SCTSPRINT3

ST ANDREWS FOREST LODGES LIMITED AGAINST JEREMY GRIEVE AND IONA GRIEVE


Submitted: 27 March 2017

SHERIFFDOM OF TAYSIDE CENTRAL AND FIFE AT DUNDEE

[2017] SC DUN 25

A84/16

JUDGMENT OF SHERIFF SG COLLINS QC

 

in the cause

 

ST ANDREWS FOREST LODGES LTD.

Pursuer

against

 

JEREMY GRIEVE and IONA GRIEVE

Defenders

 

Act:   Upton, Harper Macleod LLP

Alt:   Millar, Young & Partners

 

Dundee, 27 March 2017

The Sheriff, having resumed consideration of the cause,

 

Finds in Fact:

1.   The defenders are spouses.   In around 2007 they formed a limited liability partnership, Kincaple Lodge LLP, to buy and run a holiday park business at Kincaple, near St Andrews.   The park comprised in particular Kincaple Lodge House (hereinafter “the Lodge”) and a number of holiday cabins located nearby.   The defenders ran the business from the Lodge, in which they and their family lived as their home.    

2.   In around 2014 Kincaple Lodge LLP went into administration.   The administrators allowed the defenders to continue to run the business on their behalf, pending sale, and to continue to live in the Lodge.   By this time however the first defender was working in the Middle East, and therefore only lived in the Lodge when he returned to Scotland on leave.  Nonetheless, it remained his principal home.  The second defender continued to occupy the Lodge as her only home.  She was now employed by a buy-to-let business, and through this gained some knowledge of assured and short assured tenancies, particularly in relation to student lettings. 

3.   The pursuer is a limited company.   Its business is holiday lettings.   In particular it owns a holiday lodge business at Piperdam, near Dundee.  Mr Philip Mulholland is the managing director. 

4.   In early 2015 the pursuer agreed to buy the Kincaple holiday park from the administrators of Kincaple Lodge LLP.   The total purchase price was £650,000.  It was a condition of the purchase that the pursuer would obtain vacant possession of the Lodge. 

5.   The defenders wished to continue residing in the Lodge.  It had been their family home for more than seven years.    They spoke to Mr Mulholland and asked him whether the pursuer would be prepared to sell the Lodge to them after the purchase from the administrators was completed.   Mr Mulholland indicated that the pursuer would be prepared to do so.  A price was agreed in principle, namely £435,000, subject to survey.  

6.   However both parties were aware that the Lodge was subject to a planning restriction, limiting occupation of it to employees of the holiday park business.   Accordingly purchase of the Lodge by the defenders for purely residential use by them was conditional on an application to discharge the planning restriction being made to and granted by the local authority.

7.   The pursuer and the defenders therefore agreed that the defenders would vacate the Lodge so as to allow the pursuer to complete the purchase of the holiday park with vacant possession.   They further agreed that following the purchase the defenders could resume occupation of the Lodge.  

8.   Mr Mulholland drew up a draft agreement, intended to regulate the defenders’ new occupancy of the subjects.  This is lodged as production 5/1 for the pursuer.  It is an adapted version of the standard holiday letting agreement which the pursuer used in the course of its business at Piperdam.   It is headed ‘Holiday Let Agreement’.   The parties to the agreement are stated to be the pursuer (designated “the Proprietors”) and the defenders (designated “the Holiday Tenants”).   The Lodge is accurately described, and is designated as “the Holiday Accommodation”.   The “Holiday Let Period” is specified as being from 27 February 2015 to 26 March 2015.   A “Holiday Let Fee” is stated to be £750 per week, to be paid in advance.   A “Holiday Deposit” of £1,000 is stated as being required to be paid before entry.   Provision is made that “charges for telephone, electricity and gas supplied and used within the Holiday Accommodation during the Period shall be in addition to the rent and, shall be paid (or reimbursed) by the Holiday Tenants on demand either to the Proprietors or to the relevant utility supplier.”  

9.   This draft agreement was discussed by the defenders and Mr Mulholland, but was not signed by either party.  In particular the defenders considered that the rental figure of £750 per week was too high for a residential let.    Mr Mulholland agreed to reduce it to £2,000 per calendar month.

10. The purchase of Kincaple holiday park was completed on around 27 February 2015.  Shortly beforehand the defenders left the Lodge and went to stay in rented accommodation nearby, in order that the pursuer would obtain vacant possession at the date of purchase.  However all the defenders’ furniture and belongings remained in the Lodge, in anticipation of their resuming occupancy pursuant to their said agreement with the pursuer.  On or around 7 March 2015, the defenders resumed occupancy of the Lodge. 

11. Throughout the whole period since 7 March 2015 the Lodge has continued to be the first defender’s principal home, and the second defender’s only home.    It has continued to be a separate dwelling.   The defenders have had exclusive possession of it.

12. On 19 March 2015 Mr Mulholland emailed the first defender.  A copy of this email is lodged as production 5/2 for the pursuer.   It states, in particular:

“There are two separate issues here and they must be kept apart. 

1  The Lodge hire and

2  The possible purchase of the lodge house at Kincaple

We are willing to hire the lodge to you on a standard holiday lodge hire agreement based on the one we use at Piperdam, with some exclusions and some on trust from both sides and will be made up of three separate periods:

One from 7th March to 31st March 2015 for £1,500

Period two from 1st April to 30th April 2015 for £2000.00

Period Three from 1st May to 31st May 2015 for £2000.00

A refundable security deposit of £1000.00 less electricity costs.  The rent shall be paid on the first day of the letting month…”

 

To this email the first defender replied, the same day, agreeing its terms.  

