Case No: B2/2001/1637 CCRTF
NEUTRAL CITATION NO: [2002] EWCA Civ 876
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL  DIVISION)
ON APPEAL FROM HHJ YELTON
Royal Courts of Justice
Strand, 
London, WC2A 2LL

Monday 24th June 2002
Before :

LORD JUSTICE LATHAM
and
MR JUSTICE HART

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Between :
	TOMKINS	Appellant	
	
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BASILDON DISTRICT COUNCIL	
Respondent	

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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040,  Fax No:  020 7831 8838
Official Shorthand Writers to the Court)
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Mr Ewan Paton (instructed by Messrs Palmers, Solicitors) for the Appellant
Mr Nicholas Taggart (instructed by Basildon District Council Solicitors) for the Respondent

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Judgment
As Approved by the Court

Crown Copyright ©

Mr Justice Hart: 
1.	This is an appeal, with the permission of the judge, from an order of HHJ Yelton in Southend County Court dated 9 July 2001, whereby he declared that:
“(1)	By 1990 the terms of the lease of “Brunswick”, Lower Dunton Road, Bulphan, Essex dated 14 November 1978 were varied so that the said lease was not surrendered but the said property was thereafter a dwelling house let as a separate dwelling within the meaning of the Housing Act 1985.
(2)	The Claimant is entitled to reside in the said property subject to the protection afforded by the said Act.”
and ordered the respondent to pay the appellant’s costs.
2.	The appellant was the claimant below and had there sought declarations (1) that she was entitled to reside at the property as her residence and (2) a declaration that she was entitled to the protection of the Housing Act 1985.
3.	The reason for the appellant’s dissatisfaction with the declaration made by the judge is that, while it meets her claim to be entitled to security of tenure under the 1985 Act, its effect is to deny her the benefit of s.11 of the Landlord and Tenant Act 1985.  That section, if applicable, would impose repairing obligations on the respondent.  Under the lease dated 14 November 1978 the repairing obligation lay with the tenant.  
4.	The factual background as found by the judge was as follows.  The appellant (who was born in 1943) left school at the age of 15 and went to work for a Mrs Barker, a greyhound trainer, at Rayleigh Stadium as a kennel hand.  In 1966 she went to live with Mrs Barker at Belmont, Hoefield Avenue, Basildon.  She continued to work as a kennel hand and to assist Mrs Barker domestically.  She was not paid wages, but was kept by Mrs Barker.  In 1975 the landlords of Belmont (the Basildon Development Corporation), who wished to buy out Mrs Barker’s interest under compulsory powers, offered her a lease of Brunswick.  The offer was accepted, and a lease of Brunswick dated 14 November 1978 (“the lease”) was taken in the names of Mrs Barker and the appellant.
5.	The lease was for a term of 20 years at a rent for the first 5 years (described as concessionary) of £500 per annum and thereafter at £1100 per annum (subject to 5 yearly reviews) the rent being payable at quarterly intervals in advance.  The property comprised in the lease was described a by reference to its site “TOGETHER WITH the bungalow and outbuildings erected thereon (including without prejudice to the generality of the foregoing the fifteen kennels recently erected thereon by the Corporation)”.  Clause 2 (5) of the lease imposed a full repairing obligation on the lessees.  By Clause 2(15) and (16) the lessees covenanted as follows:-
“(15)	To use the demised premises for carrying on the trade or business of the keeping and training of greyhounds and for residential accommodation incidental thereto and not to do or permit or suffer to be done anything to injure the connection or goodwill of such business
(16)	Not to carry on or permit or suffer to be carried on in or upon the demised premises or on any part thereof any trade or business other than that specified in Clause 2(15) hereof and not to sell or deal in articles commodities or goods of any description whatsoever.”
6.	It is not disputed that, as originally granted, the tenancy granted by the lease was one to which Part II of the Landlord and Tenant Act 1954 applied: the property comprised in the tenancy included premises which were occupied for the purposes of a business carried on by the tenants (see section 23 of the 1954 Act).
7.	The judge found that in 1986 the commercial activity at the property had ceased.  Mrs Barker (who was then in her eighties) had suffered a stroke.  The appellant thereafter devoted herself full time to the care of Mrs Barker who eventually died on 16 November 1995.
