United Kingdom House of Lords Decisions

Bruton v. London and Quadrant Housing Trust [1999] UKHL 26; [2000] 1 AC 406; [1999] 3 All ER 481 (24th June, 1999)

LORD SLYNN OF HADLEY

My Lords,

    I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Hoffmann in which he has referred to the facts, the statutory provisions and the relevant authorities.

    Although the agreement between Mr. Bruton and the Housing Trust is described as a licence and, since the Trust itself had only a licence it may have been intended to be only a licence, on the basis of Street v. Mountford [1985] AC 809 and Westminster City Council v. Clarke [1992] A.C. 288, it is clear that the agreement gives a right to exclusive possession and prima facie is a tenancy.

    The only doubt I have had is as to whether, as Street v. Mountford contemplated to be possible, this prima facie conclusion is displaced by other relevant factors, what in Street v. Mountford are called "surrounding circumstances." The surrounding circumstances relied on here spring from the essential function of the Housing Trust in providing accommodation for the homeless and to that end to maintain a stock of housing over which it has maximum control, which a licence rather than a tenancy might be more likely to give.

    I am, however, satisfied that the judgment of Slade L.J. in Family Association v. Jones [1990] 1 W.L.R. 779 was correct although I share his anxiety about the impact of such a result on the Housing Trust. There were, it follows, in this case no special circumstances to displace the general rule.

    Accordingly, for the reasons given by Lord Hoffmann, I agree that this appeal could be allowed.

LORD JAUNCEY OF TULLICHETTLE

My Lords,

    The respondents are a charitable Housing Trust one of whose purposes is to provide short term accommodation for the homeless. The Trust has the use of a block of flats owned by Lambeth Borough Council pursuant to a license agreement with that council of 27 March 1986 which provided that no grant of an estate or other proprietary interest was thereby conferred and that the subjects should be used to provide temporary accommodation for homeless persons. It is not disputed that by reason of section 32(3) of the Housing Act 1985 the council would have had no power to make such a grant. The Trust's use of the subjects was accordingly in the capacity of licensees.

    On 31 January 1989 the Trust entered into an agreement with the appellant which stated that occupation of a flat in the block was being offered to him on a weekly license from 6 February 1989 and that the Trust had the property on license from the council. I need not condescend further on the relevant terms of the agreement which have been fully set out in the speech by my noble and learned friend Lord Hoffmann. I do not doubt that both parties to the agreement were under the impression and indeed intended that the legal consequences of the agreement should be those of a license. A not unreasonable intention given that the Trust's only interest in the subject was that of a licensee. However, the issue in this appeal is whether that professed intention was achieved or whether the legal consequences of the agreement amounted to a tenancy bringing into operation section 11 of The Landlord and Tenant Act 1985.

    In Street v. Mountford [1985] AC 809 this House decided that where residential accommodation is granted for a term, at a rent with exclusive possession, the Landlord providing neither attention nor services, the grant is a tenancy notwithstanding the fact that the agreement professes an intention by both parties to create a mere licence. It is the legal consequences of the agreement which is determinative rather than the label which parties have chosen to attach to it. In this case the Trust granted exclusive possession to the appellant, a fact which is fortified rather than detracted from by the reservation of rights of access by the Trust and the council for limited purposes (Street v. Mountford, Lord Templeman at p. 818). Prima facie therefore the agreement constituted a tenancy. This notwithstanding the fact that the Trust had only a limited interest in the subjects.

    However it remains to consider whether notwithstanding the apparent grant of a tenancy there exist special circumstances which are capable of negativing this result (Street v. Mountford, Lord Templeman at p. 822). Mr. Henderson Q.C. argued that the fact that the Trust was a responsible charitable organisation performing important social functions and that it was merely a licensee of the subjects, inhibited by the terms of that licence from granting tenancies, amounted to such special circumstances. My Lords in Family Housing Association v. Jones [1990] 1 W.L.R. 779, where the facts were very similar to those in this case, the association as licensee of a local authority granted what was described as a licence to the defendant to occupy premises on a temporary basis. Following Street v. Mountford [1985] AC 809, the Court of Appeal held that the agreement constituted a tenancy and Slade L.J. at p. 793 rejected the argument that there existed special circumstances whereby the defendant, albeit in exclusive possession of the premises, was not a tenant. In my view Slade L.J's rejection was correct and his reasoning equally applicable to the present case. In the absence of any exceptional circumstances it follows that the agreement between the Trust and the appellant constituted a tenancy to which section 11 of the Landlord and Tenant Act 1985 applied and that the appeal should be allowed.