13. Parties were accordingly agreed that the defenders would be permitted to occupy the Lodge from 7 March 2015, as a separate dwelling, with exclusive possession, in return for payment of £2,000 per month.  Parties were also agreed that the defenders’ occupancy of the property would continue on a month to month basis.  They also agreed that the defenders’ occupancy would continue on this same basis after May 2015, should the defenders not have purchased the Lodge by that time. 

14. Mr Mulholland’s intention was the defenders’ occupancy of the Lodge would have the legal status of a holiday let.   The defenders did not agree to this.  In any event the defenders’ occupation of the Lodge from 7 March 2015 was not for the purpose of a holiday.  It was the first defender’s principal home, and the second defender’s only home, as it had been for the previous seven years, and was occupied by them for this purpose. 

15. Both parties anticipated that the defenders would leave the Lodge if their proposed purchase of it did not or could not proceed.    But parties did not agree that the defenders’ right to continue to occupy the Lodge was conditional on the proposed purchase proceeding.  Nor did they agree that this right would terminate in the event that it became clear that the proposed purchase would not proceed. 

16. The £1,000 deposit referred to in Mr Mulholland’s email of 19 March 2015 was not paid. However the defenders paid the sum of £1,500 in relation to their occupancy of the subjects from 7 March 2015.  Thereafter and until December 2015 they paid the pursuer the sum of £2,000 each calendar month.   These payments were made promptly, by bank transfer.

17. The pursuer returned the monthly payment in respect of December 2015 to the defenders.   It did so on legal advice.   No sums have since been accepted by the pursuer from the defenders in respect of their occupation of the subjects.    The defenders have repeatedly offered payment at the rate of £2,000 per month since December 2015.  They have put this sum on deposit each month since then.  They remain willing and able to pay the total sum due since then.   The pursuer continues to refuse to accept it.

18. At around the end of November 2015 the application to discharge the planning restriction in relation to occupation of the Lodge was granted.   Thereafter the parties entered into and concluded missives for the sale and purchase of the Lodge. By solicitors’ letters dated 24 December 2015 and associated documents (productions 5/4 to 5/7) agreement was reached that the defenders would purchase the Lodge for £435,000 with date of entry on 15 February 2016.   The missives provided for a non-refundable deposit of £20,000 to be paid by 30 December 2015. 

19. The said deposit was paid by the defenders, but they were to pay the balance of the purchase price on the said settlement date.  The first defender had moved the defenders’ capital offshore due to interest rate fluctuations, and he found that he was unable to return it to the UK by the settlement date.  Accordingly the purchase did not complete on that date.   

20. Further missives were subsequently exchanged between parties (productions 5/7 – 5/8).   By these missives the parties agreed, in effect, that the purchase would proceed on the same terms as previously agreed, subject to the settlement day now being 18 March 2016, and to a further non refundable deposit of £20,000 being paid by 7 March 2016. 

21. This further deposit was paid by the defenders, but again they were unable to pay the balance of the purchase price on the new settlement date.  Shortly prior to this date the defenders had discovered that they remained liable under a guarantee relating to Kincaple LLP, which they had earlier believed had been discharged.  They were therefore required to pay a substantial sum to the administrators and no longer had sufficient savings to pay the purchase price of the Lodge.  Accordingly the purchase did not complete.

22. In the light of this the pursuer withdrew from the agreement to sell the subjects to the defenders.   The pursuer has retained the £40,000 paid by the defenders by way of the two non-refundable deposits.

23. The pursuer then asked the defenders to remove from the subjects.  They refused to do so.  They remain in occupation still.

24. When the pursuer purchased the holiday park in February 2015 there was a common electricity supply connected to both the Lodge and the holiday cabins.  Following the purchase a single account in relation to this common supply was taken in the name of the pursuer.   The bills for all electricity usage on the supply were thereafter sent to the pursuer, and have been paid by the pursuer.   

25. The defenders agreed, as a condition of their occupancy of the Lodge after 7 March 2015, that they would reimburse the pursuer for the cost of the electricity consumed by them via the said common supply.         

26. In order to seek to monitor the particular amount of electricity being used by the defenders (as distinct from the amount drawn from the common supply by the occupants of the cabins) the pursuer had a card meter installed in the Lodge.   This was done very shortly after the defenders resumed occupancy.  In order to obtain electricity in the Lodge the defenders had to insert a special card into the meter.  These cards were not available for public purchase.  The defenders had to obtain them from the pursuer.    The cards each had a specified monetary value.    Once inserted into the meter, the defenders could draw electricity to the specified value of the card, relative to the tariff per kilowatt set on the meter.    The meter tariff was however adjustable by the pursuer. 

27. The pursuer adjusted the tariff by altering it down from around 13p per unit to 0.1 pence per unit.  This had the effect of greatly increasing the amount of electricity which could be obtained by inserting a card of any given monetary value.  The pursuer gave cards to the defenders on demand, without payment.  The purpose of altering the tariff was therefore to assist the defenders by enabling them to get a much longer use out of each electricity card and to greatly decrease the frequency with which they would be required to ask the pursuer for a new one.

28. The holiday cabins were subsequently disconnected from the common supply, in around June 2016, and now only the Lodge is connected to it.   However the card meter remained in place and the defenders continued to draw electricity from it as before.

29. Notwithstanding the alteration of the tariff, the card meter in the subjects still recorded the defenders’ actual electricity usage in the subjects in kilowatts, and also the number of the cards used.   The cost of the electricity used by the defenders since 7 March 2015, and thus the amount which they have agreed to pay to the pursuer by way of reimbursement, is therefore in principle capable of precise calculation.   It can be calculated by reading the meter and multiplying the number of kilowatts used by the tariff per kilowatt paid from time to time by the pursuer to the supplier.