8.	At some point after the grant of the lease the freehold reversion became vested in the Commission for New Towns (Basildon) (“the CNT”), the statutory successor of the Basildon Development Corporation.  In 1994 the CNT transferred it to the respondent.
9.	On 24 April 1998 the respondent served notice on the appellant under s.25 of the 1954 Act terminating the tenancy on 14 November 1998.  On the 1 June 1998 solicitors on behalf of the appellant served a counter-notice.  No application for a new tenancy was thereafter made, and on 11 August 1998 the appellants’ solicitors advised that she was not in a position to make such an application.  The claims made in these proceedings do not appear to have been advanced on the appellant’s behalf until after the time for applying for a new 1954 Act tenancy had expired  These proceedings were commenced on 16 November 1998.
10.	Section 79(1) of the Housing Act 1985 provides that, subject inter alia to the exemptions in Schedule 1, 
“a tenancy under which a dwelling-house is let as a separate dwelling is a secure tenancy at any time when the conditions described in Sections 80 and 81 as the landlord condition and the tenant condition are satisfied.”
Included in the exceptions in Schedule 1 is the following paragraph:-
“11.  A tenancy is not a secure tenancy if it is one to which Part II of the Landlord and Tenant Act 1954 applies (tenancies of premises occupied for business purposes).”
11.	It was common ground before the judge that where property is originally let under a tenancy to which Part II of the 1954 Act applies, but the business user at some point ceases and the property is thereafter used solely for residential purposes, that fact alone does not suffice to change the tenancy into one to which the 1985 Act applies.  For this result to follow, not only must the landlord condition and the tenant condition be satisfied (as they were here), but it must also be shown that the premises were “let as a separate dwelling”.  As Lord Denning MR pointed out in Cheryl Investments v Saldanha [1978] 1 WLR 1329 at 1334 that will not be the case “unless the landlord agrees to the change”.
12.	Section 11 of the Landlord and Tenant Act 1985 implies a repairing covenant by the lessor in any case to which the section applies.  The general rule is that the section applies only to “a lease of a dwelling-house granted.... for a term of less than seven years”: see section 13.  It does not, however, apply to tenancies within Part II of the 1954 Act: see sections 13(3) and 32(2).  Nor does it apply to “a new lease granted to an existing tenant ... if the previous lease was not a lease to which s.11 applied”: see section 14(1).  In the present case the judge had held on a preliminary issue that the exception in Section 14(1) was only available where the previous lease had been a “lease of a dwelling-house” and that, on the assumption that the lease was the relevant previous lease, it had not had that character having regard to the user clause.  There was no appeal by the respondent on that issue, and the issues raised by the present appeal do not require us to decide whether he was right or wrong about that.
13.	The effect of these statutory provisions was that if the appellant could show that the dealings between the parties had at some point been such as to cause the property to be or become “let as a separate dwelling” she would have the protection of the Housing Act 1985.  If she could also show that such letting was for a period shorter than 7 years, she would also have the protection of Section 11 of the Landlord and Tenant Act 1985.  The judge found that she had established the first, but not the second, of these propositions.  By this  appeal the appellant seeks to establish that the judge was wrong on the second point.  In the light of that appeal the respondent cross-appeals the first finding as to the applicability of the 1985 Act.
14.	The judge reached the conclusion he did on the basis of the following findings:
“11	By mid 1986 commercial activity at the property had ceased; that is set out in a file note dated 25 July 1986 (p195) and was confirmed by Miss Tomkins in her evidence.  She indicated that Mrs Barker’s health problems made it quite impossible for the business to be carried on.
12.	There is overwhelming evidence that the landlords knew that commercial activity at the premises had ceased at about that time, and indeed counsel for the local authority accepted that.
13.	The file notes of CNT show to my mind that thereafter the landlords not only knew that commercial activity had ceased at the property, but elected to treat the premises as let for residential purposes, and communicated their decision to the tenants.  I reach that conclusion for the following reasons:
	(A)  The file note dated 7 August 1986 (p196) indicates that “a revised non-commercial approach” should be taken to rent reviews, provided that the DSS were prepared to pay housing benefit (which they did, from 5 June 1986).
