The decision is therefore of no direct assistance in considering whether a promoter is sharing occupation or is not, in circumstances where the claimant is admitted to be occupying, to be treated as also occupying for the purposes of this covenant.

13. Although, as the House of Lords held in Wheat v E Lacon & Co Ltd [1966] AC 552, there can be more than one occupier of the same premises for the purpose of the Occupiers Liability Act, 1957, the context of that Act is clearly not directly relevant to the context of the covenant in this lease. The definition of occupier by reference to context is well illustrated by what Lord Denning said at p.578F of that report.

"In Salmond on Torts, 14^th ed. (1965) p.372, it is said that an 'occupier' is 'he who has the immediate supervision and control and the power of permitting or prohibiting the entry of other persons'. This definition was adopted by Roxburgh J in Hartwell v Grayson, Rollo and Clover Docks Ltd and by Diplock LJ in the present case. There is no doubt that a person who fulfils that test is an 'occupier.' He is the person who says 'come in.' But I think that test is too narrow by far. There are other people who are 'occupiers,' even though they do not say 'come in.' If a person has any degree of control over the state of the premises it is enough."

14. The context of this covenant is agreed to require a more stringent test than mere physical presence. Mr Gaunt accepts that the 'clubber' who pays for admission is not an occupier for the purposes of the covenant. To construe the covenant otherwise would defeat the purpose of a demise which, even when originally granted, was for a snooker or social club. This exemption is not dependent on the clubbers' not having the exclusive use of any part of the premises, otherwise when a tenant permitted him to display an "occupied" sign on the outside of a w.c. cubicle, he would be in breach of covenant. Nor Mr Gaunt agrees, is it merely because of the transience of the occupation. Many clubbers would attend as long and as regularly as their favourite promoter. It depends on the proper understanding of the word "occupy", in the context of an alienation clause.
15. Mr Lewison says that such clause is concerned to prevent property being vested in or controlled by someone whom the landlord has not approved. Mr Gaunt says rightly that the word used is not control but occupation, but he then also puts a gloss on occupation by identifying the test as being concerned with restricting the persons operating a business from the premises. That he acknowledges is equally a gloss, and it leads to difficult distinctions in the case of a building firm coming on to the premises to effect repairs or redecoration in the course of their business, or a band leader hiring out his band to the tenant for the purposes of an event, in the course of his business. Mr Gaunt acknowledged that in neither case would he contend that the tenant was sharing occupation, but if not, then physical presence for the purpose of the third parties' business does not necessarily involve sharing occupation.
16. Mr Gaunt suggested that a promoter can be seen to occupy because he pays to do so: he hires the premises. This cannot however be a sufficient test, otherwise the "Clubber" would be an occupier. Nor is it a clear test, at least in this case, because it is the claimant who sells the tickets and takes the money at the box office. The money is then paid to the promoter after deduction of the claimant's share, usually a flat fee. Which party is paying which, is really a matter of semantics, or perspective: since the money belongs to the claimant who sells the tickets, it is not really accurate to portray the transaction as being a payment by the promoter. The only circumstances in which the promoter would pay out of his own money would be if, as has not, so far as the evidence goes, ever happened, the box office takings did not reach the promoter's guaranteed fee.
17. Mr Gaunt found himself therefore relying upon the promoters' share of the business, or share of the control of the business. A test of that kind was considered in the course of argument by both counsel, against different hypothetical factual situations: concessionaires in a department store, business conferences in a hotel or front of house concessions in the theatre. Although there was some overlap as to how each counsel would classify each such situation, such consideration did not lead to any obvious test of occupation in the context of such a covenant as that which I have to construe. I do not therefore think it necessary to consider how I would classify such situations. It would I think depend on the precise facts of the third party's presence and the purpose of the letting to the tenant. That itself would be derived from the lease in which the covenant was contained, and so the whole lease would provide the context for the determination of the meaning of the words in the particular situation.
18. I prefer to consider the extreme cases rather than other hypothetical border-line cases. Certain kinds of presence by third parties most clearly are not to be treated as occupation: the clubber in a night club, the hotel guest in a hotel are examples. Certain kind 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 night club 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.

Conclusion

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 was 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. 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 claimants 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 claimants arrangements with its external promoters did not involve a sharing of occupation or any other breach of clause 2(23)(a) of the lease.
20. On this conclusion, it is agreed that the costs of the preliminary hearing should follow the event, and the claimant should have such costs to be the subject of detailed assessment by the registrar, if not agreed.
21. It is further agreed that the parties should seek to agree directions for the substantive trial, and submit them in writing, for the approval of Mr Rose, within 14 days of the receipt of this decision.