30. The pursuer has not checked the card meter in the subjects since March 2015.  It has not asked for access to do so.   Had it done so, the defenders would not have denied access.  The pursuer has not asked the defenders for a meter reading.  Had it done so the defender would have provided a reading.   The pursuer has not sent the defenders a demand for reimbursement of the costs of electricity actually used. 

31. Since around June 2016 the only electricity drawn from the common supply is by the defenders, as the cabins now have their own supply.  The bills for the supply of electricity from the common supply continue to be sent to the pursuer.   A statement of account for this period should show the cost of the electricity consumed by the defenders.  No statement of account has been produced by the pursuer.   No demand for payment for electricity consumed during this period has been made to the defenders.

32. In December 2015 the second defender paid the pursuer the sum of £450 which the defenders estimated represented the total cost of their electricity usage since March 2015.   That equates to an average of £50 per calendar month. 

 

Finds in Fact and Law:

1.   The agreement by which the defenders have occupied the Lodge since 7 March 2015 is a lease agreement under which they have the right to continue to occupy these premises as a separate dwelling, with exclusive possession, tacitly relocating on a month to month basis, at a rent of £2,000 per calendar month.  The legal relationship between the parties is that of landlord and tenant. 

2.   The defenders’ tenancy of the Lodge is not a holiday let falling within the terms of paragraph 8 of schedule 4 to the Housing (Scotland) Act 1988.  It is an assured tenancy in terms of section 12 of this Act.

3.   Pursuant to the said tenancy the defenders are liable to pay rent to the pursuer at the rate of £2,000 per calendar month from and including December 2015.   This payment having been offered and declined, the pursuer is not entitled to decree therefor in the present proceedings.

4.   The defenders are liable to reimburse the pursuer for the cost of electricity supplied to the Lodge in the fifteen month period from January 2016 to date.  That cost is estimated at £750, and the pursuer is entitled to decree for payment of this amount.

 

Therefore:

Sustains the second to fifth pleas in law for the defenders; sustains the third plea in law for the pursuer; quoad ultra repels all remaining pleas for both parties; grants decree in terms of the fourth crave of the initial writ for payment by the defenders to the pursuers of the sum of £750, with interest at the judicial rate from date of decree until payment; assoilzies the defenders from the first and second craves; dismisses craves three and five; continues all questions of expenses to a hearing to be afterwards assigned.

 

 

Note:

Introduction

[1]        In this case the pursuers crave declarator that the defenders have no right or title to occupy the subjects, together with an order ordaining them to remove therefrom on pain of ejection.  They also crave payment of sums for unpaid licence fees for the period December 2015 to March 2016, for unpaid electricity usage, and recompense for unlawful occupation since March 2016, that is, violent profits.    

[2]        The case called before me for proof on 27 September 2016.  The defenders moved to adjourn on the ground that the first defender was not present.    That motion was opposed, and I heard argument.   The first defender works in the Middle East and due to the nature of his employment and travel restrictions he had been unable to return to the UK for the proof.  I refused the motion to adjourn.   The pursuer was ready to proceed and intended to call only one witness, its managing director Philip Mulholland.  The second defender was present and able to give instructions to the defenders’ agent.   The first defender was contactable by telephone.  The proof could be part heard so as to enable the first defender to give evidence at a later date.   Further, I was satisfied that if in the light of anything said in examination in chief of the pursuer’s witness the defender’s agent felt unable to properly cross examine Mr Mulholland in the first defender’s absence, an adjournment could be sought at that point. 

[3]        In the event the defenders’ agent did not require such an adjournment and the evidence of the pursuer’s witness was concluded on 27 September 2016, as was the evidence of the second defender.  The proof was then adjourned to 5 December 2016.  The shorthand writer failed to attend on 5 December 2016 and the case was therefore further adjourned to 6 December 2016.  On that date I heard evidence from the first defender.  I then heard submissions and made avizandum.

 

Submissions

[4]        Mr Upton, for the pursuer, moved for decree in terms of all of the craves of the initial writ, as amended.  As regards the craves for declarator and removing, he submitted that the matter was reasonably straightforward.   The agreement reached between the parties pursuant to which the defenders reoccupied the Lodge in March 2015 was, Mr Upton submitted, a licence to occupy and not a lease.  Therefore it could not be an assured tenancy within the meaning of section 12(1) of the Housing (Scotland) Act 1988, which provides that only a tenancy under which a house is let as a separate dwelling is for the purpose of the Act an assured tenancy.  Here there was no lease, no let, and no tenancy.   He submitted that the evidence showed that parties did not intend to create a tenancy, and that theirs was an agreement purely to facilitate a period of occupancy leading up to the purchase of the Lodge.  An agreement could have all the hallmarks of a tenancy yet not be a tenancy if that was not what parties intended.  In this regard Mr Upton relied on the decision of the Second Division in the case of Scottish Residential Estates Development Co. Ltd. v Henderson 1991 SLT 490.    He accepted that there was agreement as to parties, premises, rent and duration, but that the absence of intention to create a tenancy was fatal to the agreement being a lease.

