Brumwell v Powys County Council

The Court of Appeal dismissed the appellant's claim for a new business tenancy under Part II of the Landlord and Tenant Act 1954 on the basis that the 1998 Operator Agreement, read together with the Bungalow Agreement and the Service Agreement, created an agency arrangement rather than a lease conferring exclusive possession. The court applied the established test for a sham (Snook v London and West Riding Investments Ltd) and concluded that the Bungalow and Service Agreements were not shams. In construing the documents the court emphasised substance over form and relied on the detailed supervisory rights, obligations as to accounts and provision of accountancy and legal services by the Council as indicating control consistent with agency. Because the appellant ran the park as the Council's agent he could not claim exclusive occupation for the purposes of section 23(1) of the Landlord and Tenant Act 1954 and was therefore not entitled to a new tenancy.

Background and procedural posture: The appellant, Mr Brumwell, applied under Part II of the Landlord and Tenant Act 1954 for the grant of a new tenancy of the Wyeside Camping and Caravan Park. The land had been operated by local authorities; in 1998 the parties entered three agreements: an Operator Agreement (to manage the undertaking), a Bungalow Agreement (service occupancy of the warden's bungalow) and a Service Agreement (part‑time employment as security). The County Court (Judge Jarman QC) decided as a preliminary issue that the Operator Agreement made Mr Brumwell the Council's agent and that the other agreements were not shams. Mr Brumwell appealed to the Court of Appeal.

Nature of the claim: Application for a new business tenancy under Part II of the Landlord and Tenant Act 1954 (section 23(1)).

Issues before the Court:

• Whether the 1998 arrangements created a tenancy conferring exclusive possession for the purposes of the 1954 Act or whether Mr Brumwell was an agent of the Council;
• Whether the Bungalow Agreement and the Service Agreement were shams;
• (Related issues below included holding over, estoppel and ground (g) opposition under section 31, but the appeal focused on agency and sham.)

Court’s reasoning:

• The court reiterated the sham test from Snook: documents are a sham only where the parties share a common intention that the documents should not create the legal rights they appear to create; external evidence may be admissible to ascertain true intention (Stone v Hitch was cited).
• The court examined the three agreements as one transaction and construed their terms in light of the surrounding circumstances, looking to substance not labels.
• On the sham point the court concluded that, although the arrangements were unusual and motivated in part to avoid right to buy consequences under the Housing Act 1985, there was no common intention to create documents which did not reflect legal rights and obligations; accordingly the Bungalow and Service Agreements were not shams.
• On the agency/tenancy point the court analysed many clauses in the Operator Agreement. Factors supporting agency included the extensive, detailed supervisory obligations placed on the operator (cleanliness, maintenance, specific operational duties), requirement to use Council accountancy services and to produce accounts to the County Treasurer, provision of free legal services and insurance by the Council, prior approval by the Director for fees and charges, and indemnities in favour of the Council. Although some features (fixed payments by the operator and financial risk) were consistent with a principal's position, the cumulative intensity of Council control pointed strongly to agency.
• The court also observed that, if exclusive possession had been transferred by the Operator Agreement, the separate Bungalow and Service Agreements would have been unnecessary.

Conclusion: The agreements established an agency relationship; the appellant did not have exclusive possession and therefore no right to a new tenancy under section 23(1) of the 1954 Act. The appeal was dismissed.

Appeal dismissed. The Court of Appeal upheld the county court’s finding that the 1998 Operator Agreement, read with the Bungalow and Service Agreements, created an agency arrangement rather than a lease conferring exclusive possession. The further finding that the Bungalow and Service Agreements were not shams supported that conclusion; the detailed supervisory rights, accounting controls and provision of legal and insurance services by the Council demonstrated control inconsistent with a transfer of exclusive possession.

Appeal to the Court of Appeal (neutral citation [2011] EWCA Civ 1613) from the Swansea County Court (Claim OZM00037). The preliminary-issue decision below was made by His Honour Judge Jarman QC on 14 October 2010; the County Court had held the appellant was not a tenant and that the Bungalow and Service Agreements were not shams.