London College of Business Ltd v Tareem Ltd & Anor

The label attached to an occupation agreement is not decisive. The court must construe the agreement in its documentary, factual and commercial context and determine whether it grants exclusive possession. A commercial occupier with exclusive possession will generally be a tenant, even where the agreement repeatedly describes itself as a licence. A business tenancy may be peacefully forfeited for rent arrears, but only where the agreement contains an express right of re-entry and the required notice has been given. A tenancy protected by the Landlord and Tenant Act 1954 continues on its existing terms unless properly terminated or replaced. Hypothetical loss must be assessed by evaluating the available evidence and probabilities; a fair wind does not permit recovery based on speculation that could have been tested by direct evidence.

The claimant occupied commercial premises owned by the first defendant under successive agreements described as licences. Following a dispute about rent and service charges, the first defendant changed the locks and excluded the claimant for three days. The claimant sought damages for lost profits, goodwill and disruption. The parties also disputed whether the occupation created a licence or a tenancy, whether the re-entry was lawful, the continuing financial terms of the occupation, and the state of account between them.

The court had to determine the true legal character of the 2012 Agreement, the effect of the Landlord and Tenant Act 1954, whether the contractual right to terminate had been validly exercised, and what damages and accounting adjustments were justified.

1. Nature of occupation. The 2012 Agreement was construed according to conventional contractual principles, having regard to its documentary, factual and commercial context. Although it used the language of a licence and contained provisions intended to preserve management and control for the owner, its substance granted the College exclusive possession of premises from which it conducted its business. It therefore created a tenancy. The alternative conclusion was that the written terms did not reflect the parties’ actual relationship, since the alleged right of entry had never been exercised in the asserted unfettered manner.
2. Statutory consequences. The tenancy was a business tenancy within Part II of the Landlord and Tenant Act 1954. Section 24(2) created no absolute bar to peaceable forfeiture. However, forfeiture for non-payment required an express right of re-entry. Clause 10 supplied that right, subject to 14 days’ notice. Section 24(1) continued the tenancy on the existing financial terms after expiry of the initial contractual term because the later draft agreement had never been agreed or executed.
3. Re-entry. The correct service-charge obligation was the amount stated in the 2012 Agreement, subject to later balancing. The College was £2,100 in arrears, but the earlier notice to quit had been waived by accepting subsequent payments. No valid notice had been given in respect of the later arrears. The lockout was therefore a breach of the implied covenant for quiet enjoyment.
4. Damages. The evidence did not establish substantial lost profits or goodwill. Parabola Investments Ltd v Browallia Cal Ltd permitted a reasonable assessment of hypothetical loss, but not speculation where direct evidence could have been provided. Damages were awarded for wasted occupation costs, business disruption, reputational harm and the possibility of losing some students, totalling £25,104.
5. Declarations and account. The court declared that the College occupied under a tenancy to which the 1954 Act applied, awarded £25,104 damages, and declared that £30,545 was owed by the College to Tareem as at 26 July 2017.