Dated 31 May 2002

(Signed) His Honour Judge Michael Rich QC

APPENDIX

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AGREED STATEMENT OF FACTS

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22. The subject property (now demolished) was situated at la and 1-5 Parkfleld Street, Islington. London, N1 ("the Property'). The Property comprised a building with a basement, ground floor and three upper floors. The net internal floor area (disregarding the lift and stairs) was approximately 13,415 square feet.
23. The Property had been demised by a Lease dated 6 March 1984 for a term of 35 years from 25 December 1983 at an initial annual rent (subject to review) of £19,000 ("the Lease"). The leasehold title had been registered at HM Land Registry under Title No. NGL536944.
24. The original landlord was The Teachers Assurance Co. Ltd and the original tenant was Robinson Enterprises (Islington) Ltd.
25. The Lease contained a covenant by the tenant (clause 2(19)) not to use the property or any part thereof otherwise than as a licensed snooker and social club and, as regards part of the ground floor edged green on plan A of the Lease, as an amusement arcade.
26. The Lease contained a covenant by the tenant (clause 2(23)(a)) "... 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."
27. By a Licence dated 29 December 1995, the original landlord consented to the Lease being varied and assigned to the Claimant for the residue of the term.
28. By clause 7 of the Licence, clause 2(19) of the Lease was deleted and replaced with a new covenant by the Claimant "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 1987.
29. The Lease was assigned to the Claimant on 28 February 1996. It was then fitted out and from March 1996 it was operated by the Claimant as a nightclub known as The Complex.
30. The Complex nightclub was operated by the Claimant at the Property in the following manner throughout the whole period of its ownership:

(a) The Claimant engaged and paid a manager with overall responsibility for management.

(b) Keys to the Property and security and alarm codes were provided to the manager (or his deputy if absent) and to no-one else.

(c) The Claimant engaged and paid personnel to control access to the Property, manage any disturbances, evict any troublemakers and generally, provide security.

(d) The Claimant engaged and paid personnel to control and operate the box office at the Property.

(e) The Claimant engaged and paid personnel to control and operate the cloakrooms at the Property. All cloakroom takings were retained by the Claimant.

(f) The Claimant engaged and paid personnel to clean the Property.

(g) The Claimant engaged and paid personnel to control and operate the three bars at the Property. All bar purchases were made by the Claimant and all bar takings and profits were retained by the Claimant. The Claimant traded at the Property with the benefit of a Justices Full On Licence and complied with its requirements.

(h) The Claimant engaged and paid personnel to control and operate the sophisticated lighting systems and sound systems at the Property.

(i) The Claimant traded at the Property with the benefit of a Music and Dance Licence and complied with its requirements.

(j) The Claimant was responsible for complying with and did comply with all health and safety requirements in respect of the Property. This included ensuring that the maximum number of visitors (720) was not exceeded and that adequate fire exits were provided and maintained.

(k) The Claimant hired cigarette vending machines, condom vending machines, video and arcade games and telephones for the Property. All takings from these machines were retained by the Claimant.

(1) The Claimant was responsible for paying and paid all bills for utilities, telephones, rent and rates at the Property.

(m) The Claimant was responsible for decorating, equipping, repairing and maintaining the Property and did so.

(n) The Claimant was responsible for paying all of the public and property liability insurance, buildings insurance and terrorism insurance.

(o) None of the above responsibilities was shared by the Claimant with any other person.

31. Music at The Complex nightclub was provided by artistes pursuant to two different types of contractual arrangement. Namely (a) by a contract between the Claimant and an artiste and (b) by a contract between the Claimant and a promoter. Although both types of contract were in use prior to 1999, the former type predominated in the early years and the latter type predominated in the later years and was overwhelmingly predominant after 1998.
32. Where the contract was between the Claimant and the artiste, the following arrangements were made:

(a) The artiste, who may have been an individual musician, a group of musicians or a disc jockey, was booked to perform on a particular night.

(b) 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 artistes.

(c) Artistes were not provided with keys or access to any private parts of the nightclub nor did they have access to behind the bars.

(d) Artistes were paid a fee directly by the Claimant.

(e) The Claimant was responsible for advertising and promoting the appearance of the artiste on that night at The Complex.

(f) The Claimant set the admission charge and retained all box office takings for that night at The Complex.

33. 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 D.J.'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.

34. When The Complex first opened in 1996, it operated on a regular basis only on two nights per week, Friday and Saturday. As it became better known, it was able to open on a fairly regular basis on Thursday and on Sundays before Bank Holidays as occasion demanded.