     I have one further matter to mention. In Family Housing Association v. Jones, Slade L.J. at p. 793 observed in relation to the argument as to existence of special circumstances:

  "The argument which we have heard suggests to me that, whatever their wishes or intentions, it may at least be difficult for bodies charged with responsibilities for the housing of the homeless to enter into any arrangement pursuant to section 65(2) of the Housing Act 1985 under which the person housed is to enjoy exclusive occupation of premises, however temporarily, without conferring on that person security of tenure by virtue of the Act. . . .

  "The result must be substantially to reduce the choice of methods available to bodies such as the housing association for dealing with their always limited supplies of housing stock. I am not sure that this result will necessarily inure to the benefit of the class of homeless persons in this country viewed as a whole. These are the reasons for the misgivings expressed at the start of this judgment."

    In his dissenting judgment in the Court of Appeal in this case Sir Brian Neill expressed his regret at his inability to distinguish Family Housing Association v. Jones [1990] 1 W.L.R. 779. Regret, no doubt, stemming from Slade L.J.'s comments on the consequences of his rejection of the special circumstances argument. My Lords, I share Slade L.J.'s misgivings for the reasons he states and Sir Brian Neill's regrets. 

LORD HOFFMANN

My Lords,

    The question in this appeal is whether Mr. Bruton has a tenancy of a flat in Brixton. He occupies the flat under an agreement dated 31 January 1989 with the London and Quadrant Housing Trust ("the Trust"). The Trust is a charitable housing trust which, among other things, provides short-term accommodation for the homeless and others in need of housing. The question arose because Mr. Bruton claims that the Trust is in breach of the implied repairing obligations contained in section 11 of the Landlord and Tenant Act 1985. Section 13 provides that these are to apply to "a lease of a dwelling house granted on or after October 1961 for a term of less than seven years." Section 36(1) provides that "lease" and "tenancy" are to have the same meaning. But the Trust denies that it granted a tenancy. It says that the agreement created only a licence to use the flat. When Mr. Bruton brought proceedings in the Lambeth County Court to enforce the implied covenants, it served a notice to quit and claimed a declaration that Mr. Bruton had no statutory security of tenure because he was only a licensee. His Honour Judge James directed the trial of a preliminary issue as to whether Mr. Bruton was a tenant or licensee. After hearing evidence he declared that he was a licensee. The Court of Appeal [1998] Q.B. 834 (Kennedy and Millett L.JJ, Sir Brian Neill dissenting) affirmed his judgment. Mr. Bruton appeals to your Lordships' House.

    The flat is in a block belonging to the London Borough of Lambeth ("the council"). It acquired the block in 1975 for housing purposes by the use of compulsory powers contained in provisions which have now been consolidated in Part II (Provision of Housing Accommodation) of the Housing Act 1985. The council intended to demolish the block and build new houses or flats on the site. But the scheme was delayed. On 27 March 1986 it entered into an agreement with the Trust by which it permitted the Trust to use the premises in furtherance of its charitable housing objects. The agreement was called a Licence and it is agreed that it was not a grant of an estate or other proprietary interest in the premises. Section 32 of the Act of 1985 limits the powers of a local authority to dispose of land held for the purposes of Part II of the Act. By subsection (3) the local authority may let the land under a secure tenancy to a residential occupier but cannot otherwise dispose of any interest without the consent of the Secretary of State. It would therefore have been ultra vires for the council to have granted the Trust any estate or other proprietary interest in the premises.

    The agreement between the Trust and Mr. Bruton read as follows:

 "Occupation of Short-Life Accommodation at 2 Oval House, Rushcroft Road, SW2 on a temporary basis.     "As has been explained to you, the above property is being offered to you by [the Trust] on a weekly Licence from 6 February 1989. The Trust has the property on licence from [the council] who acquired the property for development. . . and pending this development, it is being used to provide temporary housing accommodation. It is offered to you on the condition that you will vacate upon receiving reasonable notice from the Trust, which will not normally be less than four weeks. You understand and agree that while you are living in the property, you will allow access at all times during normal working hours to the staff of the Trust, the owners and agents for all purposes connected with the work of the Trust."

    Conditions were attached, including the following clause by which Mr. Bruton agreed -

 "To permit the Trust or its agents, surveyors or consultants to enter the property for the purpose of inspecting the state of repair and cleanliness of the property or any purpose connected at all reasonable hours of the day."

    In return for the right to occupy the flat, Mr. Bruton agreed to pay £18 a week. Since then, the development scheme has been abandoned.

