Esselte AB v Pearl Assurance Plc

For a fixed-term business tenancy, protection under Part II of the Landlord and Tenant Act 1954 depends upon the tenant’s current occupation for business purposes. It does not persist merely because the tenancy was formerly protected.

Where the tenant has ceased business occupation before the contractual term expires, section 24(1) does not continue the tenancy. It ends by effluxion of time, without a notice under section 27(2). Faced with conflicting Court of Appeal authority, the court preferred the earlier decision which correctly reflected that construction.

Pearl held a lease and sublease of business premises for fixed terms ending on 14 February 1993. It had ceased to occupy the premises for the purposes of its business by December 1992. Its earlier purported termination notices were ineffective, but it later served notices under section 27(2) intended to determine the tenancies on 24 June 1993.

The landlords claimed rent until that later date. HHJ Colyer QC, sitting in the High Court, held that the tenancies continued until the section 27 notices took effect. Pearl appealed, contending that the tenancies ended by effluxion of time at the contractual expiry because they were no longer business tenancies when that date arrived.

The central issue was whether Part II of the Landlord and Tenant Act 1954 continues a fixed-term tenancy after the tenant has ceased business occupation before the term date.

Disposition

1. The Court of Appeal unanimously allowed Pearl’s appeal. The lease and sublease ended on 15 February 1993, by effluxion of time. The landlords’ claim for rent after that date was dismissed.

2. Per Morritt LJ, with whom Stuart-Smith LJ and Sir John May agreed, the expression a tenancy to which Part II applies is an abbreviated reference to section 23. It requires present occupation for the statutory business purposes. Neither section 23 nor section 24(1) permits the expression to include a tenancy to which Part II merely formerly applied.

3. Section 24(3)(a) confirmed that analysis. It assumes that a fixed-term tenancy which has ceased to be protected will end unless it has already been continued by section 24(1). It regulates the later termination of an already continued tenancy; it does not continue a tenancy which had lost its statutory character before its contractual expiry.

4. Section 27(2) did not alter that result. It addresses a tenancy which is continuing when the notice takes effect. Its permission to serve notice before the contractual term date does not mean that section 24 has already continued every tenancy that was once a business tenancy.

5. The court held that Longacre Securities Ltd v Electro Acoustic Industries Ltd [1990] 1 E.G.L.R. 91 conflicted with the earlier decision in Morrison Holdings Ltd v Manders Ltd [1976] 1 W.L.R. 533. The landlord’s prior section 25 notice did not distinguish Longacre, but its essential conclusion was inconsistent with Morrison. Applying the rule governing conflicting Court of Appeal authorities, the court was entitled and bound to prefer Morrison. It was more consistent with the statutory language and the persuasive observations in the other authorities.

The order was that the appeal be allowed with costs here and below; the respondents’ claim be dismissed; and the appellant’s counterclaim be adjourned to the Master for directions.

• Court of Appeal (Civil Division): Allowed Pearl’s appeal and declared that the lease and sublease determined on 15 February 1993.
• High Court, Chancery Division: HHJ Colyer QC, sitting as a High Court judge, had declared on 9 May 1995 that the tenancies continued until 24 June 1993, when Pearl’s section 27 notices took effect.