[5]        In this regard Mr Upton submitted that Mr Mulholland’s undisputed evidence was that the pursuer’s business was holiday letting.  It had no desire or intention to start leasing premises for residential occupation.  It had no experience in this sphere or intention to expand into it.   Mr Mulholland had said that had he expected the agreement would result in residential tenancy he would not have let the defenders back into the property.  Mr Upton further submitted that the evidence of the second defender was that she was familiar with residential lettings, but that she had said nothing to Mr Mulholland at the time to indicate that she wished to take an assured tenancy of the property.  She had accepted that this was an agreement to occupy the property until such time as the sale went through.   Moreover, submitted Mr Upton, the first defender had said that he had thought that if the purchase did not go through that they would either leave the Lodge, or would seek to renegotiate the rent.   Overall, he submitted that the available evidence, including the draft holiday let agreement, the emails, and the contents of the discussions between the parties, made clear that this was not an agreement to enter into a tenancy which could only be terminated under the 1988 Act.   The agreement to occupy was conditional on the purchase proceeding, and once it was clear that it would not, it came to an end.  The defenders had refused to remove, and had no right or title to remain.

[6]        Further developing his argument, Mr Upton submitted that there was an element of grace or favour in the pursuer having permitted the defenders to reoccupy the property, and that the first defender had acknowledged this in his evidence.  He referred to Gloag & Henderson:  Law of Scotland (13th Edition, 2012) paragraph 35.02, where the authors write that:

“Where a person is permitted to occupy premises as an act of grace or friendship, and the intention to create a tenancy is not present, the right conferred on him may be construed as a mere licence to occupy, and not a lease.” 

 

That proposition is footnoted, in particular, to Henderson.  And in any event, the passage immediately continues: “This depends on considering the whole circumstances of the case, rather than merely the words the parties have chosen to describe their arrangement.”   Mr Upton submitted however that in Henderson all the pillars of a tenancy were present, but the Court had held that the only reasonable construction of the parties’ agreement was that the defender would “have the use of the cottage until [the pursuers] require possession of it”.   He submitted that this was very similar to the situation in the present case.   

[7]        Mr Upton submitted that the court should simply give effect to the agreement which the parties made.  This was not an attempt to get around the statutory scheme of the 1988 Act, akin to the situation in Brador Properties v British Telecommunications plc 1992 SC 12.   In that case there had been, he submitted, a sham arrangement, by which the tenants had sought to evade a prohibition on sub-letting by granting what purported to be licences.  Mr Upton acknowledged that the senior courts in England had taken a different approach to that in Henderson, even though the issue of the identification of parties’ intentions was familiar to contract law in both jurisdictions.   He accepted that the English approach was “more developed”, but that Henderson remained the leading authority in Scotland.   There was nothing in that case or in the present case, as there had been in Brador Properties, to suggest that there was a subversive purpose, necessitating the need to look behind parties’ stated intentions.   

[8]        If contrary to his primary position there was a lease, however, Mr Upton tentatively submitted that it was a holiday let within the meaning of paragraph 8 of schedule 4, and therefore could not be an assured tenancy, being excluded from statutory protection by virtue of sections 12(1)(c) and 12(2).    Mr Upton accepted that there is an implicit recognition in paragraph 8 that the mere fact that a house is occupied for the purposes of a holiday does not mean that it is not occupied under a tenancy.   He also accepted that the fact that parties intend that the house is only occupied for a short, finite, period does not prevent there being a lease.  He submitted that it would however be necessary to look to parties’ intentions and the natural language of their agreement.  If they intended that a lease should be for a purpose of a holiday, then it would be a holiday let.   Short of a want of exclusive possession, however, he was unable to suggest any difference between a ‘holiday let’ and a ‘holiday licence’.    

[9]        I suggested to Mr Upton that if Mr Mulholland intended to give a holiday let, then he intended to grant a tenancy, and that perhaps unwittingly he had therefore granted an assured tenancy, given that any lease did not appear to be for the purpose of a holiday, and so did not fall within the terms of paragraph 8 of schedule 4.    Mr Upton responded that what was clear that was that parties had not intended was to create an assured tenancy.  The wording of the draft agreement suggested no such intention.  Mr Mulholland’s evidence was that he was not prepared to grant an assured tenancy.  Furthermore, the second defender knew about assured tenancies because she worked in a letting agency, but she did not vocalise any concerns about the agreement not being an assured tenancy.    Therefore, as I understood him, there could still be no assured tenancy, even if the agreement bore to be a tenancy for the purposes of a holiday within the meaning of paragraph 8, but in reality did not fall within the terms of this paragraph.

[10]      As regards the crave for payment of unpaid ‘licence fees’, Mr Upton submitted that the pursuer had been entitled to refuse payments offered by way of ‘rent’ since December 2015, as that might have suggested acceptance by the pursuer that they were tenants.   The court should therefore now grant decree for payment representing the sums due at the rate of £2,000 per month between December 2015 and the date of the termination of the licence following the failure of the purchase in March 2016.   It was not disputed that these sums had not been paid.  Mr Upton accepted, however, that if I were to find that the defenders had a lease and not a licence, the sums would have been properly offered by the defenders between December 2015 and March 2016, and that decree for payment should therefore not be granted.

[11]      As regards the crave for violent profits, Mr Upton submitted that the pursuer was entitled to recompense for the period since April 2016 when, on his argument, they had been occupying the Lodge unlawfully.   Damages were appropriately quantified at double the payment that would otherwise have been due, to represent the violence of the occupation, that is, at the rate of £4,000 per calendar month.  That was the general rule.  In support of this proposition he referred to Jute Industries Ltd. v Wilson & Graham Ltd 1955 SLT (Sh Ct) 46.  At the very least, Mr Upton submitted, the pursuer was entitled to an additional sum representing the monthly amount that was due under the occupancy agreement.  On the other hand he accepted that the claim for violent profits would also fall if I were to find that the defenders had a lease of the Lodge.  He also accepted that in this event he could not in the present action seek a decree for unpaid rent from April 2015 on, even though on the face of it this would then be due.  There would be an unanswerable claim for this in a subsequent action if need be.