    Did this agreement create a "lease" or "tenancy" within the meaning of the Landlord and Tenant Act 1985 or any other legislation which refers to a lease or tenancy? The decision of this House in Street v. Mountford [1985] AC 809 is authority for the proposition that a "lease" or "tenancy" is a contractually binding agreement, not referable to any other relationship between the parties, by which one person gives another the right to exclusive occupation of land for a fixed or renewable period or periods of time, usually in return for a periodic payment in money. An agreement having these characteristics creates a relationship of landlord and tenant to which the common law or statute may then attach various incidents. The fact that the parties use language more appropriate to a different kind of agreement, such as a licence, is irrelevant if upon its true construction it has the identifying characteristics of a lease. The meaning of the agreement, for example, as to the extent of the possession which it grants, depend upon the intention of the parties, objectively ascertained by reference to the language and relevant background. The decision of your Lordships' House in Westminster City Council v. Clarke [1992] A.C. 288 is a good example of the importance of background in deciding whether the agreement grants exclusive possession or not. But the classification of the agreement as a lease does not depend upon any intention additional to that expressed in the choice of terms. It is simply a question of characterising the terms which the parties have agreed. This is a question of law.

    In this case, it seems to me that the agreement, construed against the relevant background, plainly gave Mr. Bruton a right to exclusive possession. There is nothing to suggest that he was to share possession with the Trust, the council or anyone else. The Trust did not retain such control over the premises as was inconsistent with Mr. Bruton having exclusive possession, as was the case in Westminster City Council v. Clarke [1992] A.C. 288. The only rights which it reserved were for itself and the council to enter at certain times and for limited purposes. As Lord Templeman said in Street v. Mountford [1985] AC 809, 818, such an express reservation "only serves to emphasise the fact that the grantee is entitled to exclusive possession and is a tenant." Nor was there any other relationship between the parties to which Mr. Bruton's exclusive possession could be referable.

    Mr. Henderson Q.C., who appeared for the Trust, submitted that there were "special circumstances" in this case which enabled one to construe the agreement as a licence despite the presence of all the characteristics identified in Street v. Mountford [1985] AC 809. These circumstances were that the Trust was a responsible landlord performing socially valuable functions, it had agreed with the council not to grant tenancies, Mr. Bruton had agreed that he was not to have a tenancy and the Trust had no estate out of which it could grant one.

    In my opinion none of these circumstances can make an agreement to grant exclusive possession something other than a tenancy. The character of the landlord is irrelevant because although the Rent Acts and other Landlord and Tenant Acts do make distinctions between different kinds of landlords, it is not by saying that what would be a tenancy if granted by one landlord will be something else if granted by another. The alleged breach of the Trust's licence is irrelevant because there is no suggestion that the grant of a tenancy would have been ultra vires either the Trust or the council: see section 32(3) of the Housing Act 1985. If it was a breach of a term of the licence from the council, that would have been because it was a tenancy. The licence could not have turned it into something else. Mr. Bruton's agreement is irrelevant because one cannot contract out of the statute. The trust's lack of title is also irrelevant, but I shall consider this point at a later stage. In Family Housing Association v. Jones [1990] 1 W.L.R. 779, where the facts were very similar to those in the present case, the Court of Appeal construed the "licence" as a tenancy. Slade L.J. gave careful consideration to whether any exceptional ground existed for making an exception to the principle in Street v. Mountford [1985] AC 809 and came to the conclusion that there was not. I respectfully agree. For these reasons I consider that the agreement between the Trust and Mr. Bruton was a lease within the meaning of section 11 of the Landlord and Tenant Act 1985.

    My Lords, in my opinion, that is the end of the matter. But the Court of Appeal did not stop at that point. In the leading majority judgment, Millett L.J. [1998] Q.B. 834, said that an agreement could not be a lease unless it had a further characteristic, namely that it created a legal estate in the land which "binds the whole world." ([1998] Q.B. 834, 845). If, as in this case, the grantor had no legal estate, the agreement could not create one and therefore did not qualify as a lease. The only exception was the case in which the grantor was estopped from denying that he could not create a legal estate. In that case, a "tenancy by estoppel" came into existence. But an estoppel depended upon the grantor having purported to grant a lease and in this case the Trust had not done so. It had made it clear that it was only purporting to grant a licence.

    My Lords, I hope that this summary does justice to the closely reasoned judgment of Millett L.J. But I fear that I must respectfully differ at three critical steps in the argument.

