In a recent case (Camelot Property Management Ltd and another v Roynon), the court was asked to consider whether an agreement between a commercial property guardian and a management company constituted a licence or an Assured Shorthold Tenancy (AST).
Lease or Licence?
A lease is an estate in land, granting the right to exclusive possession of land for a determinable period of time. A licence, on the other hand, is simply a personal right granting permission for the licensee to do something on the licensor’s property. It offers no security and it does not create an estate in land. The key distinction therefore between a lease and a licence is exclusive possession.
Landlords are concerned about the risks associated with leaving their properties vacant for prolonged periods of time. Loss of income compounded with the payment of outgoings are only some of the drawbacks facing landlords unable to rent their properties. Guardian schemes offer a novel solution to landlords where commercial premises can be rented for residential purposes, usually at a rent below the market rate.
Facts of the Case
Bristol City Council employed Camelot Property Management Ltd (CP) to find suitable guardians for a disused elderly peoples’ home. Mr Roynon (R) entered into an agreement with Camelot Guardian Management Ltd (CG) to become a guardian of the property and moved in. He picked two rooms and had communal access to other areas within the property.
The agreement stated that it was a licence and not a tenancy and that exclusive possession to the two rooms or any other part of the property was not granted. Other guardians did not have access to these two rooms and could not gain access without R’s permission. The agreement did not reserve a right for CG to enter the property but CG held the keys and inspections were conducted on a regular basis.
A notice to quit was served on R but R did not vacate. Possession proceedings were commenced but stayed as the court considered who the landlord was and if R was occupying the property as a licensee or as a tenant of the two rooms. The court held that the agreement did not reflect the reality of the situation as R had exclusive possession of the two rooms and by law, the agreement therefore constituted an AST. The court also held that CG was the landlord.
Whilst guardian schemes can offer landlords a solution to vacant properties, this case serves as a reminder that the substance of the agreement between the parties will be considered when determining the nature of the agreement, irrespective of what the document is called.
Guardian providers will not welcome this decision and will want to revisit their schemes to ascertain if genuine licence agreements have been created when the reality of the situation is taken into account. They may take the view that granting AST’s, and meeting the legislative requirements at the outset, is safer than inadvertently granting a tenancy.
It is unclear what the nature of the contract between the property owner and the guardian provider was, and consequently if the guardian provider had authority to grant a licence or an AST. The Council may have a remedy against CG or CP if they were in breach of the contract by granting an AST.
Before entering into the agreement, guardians should consider who they are contracting with and if the other party has the authority to enter into the agreement. In this case, it could be argued that the guardian provider should have been granted a lease which permitted underletting, before granting an AST.
For further information please contact Conor Wells on 0191 261 0096 or by email at email@example.com.