[12]      In relation to the crave for payment as regards the electricity consumed by the defenders, Mr Upton relied on Mr Mulholland’s evidence that the first defender had told him that £450 had represented the defenders’ electricity usage over the period March to July or August 2015, and that therefore it was permissible and appropriate to estimate a monthly usage from this figure and to multiply it by the number of months since then.  He submitted, as I understood him, that there had been no opportunity to read the meter and so get a more accurate quantification.   

[13]      For the defenders, Mr Millar submitted that the starting point was section 12 of the 1988 Act.  He submitted that the defenders had a tenancy of the Lodge falling within the terms of section 12.  He too referred to Gloag & Henderson, op cit., at paragraph 35.02, for the proposition that:

“There are four cardinal elements in a lease, the parties, the subjects, the rent and the duration; in the absence of consensus in idem as to these elements, or at least the first three, there will be no lease.” 

 

In this connection he referred also to Gray v University of Edinburgh 1962 SC 157.  Mr Millar then drew attention to Glen v Roy (1882) 10 R 239, a claim for payment of rent, where the defender argued that he was not the tenant but merely a possessor on certain terms.   In upholding the sheriff’s decision that a tenancy did indeed exist, the Lord Justice Clerk observed of the defender that:

“Without going into the evidence I think his plea cannot receive effect.  He admits that he was in occupation, and the presumption of law is that he occupied as a tenant, whether he actually paid rent or not, and whether there was a written lease or not.”   

 

Mr Millar submitted that in the present case all four of the cardinal elements of a tenancy were clearly agreed and that here too the presumption was that there was a tenancy.    He further submitted that against this background the case of Henderson stood rather “on its own”. 

[14]      Under reference to Brador Properties, Mr Millar noted the Court’s observation, under reference to Street v Mountford, that:

“The Scottish definition of a lease is different to the definition which appears to prevail in England and is wide enough to include contracts which would not be regarded as leases in England.” (1992 SC 12 at 19) 

 

He agreed that the context of this observation clearly indicated that the Court had in mind that certain contracts which would be regarded as licences in England would fall to be regarded as leases in Scotland.   I asked Mr Millar whether Brador Properties could in this respect be fully reconciled with Henderson.  He replied that the distinction in Henderson was that no rent was paid.   Mr Millar noted that the pursuer in that case had conceded that payment of rates and repairs together with certain maintenance services provided by the occupier did constitute rent.   But he submitted that that concession had not been properly made, and in any event that the Court’s decision was not based on acceptance of the concession.   The crux of the Court’s decision was that there was a clear offer and acceptance of rent free occupation for an undefined period.  It was correct to say that this could not be a lease, but it was not the situation which existed in the present case.    

[15]      In the present case, submitted Mr Millar, Mr Mulholland had intended to grant a ‘let’, albeit one modelled on a holiday let agreement, and the word ‘licence’ was never used, neither in the documents  (the draft agreement and emails), nor the parties’ discussions.   But, Mr Millar argued, a ‘holiday let’ is simply a let which is excluded from statutory protection under the 1988 Act, and it was clear that there was no holiday let in the present case.  Accordingly, the cardinal elements of a lease were present, the requirements of section 12 of the 1988 Act were satisfied, and the statutory exception for holiday lets in paragraph 8 of schedule 4 was not engaged.  

[16]      While acknowledging that the court in Brador Properties had found no assistance from the English case of Street v Mountford [1985] AC 809, Mr Millar submitted that it was still useful to have regard to it in the present case.   He pointed out that the approach endorsed in that case was to look to the substance of the agreement, not just the words used, and that if residential accommodation was granted for a term at a rent with exclusive possession, there was a tenancy – even if the written agreement clearly described it as a ‘licence to occupy’.   He further submitted that this was also the law in Scotland.   The parties in the present case had in law agreed a lease, however they may have chosen to categorise it.   There was nothing sufficient to rebut the presumption of lease, referred to in Glen v Roy.  Insofar as Henderson suggested otherwise, it was distinguishable on the facts, given the clear unequivocal correspondence between the parties, of occupancy for no rent, which did not exist in the present case.  On the other hand, if contrary to his argument it was accepted that there was no lease, Mr Millar accepted that he could not resist craves 1 and 2 of the initial writ.

[17]      In relation to the craves for payment, Mr Millar took no issue with the proposition that as the defenders agreed to pay £2,000 per month for occupancy of the Lodge they were due to pay £8,000 for the four month period between December 2015 and March 2016.   However he pointed out that this money had been tendered but not accepted.  The defenders had always been willing and able to pay this amount.  Therefore while in practical terms he had no objection to decree being granted as third craved, if the court were to hold that the agreement was a licence not a lease, he submitted that interest should not run on the sum until a date after decree, and he would wish to be heard on the question of expenses referable to this aspect of the action.

[18]      As regards the crave for reimbursement of the cost of their electricity usage, Mr Millar made clear that the defenders took no issue with the proposition that they were due to pay something in this regard.  However he submitted that the difficulty was that there was a perfectly simple way to quantify this, and the pursuer had not done so.  Indeed Mr Mulholland had made clear in evidence that he had not asked for a meter reading to be taken.   So, submitted Mr Millar, decree should not be granted for any sum, regardless of whether the agreement was held to be a lease or a licence.  The pursuer had not proved any sum, and the court should not simply pick a figure out of the air when the evidence which could easily have established the actual figure had not been produced. 