	(B)  The file note dated 5 September 1986 from the finance officer says “I have no objections to the lease being [converted] to a housing tenancy” [p199].
	(C)  The file note dated 12 January 1989 indicates again that no business was being conducted at the premises [p205].
	(D)  On 25 August 1989 an inter office memo from the finance officer to the estates officer describes the premises as “residential accommodation together with dog kennels to the rear” [pp213-4].  This is an interesting reversal of the description on the lease, and reflects the reality.
	(E)  This description was carried into the rent review recommendation dated 4 September 1989 [p216].
	(F)  On 9 March 1990 the director of finance wrote to Miss Tomkins to the effect that he had heard from the valuation officer and that “The property is no longer classed as non-domestic.”
	(G)  There was then inter-office correspondence about whether the letting was domestic or commercial, because VAT cannot be charged on rent paid for property intended for use as a dwelling, but there is an option to charge it on commercial lettings.  On 26 April 1991 the finance department wrote that the lease “should be regarded as a purely housing lease as opposed to a commercial letting” [p226]; this was accepted by the estates department [p227].  VAT was not charged on the rental.”
15.	He concluded:
“On those facts and applying the law as set out, I come to the following conclusions:
(1) 	The facts set out at paragraph 13 above show that the parties agreed by implication although not in those words to vary the user clause so that by at the latest 1990 it was common ground that the premises were used as residential only; if Miss Tomkins had ever been in a position to recommence the training of greyhounds, then the protection of the Landlord and Tenant Act 1954 would have revived.
(2)	That agreed variation meant that with effect from that date the property was “let as a separate dwelling” so as thereafter to be protected by the Housing Act 1985.  
(3)	Since there was no surrender and regrant, the tenant continued to hold under the 20 year lease as varied, and therefore the benefit of s11 of the Act of 1985 does not apply to her, since that affects only leases for 7 years or less.”
16.	In support of the appeal, it was submitted on behalf of the appellant that these findings not only supported the thesis that there had been a consensual and contractually binding variation of the user clause in the lease but that such a variation could only properly be seen as having taken place as a result of the surrender of the lease and grant of a new one.  In support of this argument reliance was primarily placed on a passage in the judgment of Slade LJ in Russell v Booker [1982] 263 EG 513, at 516 (which has been accepted as authoritative by this court in Wagle v Trustees of Henry Smith’s Charity [1990] 1 QB 42 and Webb and Barrett v Barnet LBC [1990] 21 HLR 228), but we were also taken to a number of authorities on when a later agreement between landlord and tenant will give rise to a surrender by operation of law, and regrant of a new tenancy, as well as to a useful article on the point by Dr Dowling of The Queens University Belfast in 1995 Conveyancer at p. 124.
17.	None of these authorities has helped me in overcoming the initial difficulty which seems to me to face the appellant on her appeal which is this: assuming that what took place between the parties prior to 1990 did involve a contractual variation of the relationship between them, and assuming further that that variation did indeed take place by surrender and re-grant, what is the justification for supposing that the new lease was granted for a period of less than 7 years?  If all that was the subject of the agreed variation was the user clause in the lease, why should either party be taken to have agreed to change the existing term of the lease?
18.	When this question was put to him, the answer given by Mr Paton on behalf of the appellant was this.  He said that the changes actually or impliedly agreed between the parties were so fundamental that the law had to regard them as having been wrought by the machinery of surrender of the lease and re-grant of a new tenancy, and that once the supposition was made that the lease had been surrendered the only inference which could be drawn as to the terms of the new tenancy were that it was a periodic one.  The fundamental change said by this argument to have been agreed between the parties was a change from a business lease protected by the 1954 Act to a public sector residential tenancy.  from which the inference of such an agreement could be made.  
