Lie v Mohile

Under section 41A(1) of the Landlord and Tenant Act 1954, a business tenant may apply alone for a new tenancy only where all statutory conditions are satisfied. In a joint tenancy held for a partnership, the fourth condition requires the business to be carried on by one or some only of the joint tenants, with no part of the premises occupied for the other joint tenants’ business. A continuing partnership in which both partners occupy the premises does not satisfy that condition. The general rule remains that all joint tenants must join the application. Section 41A is a statutory exception, and fairness does not justify enlarging it judicially. Section 82 of the Law of Property Act 1925 does not convert a lease granted by an owner to himself and another into a sole tenancy.

Dr Sonny Lie and Dr Rajan Mohile were partners and joint tenants of premises used for their medical practice. Mohile, who owned the premises, served a notice under section 25 of the Landlord and Tenant Act 1954 terminating the periodic tenancy. Lie then applied under section 24 for a new tenancy to himself alone. Mohile opposed the application.

After an earlier appeal had held that Mohile’s attempted dissolution of the partnership was ineffective, the matter returned to the County Court. Her Honour Judge Walden-Smith decided as a preliminary issue that the fourth condition in section 41A(1) was not satisfied because both partners continued to occupy the premises for the partnership business. Lie appealed, arguing among other things that he was legally the sole tenant, that statutory authority or fairness allowed him to apply alone, and that Mohile was estopped from challenging the application.

The appeal was dismissed unanimously. Patten LJ gave the lead judgment. Underhill LJ agreed with the reasons, and Vos LJ agreed with both judgments.

1. Section 41A conditions. Section 41A(1) of the Landlord and Tenant Act 1954 creates four cumulative conditions for a section 24 application by business tenants alone: a joint tenancy; premises occupied for business; a partnership business previously carried on by all the joint tenants with the relevant interest being partnership property; and a business now carried on by one or some only of the joint tenants, with no part of the premises occupied for the other joint tenants’ business. The first three conditions were satisfied, but the fourth was not because the partnership continued and both partners occupied the premises for its business.
2. Statutory exception. The court followed the rule in Jacobs v Chaudhuri [1968] 2 QB 470 that “tenant” in section 24(1) means all the joint tenants in whom the legal estate is vested. Section 41A is the statutory answer to the potential unfairness of that rule in partnership cases. It provides no basis for a further judicial exception founded on fairness. Lie therefore could not make a valid application alone.
3. Characterisation of the tenancy. The argument that Mohile could not grant a tenancy to himself and Lie, so that Lie was the sole tenant, was rejected. If Lie were the sole tenant, section 41A would not apply because there would be no joint tenancy and no business carried on by only some joint tenants. He would instead rely directly on section 24(1). Section 82(1) of the Law of Property Act 1925 concerns enforceability of agreements or covenants between a person and himself with another person; it does not alter the legal effect of the lease. Sections 72(1) and (2) expressly validate conveyances by an owner to himself and another. Nothing in Rye v Rye [1962] AC 496 undermined the validity of the lease.
4. Other grounds. The validity of the application went to the court’s jurisdiction to grant a new tenancy and could not be defeated by estoppel based on delay. Factual allegations concerning repudiation or breach of good faith were not suitable for determination on appeal. The further argument based on Featherstone v Staples [1986] 1 WLR 861 and section 5 of the Partnership Act 1890 had not been permitted and, in any event, sought a tenancy for Lie alone. The appeal was dismissed.

• Court of Appeal (Civil Division): In Lie v Mohile, [2014] EWCA Civ 728, the court dismissed Lie’s appeal from the preliminary issue decision.
• Earlier Court of Appeal appeal: On 24 October 2013, the court held that Mohile’s notice purporting to dissolve the partnership was ineffective and remitted Lie’s application for rehearing. No citation is stated.
• Central London County Court: Her Honour Judge Walden-Smith held that section 41A(1)(d) was not satisfied because both partners continued to occupy the premises for the partnership business, and dismissed the claim.
• Earlier County Court decision: Her Honour Judge Taylor had dismissed the claim on the different basis that the partnership had been dissolved and the tenancy had consequently ended. That decision was reversed on the earlier appeal.