[19]      Turning to the fifth crave, for damages for violent profits, Mr Millar referred to Houldsworth v Bain & Ors (Alexander Brand’s Trustees) (1876) 3 R 304.   He submitted that if violent profits were to be claimed, there had to be an element of bad faith in occupation.   In this regard he referred to the opinion of the Lord Justice Clerk at page 310:

“Violent profits are profits acquired by violence – by an intruder without any colour of law, who must account on the strictest footing… [T]here really has been no uncertainty as to the law on this subject, or the rules laid down by authority for our guidance.  They may be stated thus – First, when the possession has commenced in good faith it lies with the true owner to shew when it ceased to be so before the right to demand violent profits can prevail.  Secondly, when possession has been continued during a litigation regarding the title of the possessor, it is sufficient to support the possessor’s plea of bona fides that he had probabalis causa litigandi; and third, that the principle is equally applicable, whether the possession be challenged in respect of want of title in the possessor’s author, or in respect of the nature and conditions of his own right.”

 

Mr Millar submitted that even if decree went against them as first and second craved, the defenders had still had a probabalis causa litigandi to defend the action on the grounds that their agreement was a lease, and that therefore the second requirement referred to by the Lord Justice Clerk in Houldsworth was not present.   The very extent of the debate in the present case itself demonstrated that there was at least a properly triable issue.

[20]      Furthermore, however, Mr Millar submitted that there were no averments of bad faith on record.  No evidence had been adduced of bad faith in the course of the proof, and had any attempt been made to do so he would have objected.  In this regard Mr Millar also referred to Jute Industries Ltd, where the sheriff had noted that the defenders had objected to the absence of any averments of mala fides, but that he had allowed the pursuers to amend in order to include these.   The sheriff thereafter cited with approval from Hunter on Landlord & Tenant (4th Edition) for the proposition that:

“The obligation to pay violent profits being founded upon conscientiae rei alienae can be operative only from the time when bona fides ceases and the party is fully aware that he has no legal title at all”. 

 

In that case, on the amended averments, the admissions thereto and the correspondence, mala fides was established.   The evidence in the present case did not do likewise however.  Mr Millar accepted that if the agreement was a licence, and the defenders should have removed in March 2016, there would be a claim against them in recompense for their continued occupation since then.   But the measure of damages should not be by way of violent profits, but by what parties had agreed was a reasonable market rental for the premises.  The evidence in this case was that this was £2,000 per month, this being the figure that a willing seller and willing buyer had in fact agreed.   Mr Mulholland’s speculation in his evidence about market rent being higher that £2,000 was not reliable and should not be accepted. 

[21]      Again, taking a pragmatic approach, Mr Millar accepted that if the agreement were held to be a licence not a lease, he would not object to decree being granted in the sum of £2,000 per month from April 2016 to October 2016, which was the last month for which a claim was made on record. 

[22]      Ultimately, however, Mr Millar moved me to repel all the pursuer’s pleas in law and grant absolvitor.  He did not dispute that in this event sums would still be due by the defenders in respect of unpaid rent, but that these were not recoverable in this action, having been tendered and refused.  He moved me to sustain the second to fifth pleas in law for the defenders.   Given the various possible outcomes, he moved me to reserve expenses.

[23]      In reply, Mr Upton submitted that Henderson could not be distinguished in the way suggested by Mr Millar.  There was a concession in that case that there was an agreed rent, and it had been decided on this basis.    As for mala fides, Mr Upton submitted that there was evidence to establish this.  He submitted that the first defender had given evidence that he knew that if the purchase did not proceed he would have to remove from the property or negotiate new terms, neither of which he did.  When the agreement came to an end, the defenders knew or ought to have known that they were required to remove from the property.  That they had subsequently instructed a solicitor to run a legal argument to the effect that they had a lease with security of tenure did not alter this.    Parties had agreed a licence at the outset.  To then stay in possession, and argue that they had a lease, itself showed bad faith.  Finally, under reference to the presumption referred to in Glen v Roy, Mr Upton submitted that there was nothing to suggest that in principle this presumption could not be rebutted, and the facts and circumstances of the present case should satisfy me that it had been.

 

Leases and licences in Scots law

[24]      In Scots law a lease has been defined as a contract of location by which the use of land or other immoveable object is let for a period of time to the lessee (the tenant) in consideration of a determinate rent or duty to be paid or performed to the lessor (the landlord) either in money, the fruits of the ground or services:  see Paton & Cameron, Landlord & Tenant (1967), page 5; and see also Rankine on Leases, 3rd Edition (1916), page 1.    The analogous contract in the case of moveables is the contract of hire.  There have been said to be four cardinal elements in a lease, the parties, the subjects, the rent and the duration; and in the absence of consensus in idem as to these elements, or at least the first three, there will be no lease.  In the absence of agreement as to duration, however, the law may sometimes infer a period of one year:  Gray v University of Edinburgh 1962 SC 157.  