19.	That argument appears to me to assume what it sets out to prove, namely that what the parties were setting out to do, or must be treated as having done, was to create a new residential periodic tenancy.  So far as concerns the question whether they were setting out to do any such thing, there was absolutely no evidence to suggest that Mrs Barker and the appellant ever intended to give up their rights under the lease, either to use the premises for business purposes again should circumstances change or to remain in possession under the lease until the end of the term (and thereafter until their rights were lawfully terminated). Indeed solicitors acting on behalf of the appellant wrote to the respondent on 27 August 1997 asserting (quite correctly) that “she has a lease of the above property which expires on 14 November 1998”. Nor was there any evidence that the respondent, or its predecessor CNT, intended to proceed on any such basis.  Indeed they continued at all material times to operate rent reviews under the provisions of the lease.  
20.	The sole feature in the case which Mr Paton was able to pray in aid in support of his argument was the fact that CNT, from 1986, and the respondent from 1994, had accepted rent in the form of housing benefit (in respect of which the paying authority happened to be the respondent).  However, the fact that rent was being paid and received in this manner does not necessitate that there must have been some agreement between Mrs Barker and the appellant on the one hand and CNT on the other to convert the lease into a periodic purely residential tenancy.  Section 130 (1) of the Social Security Contributions and Benefits Act 1992 (and we were referred to no earlier enactment) provides so far as material as follows:
“A person is entitled to housing benefit if – 
(a) he is liable to make payments in respect of a dwelling in Great Britain which he occupies as his home;”
Section 137 (1) of that Act defines “dwelling” as:
“..... any residential accommodation, whether or not consisting of the whole or part of a building and whether or not comprising separate and self-contained premises.”
Regulation 10 of the Housing Benefit (General) Regulations 1987 provides:
“(1)  Subject to following provisions of this regulation, the payments in respect of which housing benefit is payable ... are the following periodical payments which a person is liable to make in respect of the dwelling which he occupies as his home- 
(a) payments of, or by way of, rent; 
.…….
(4)  where the payments specified in paragraph (1) are payable in respect of accommodation which consists partly of residential accommodation and partly of other accommodation, only such proportion thereof as is referable to the residential accommodation shall count as eligible rent for the purposes of these Regulations.
....”
21.	To achieve the result of the Department of Social Security picking up the tab for the rent, all that was necessary was for it to accept that the rent claimed by way of housing benefit was wholly referable to the residential accommodation.  Whether it was strictly correct for the DSS to have accepted the claim or whether the DSS was, as the internal evidence suggests, adopting “an interpretation of convenience in order to assist their claimants”, is not clear on the evidence.  But the fact that benefit was paid does not imply that the parties to the lease must be taken to have agreed upon its surrender and replacement by an exclusively residential periodic tenancy: the 1992 Act and the Regulations made thereunder did not require either that the premises should be “let as a separate dwelling”, or that the tenancy should not be for mixed purposes, or that it should be periodical rather than for a term.
22.	Accordingly, I do not consider that there is any basis for saying here that the parties ever agreed anything more than what the judge found, namely a variation of the existing lease.  I would therefore dismiss the appeal.
23.	The cross-appeal raises two questions.  First, was the judge right to find that there had been a contractual variation of the lease?  Secondly, if so, does that lead to the conclusion that the premises should thereafter be treated as having been “let as a separate dwelling” for the purposes of section 79(1) of the Housing Act 1985?
24.	On the second of these questions both parties were content to treat the passage in Slade LJ’s judgment in Russell v Booker (1982) 263 EG 513 as accurately stating the law.  So, gratefully, am I.  That case concerned the inter-face between the Agricultural Holdings Act 1948 and the Rent Act 1977.  Property consisting of a dwelling house and agricultural land had been let by a written tenancy agreement made in 1947.  When let the property had been let as an agricultural holding, but there had been a subsequent cessation of the agricultural use.  The question therefore was whether the change of user meant that the tenancy had moved out of the protection of the 1948 Act into the protection of the Rent Acts.  After reviewing the previous decisions of this court in Wolfe v Hogan [1949] 2 KB 194 and Whitty v Scott-Russell [1950] 2 KB 32 Slade LJ summarised the principles to be derived from those cases as follows:- 