    First, the term "lease" or "tenancy" describes a relationship between two parties who are designated landlord and tenant. It is not concerned with the question of whether the agreement creates an estate or other proprietary interest which may be binding upon third parties. A lease may, and usually does, create a proprietary interest called a leasehold estate or, technically, a "term of years absolute." This will depend upon whether the landlord had an interest out of which he could grant it. Nemo dat quod non habet. But it is the fact that the agreement is a lease which creates the proprietary interest. It is putting the cart before the horse to say that whether the agreement is a lease depends upon whether it creates a proprietary interest.

    Mr. Henderson relied on a dictum of Denning L.J. in Lewisham Borough Council v. Roberts [1949] 2 K.B. 608, where the question was whether the council, exercising delegated requisitioning powers under the Emergency Powers (Defence) Act 1939, was entitled to possession of part of a house. Denning L.J. said, at p. 622:

 ". . . [I]t is necessary to consider the nature of the power to requisition land. It is only a power to take possession of land. It is not a power to acquire any estate or interest in any land. . . . Once possession is taken the Crown can exercise all the powers incident to possession, such as to license other people to use the premises; . . . but it cannot grant a lease or create any legal interest in the land in favour of any other person, because it has itself no estate in the land out of which to carve any interest."

It seems to me that Denning L.J. was focusing on the question of whether the Crown could create a legal interest in the land which would be binding upon third parties and said, correctly, that the Crown could not create such an interest without having an estate of its own. It is true that he said the Crown could not "grant a lease" and this could be read to mean that the absence of a legal estate prevented the Crown from entering into the relationship of landlord and tenant. But I do not think that this is what he had in mind. In any case, the Crown in that case could not have validly entered into such a relationship because it would have been ultra vires its statutory powers under the Emergency Powers (Defence) Act 1939: see Minister of Agriculture and Fisheries v. Matthews [1950] 1 K.B. 148.

    Millett L.J., at p. 846 distinguished the case of Family Housing Association v. Jones [1990] 1 W.L.R. 779, where, as I have said, the facts were very similar to those in the present case, on the ground that "the fact that the grantor had no title was not referred to in argument or the judgments." In my opinion this is easily explained by the fact that the grantor's title or lack of title was irrelevant to the issue in the case.

    Secondly, I think that Millett L.J. may have been misled by the ancient phrase "tenancy by estoppel" into thinking that it described an agreement which would not otherwise be a lease or tenancy but which was treated as being one by virtue of an estoppel. In fact, as the authorities show, it is not the estoppel which creates the tenancy, but the tenancy which creates the estoppel. The estoppel arises when one or other of the parties wants to deny one of the ordinary incidents or obligations of the tenancy on the ground that the landlord had no legal estate. The basis of the estoppel is that having entered into an agreement which constitutes a lease or tenancy, he cannot repudiate that incident or obligation. So in Morton v. Woods (1867) L.R. 4 Q.B. 292, a factory owner granted a second mortgage to a bank to secure advances. But the mortgagor had no legal estate, having conveyed it to the first mortgagee, and therefore could not confer one upon the second mortgagee. As additional security, the borrower "attorned tenant" to the second mortgagee, that is to say, acknowledged a relationship of landlord and tenant between them. This was a device commonly used in old mortgages to give the mortgagee the rights of a landlord: a speedier procedure for recovery of possession which was then available and the right to levy distress upon goods and chattels on the mortgaged premises. (See Megarry and Wade, The Law of Real Property (5th ed.) (1984) p. 946). When the borrower failed to pay, the bank levied a distress. The owner of the goods sued for damages, claiming that the bank had no right to levy distress because that ancient common law remedy was available only to the holder of a legal estate. A recital to the mortgage made it plain that the bank was a second mortgagee and therefore had no legal estate. The Court of Queen's Bench held that the mortgagor was estopped from denying the bank's legal title. Kelly C.B. said, at p. 304:

 ". . . it is the creation of the tenancy, or the estoppel, which arises from the creation of the relation of landlord and tenant by agreement between the parties, that makes the actual legal estate unnecessary to support the distress. . . ."

    Thus it is the fact that the agreement between the parties constitutes a tenancy that gives rise to an estoppel and not the other way round. It therefore seems to me that the question of tenancy by estoppel does not arise in this case. The issue is simply whether the agreement is a tenancy. It is not whether either party is entitled to deny some obligation or incident of the tenancy on the ground that the Trust had no title.