[25]      A licence has been described as a convenient name for a contract, falling short of a lease, where not the heritage itself but the right to use a particular part of it or to put a particular part of it to some use is granted:  Paton & Cameron, op. cit. page 12.   At the time when these authors were writing, the concept of a licence to occupy or use heritage had only relatively recently been recognised in Scots law.   Thus in Dunlop & Co. v Steel Co. of Scotland (1879) 7 R 2 83 an agreement to take for a rent water from a pit for so long as pumping continued was held to be a lease.  And in Glasgow Tramway & Omnibus Co. Ltd v Glasgow Corporation (1897) 24 R 628 a contract to use carriages on the corporation’s tramways for a period of years on condition of certain payments was also held to be a lease.   But in the early 20th century, mainly in a series of valuation cases involving advertising hoardings, use of car parking facilities, and other contracts conferring rights to make certain uses of heritable subjects, the courts in Scotland came to accept the concept of a licence.   Thus in Popular Amusements Ltd v Assessor for Edinburgh 1909 SC 645 an agreement whereby spaces in an exhibition centre were allocated to caterers in return for a share of profits was held not to be a lease, but merely a personal agreement for use of part of the land.  And in UK Advertising Company v Glasgow Bag Wash Laundry 1926 SC 303 a contract granting the right to display advertisements in post offices, for a period of three years, in return for payment, was held to be a licence to use the advertising spaces, not a lease. 

[26]      As the law developed, and came to recognise that a right of occupation or use of land or immoveable objects might be classed a licence rather than a lease, so it was also necessary to consider what features might distinguish the two.  The presumption, where there was an agreement to occupy heritage followed by actual possession, and payment of rent, was that there was a lease:  Glen v Roy (1882) 10 R 239 at 240; and see also Morrison-Low v Paterson [1985] SC (HL) 49 at 75 (“an inescapable inference… in the ordinary case…”).  But that presumption might be rebutted.   Where there was held to be no rent, the answer was relatively straightforward.  Rent being a cardinal element of a lease, if there was no rent there could be no lease, merely a personal licence to occupy.   In Commissioners of HM Works v Hutchison 1922 SLT (Sh Ct) 127, for example, residential occupation was offered expressly as “an act of grace and favour”, and no rent was proved.   The defender was therefore not a tenant, indeed “nothing more than a squatter”.  And in Mann v Houston 1957 SLT 89, on a proper construction of the agreement, rent was again not proved to be payable, and again there was no lease on this basis. 

[27]      But where the right of occupation was not gratuitous, it was more difficult to distinguish lease from licence.   In seeking to do so it is apparent that the courts did not regard the words used in the document or documents constituting the occupancy agreement as necessarily determinative.  In Mann v Houston, for example, the parties’ agreement was expressly termed a lease.  There was therefore written evidence of common intention to enter into the legal relationship of landlord and tenant.  Regardless of this, however, examination of the terms of the agreement showed that there was as a matter of law no lease.   In UK Advertising Company v Glasgow Bag Wash Laundry the agreement used expressions such as ‘rent’ and ‘sub-let’, but it was in law a licence, the words used by parties in their agreement being “not enough to determine its true character” (see 1926 SC at 306).  And in Wilson & Co v Assessor for Kincardineshire 1913 SC 704, an agreement to put up an advertisement board in exchange for payment, terminable on three months’ notice, was held to be a lease and not a licence, as had been contended for by the appellants.   The absence of any reference to ‘lease’ in the agreement, or of apparent intention of the parties to enter such an agreement, did not prevent the court from holding that the contract was truly of the nature of a lease.

[28]      A critical feature which came to be recognised as distinguishing leases and licences was whether the possession given was intended to be exclusive or only partial.  In the former case, there was generally a lease; in the latter, there was not.   In UK Advertising Company v Glasgow Bag Wash Laundry, for example, Lord Sands observed that the agreement under consideration “…gives the licensees no exclusive right of possession of any part of the post-offices for any purpose whatever. It gives them merely a limited personal right” (1926 SC at 307).   Two cases in relation to occupancy of lock up garages further illustrate the point.  In Broomhill Motor Co v Assessor for Glasgow 1927 SC 447 the contract was held to be for use of defined parts of the garage premises for limited purposes.  There was no exclusive possession, and no lease.  The agreement was in reality for use of a portion of a larger building still occupied by the landlord:  see Lord Sands at 456.  In Chaplin v Assessor for Perth 1947 SC 373, however, it was held that there was a grant of exclusive possession of the garage and thus that the contract was a lease.   Properly construed, the agreement was not merely one granting limited permission to make use of the garage to park a car, but a let of the garage.   In both these cases, the ‘four cardinal elements’ of a lease were present.   The additional, and determinative, feature which distinguished lease from licence was an agreement which, properly construed, granted the occupier exclusive possession, this being “one of the tests of a proper lease”, as Lord Keith put it in Chaplin at 378.

[29]      The position today is therefore that the grant of exclusive possession to the occupier has been recognised as the ‘fifth cardinal element’ of a lease in Scots law, and as an important feature which can assist in distinguishing a lease from a licence.   For example, in Gloag & Henderson, op. cit., paragraph 35.02, the authors expressly define the contract of lease as being one where “an owner or occupier of land grants exclusive possession of it to a tenant in return for rent”, and emphasise separately, under reference to Chaplin, that the right of possession conferred by the contract must be exclusive.     

 

Leases and licences in English law

[30]      As noted, for much of the twentieth century the main importance of the lease or licence distinction in the courts in Scotland arose from valuation disputes, that is, the differing rates payable by owners and occupiers of commercial properties dependent on how a particular occupancy agreement was entered on the roll.   However prior to Henderson there appears to have been little if any consideration of whether and in what circumstances an agreement to occupy residential property in return for payment of rent might fall to be regarded as a licence rather than a lease.   The position in England was very different, where, as Mr Upton accepted, the law was more developed, and certainly more litigated.   There, a large body of statute and case law arose giving a variety of protections to private residential tenants and imposing correspondingly onerous obligations on landlords.  The practice therefore arose of landowners seeking to use licenses as a means to avoid these obligations and, in particular, to avoid giving occupiers of their premises security of tenure and a right to rent control.   This was, of course, controversial. 