“(1)	Where the terms of a tenancy agreement provide for or contemplate the use of the premises for some particular purpose, then, subject to the qualification mentioned in (2) below, that purpose is the essential factor in deciding the question whether or not the house can be said to have been let “as a separate dwelling-house” so as to fall within the Rent Acts.
(2)	Nevertheless, where the original tenancy agreement provided for or contemplated the use of the premises for some particular purpose, but, by the time when the possession proceedings are begun, that agreement has been superseded by a subsequent contract providing for a different user, the subsequent contract may be looked at in deciding the latter question.
(3)	If a tenant changes the user of the premises and the fact of the change is fully known to and accepted by the landlord, it may possible for the court to infer a subsequent contract to let them “as a separate dwelling house”, although this would be a contract different in essentials from the original tenancy agreement.
(4)	However, unless a contract of the last-mentioned nature can be spelt out, a mere unilateral change of user will not enable a tenant to claim the protection of the Rent Acts in a case where the terms of the tenancy agreement itself provide for and contemplate the use of the premises for some particular purpose which does not attract the protection of those Acts - for example as a shop or agricultural holding.
(5)	Where the tenancy agreement itself does not provide for or contemplate the use of the premises for some particular purpose, actual subsequent user has to be looked at in determining whether a house is, “let as a separate dwelling-house”, so as to attract the protection of the Rent Acts.”
25.	That passage does not in my judgment in terms establish, as contended on behalf of the respondent, that for the property to be regarded as having been “let as a separate dwelling” there must be a surrender of the existing mixed-purpose lease and re-grant of a new lease. It emphasises that the critical question is to be answered by reference to the terms of the tenancy. It allows for the possibility that the original terms may have been contractually varied in such a way as to enable the conclusion to be drawn that the premises have been let as a separate dwelling, and recognises that in appropriate circumstances it may be possible for the court to infer such a contract from the conduct of the parties.
26.	Leaving on one side any difficulties which may arise from lack of formality, I do not consider that, on an application of conventional principles of the law of contract , the judge’s conclusion that there was here a contractual variation of the lease can be justified.  Of the matters listed by him in paragraph 13 of his judgment (and set out above), (A) (B) and (C) were matters purely of relevance to CNT for the purposes of its internal administration.  (D) and (E) were neutral and again purely internal to CNT.  It is indeed not clear exactly what the judge meant by his words “an interesting reversal of the description on the lease” since the description in the lease was as set out in paragraph 5 above.  (F) is the only piece of evidence relied on by the judge which consists of any communication to the appellant.  It was, however, a communication from the respondent as rating authority.  The respondent was not then the landlord under the lease, and even if it had been, the nature of the communication was not relevant to the terms of the tenancy.  (G) – the non-charging of VAT on the rent – is again neutral.  Before us no attempt was made to argue that this VAT treatment was consistent only with there having been a contractual variation of the terms of the lease.  The highest which it can be put is that the landlord for the time being was content not to enforce the positive covenant in Clause 2(15) so far as it related to the commercial user, and was content to review the rent (pursuant to the provisions of the lease) on the basis of the actual as opposed to the permitted or required user.  As the judge’s own conclusions demonstrate the commercial user did not cease to be a permitted user:  the appellant was free at any time, should she have been in a position to do so, to recommence the commercial user.
27.	In those circumstances I do not consider that the judge’s conclusion that the property became “let as a separate dwelling” for the purposes of the Housing Act 1985 can be supported, and I would therefore allow the cross-appeal.
Lord Justice Latham:
I agree.

ORDER: Appeal dismissed, cross‑appeal allowed and consequential orders as set out in the draft minute of order which has been agreed between the parties.

(Order not part of approved judgment)