    Thirdly, I cannot agree that there is no inconsistency between what the Trust purported to do and its denial of the existence of a tenancy. This seems to me to fly in the face of Street v. Mountford [1985] AC 809. In my opinion, the Trust plainly did purport to grant a tenancy. It entered into an agreement on terms which constituted a tenancy. It may have agreed with Mr. Bruton to say that it was not a tenancy. But the parties cannot contract out of the Rent Acts or other landlord and tenant statutes by such devices. Nor in my view can they be used by a landlord to avoid being estopped from denying that he entered into the agreement he actually made.

    For these reasons I would allow the appeal and declare that Mr. Bruton was a tenant. I should add that I express no view on whether he was a secure tenant or on the rights of the council to recover possession of the flat.

LORD HOPE OF CRAIGHEAD

My Lords,

    I have had the advantage of reading in draft the speech which has been prepared by my noble and learned friend Lord Hoffmann. I agree with it, and for the reasons which he has given I too would allow the appeal.

LORD HOBHOUSE OF WOODBOROUGH

My Lords,

    I agree that this appeal should be allowed as proposed by my noble and learned friend Lord Hoffmann and for the reasons which he has given. I would add only this.

    The claim made in the action seeks to enforce a contractual cause of action. The breach of contract alleged against the defendant Housing Trust is the failure to maintain and keep in repair the flat in which the plaintiff, Mr Bruton is living. He relies upon a written agreement between himself and the Housing Trust dated 31 January 1989. The written agreement does not contain any undertaking by the Housing Trust to repair the flat. But Mr Bruton alleges that the agreement creates a relationship of landlord and tenant between the Housing Trust and himself and that therefore an undertaking to repair by the Housing Trust is compulsorily implied by statute - section 11 of the Landlord and Tenant Act 1985.

    Counsel for the Housing Trust accepted before your Lordships that a contractual relationship of landlord and tenant suffices to make the provisions of the Act applicable. The question therefore is whether the agreement creates such a relationship. The answer to this question is, in my judgment, determined by the decision in Street v. Mountford [1985] AC 809. The agreement was an agreement to give Mr Bruton the exclusive possession of the flat for a period or periods of time in return for the periodic payment of money; the grant of exclusive possession was not referable to any other relationship between the parties. It follows that the relationship created was that of landlord and tenant and the provisions of the Act apply to the agreement. Mr Bruton is entitled to succeed.

    The relevant question is simply one of ascertaining the effect in law of the agreement which the parties made. It is true that before the court construes an agreement it must inform itself of the surrounding circumstances existing at the time that the contract was made. (Reardon Smith v. Hansen-Tangen [1976] 1 W.L.R. 989) This rule applies as much to contracts relating to property as much as to any other contract. In the present case, it is correct that both parties knew that the Housing Trust was a mere licensee of the Council and, in so far as they may have thought about it, should have realised that for the Housing Trust to grant Mr Bruton the exclusive possession of the flat probably amounted to a breach of the Housing Trust's obligations to the Council. But this cannot contradict what was actually agreed between the Housing Trust and Mr Bruton or its legal effect as between them. (Family Housing Association v. Jones [1990] 1 W.L.R. 779). It would be different if it could be shown that the Housing Trust had no capacity to make the agreement. (Minister of Agriculture v. Matthews [1950] 1 K.B. 148) Lack of capacity renders an apparent agreement without legal effect; this is an application of the ordinary principles of the law of contract. But the present case is not such a case. The Housing Trust had the requisite capacity to make the agreement with Mr Bruton (as for that matter had the Council--section 44(1) of the Housing Act 1985).

    The Court of Appeal were influenced by the way in which the case for Mr Bruton was argued before them. They understood that his case depended upon establishing a tenancy by estoppel. This was not a correct analysis. He needed to do no more than rely upon the written agreement he had with the Housing Trust and its legal effect. The only concept of estoppel which was possibly relevant was that which arises from the agreement. The estoppel is of the same character as that which estops a bailee from disputing the title of his bailor or the licensee of a patent from disputing the validity of the patent. The estoppels are mutual; they bind both of the parties. Where the relationship is contractual, as in the present case, the estoppel arises from the agreement not the other way round. The present case does not depend upon the establishing of an estoppel nor does any problem arise from the fact that the Housing Trust did not have a legal estate. The case of Mr Bruton depends upon his establishing that his agreement with the Housing Trust has the legal effect of creating a relationship of tenant and landlord between them. That is all. It does not depend upon his establishing a proprietary title good against all the world or against the Council. It is not necessary for him to show that the Council had conveyed a legal estate to the Housing Trust. I therefore cannot agree with the reasoning of the Court of Appeal and would allow this appeal.