[31]      Matters came to a head in the decision of the House of Lords in the leading case of Street v Mountford [1985] AC 809.  In this case the parties had entered into a detailed, signed, written agreement, expressly framed as a licence, and indeed carrying at the end the words “I understand and accept that a licence in the above form does not and is not intended to give me a tenancy protected under the Rent Acts.”   There was no dispute but that the occupier had exclusive possession.  But the Court of Appeal found for the landlord, on grounds of freedom of contract, holding that in the written agreement:

“…there is manifested the clear intention of both parties that the rights granted are to be merely those of a personal right of occupation and not those of a tenant” (see [1985] AC at 816).    

 

It was argued for the landlord before the House of Lords that where the written agreement showed a common professed intention and belief that a licence had been created the court could not decide that it created a tenancy without interfering with the freedom of contract enjoyed by both parties.    However in a famous passage Lord Templeman, giving the leading speech, rejected the proposition that the parties’ intentions as to the legal nature of their agreement was relevant to this question: 

“… the consequences in law of the agreement… can only be determined by consideration of the effect of the agreement.  It the agreement satisfied all the requirements of a tenancy, then the agreement produced a tenancy and the parties cannot alter the effect of the agreement by insisting that they only created a licence.  The manufacture of a five pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade.” (page 819)

 

Or put another way, agreeing the essentials of a lease results in a lease, even if the parties, unfamiliar with (or perhaps mistaken as to) the law of leases, insist that they intended to make and have made a licence. 

[32]      Furthermore, as Lord Templeman explained, leaving aside the cases of lodgers, service occupiers and some other exceptional cases:

“…in order to ascertain the nature and quality of the occupancy and see whether the occupier has or has not a stake in the room or only permission for himself personally to occupy, the court must decide whether upon its true construction the agreement confers on the occupier exclusive possession.  If exclusive possession at a rent for a term does not constitute a tenancy then the distinction between a contractual tenancy and a contractual licence of land becomes wholly unidentifiable.” (page 825)

 

Thus the intention of parties which was relevant was “the intention demonstrated by the agreement to grant exclusive possession for a term at a rent” (page 826).  Sometimes that might be hard to discern, and sometimes, exceptionally (for example in relation to sale, lodgers, or service contracts), the agreement to grant exclusive possession might be referable to a legal relationship other than a tenancy. 

“But where, as in the present case the only circumstances are that residential accommodation is offered and accepted with exclusive possession for a term at a rent, the result is a tenancy” (page 826).  

 

Accordingly exclusive possession is therefore not only an essential element of a lease, it is in the normal case determinative that the agreement is a lease rather than a licence. 

[33]      Street v Mountford has been repeatedly applied in cases at the highest level in England and Wales and, although there have been arguments as to whether particular cases fall within Lord Templeman’s exceptions, in my understanding it remains good law in that jurisdiction:  see for example Westminster City Council v Clarke [1992] 2 AC 288; Bruton v London & Quadrant Housing Trust [2000] 1 AC 406, and cases referred to therein.    In the latter case, Lord Hoffmann (in a speech with which Lord Hope of Craighead agreed) emphasised in particular that:

“a "lease" or "tenancy" is a contractually binding agreement, not referable to any other relationship between the parties, by which one person gives another the right to exclusive occupation of land for a fixed or renewable period or periods of time, usually in return for a periodic payment in money. An agreement having these characteristics creates a relationship of landlord and tenant to which the common law or statute may then attach various incidents. The fact that the parties use language more appropriate to a different kind of agreement, such as a licence, is irrelevant if upon its true construction it has the identifying characteristics of a lease.  The meaning of the agreement, for example, as to the extent of the possession which it grants, depends upon the intention of the parties, objectively ascertained by reference to the language and relevant background…. But the classification of the agreement as a lease does not depend upon any intention additional to that expressed in the choice of terms. It is simply a question of characterising the terms which the parties have agreed. This is a question of law” (page 413) (my emphasis).

 

In other words, ascertaining the intentions of the parties is determinative of whether exclusive possession has been granted – as indeed it would be in relation to whether there is an agreed rent, or agreement on the other essential elements of a lease.  But beyond that the parties’ intentions as to whether the agreement which they have actually reached is a lease or a licence are irrelevant.  This is a matter of law, and if there is exclusive possession, the law is that in the normal case the agreement is a lease not a licence.

[34]      Of course, there are many differences between the law of landlord and tenant in England and Scotland.   For that reason, and in some cases, the court in Scotland may feel unable to derive assistance from Street v Mountford:  see in particular Brador Properties at page 19, to which I will return.  However there remain clear and useful parallels nonetheless.   In both jurisdictions leases and licences are contracts, and the terms of those contracts fall to be construed by ascertaining the intentions of the parties, derived in particular from the terms of any written agreement, what they said, and what they did.   In both jurisdictions the distinction between a lease and a licence has been seen to turn on the question whether, properly construed in the light of their intentions, there was not only agreement as to parties, subjects, rent and duration, but also as to whether the occupier was to have exclusive possession.  In both jurisdictions it has been accepted that the words used in the written agreement are not determinative of whether the agreement is a lease or a licence.   In principle I can see no good reason why the further principle underlying Street and Bruton, that while the terms of a contract can be determined by ascertaining the intentions of the parties, the legal effect and consequences of their agreement is a matter of law for the court to determine, is not equally applicable in Scotland.  Furthermore, like Lord Templeman, I can in the normal case identify no proper distinction between a residential lease and a residential licence other than the presence or absence of exclusive possession.  Nor was Mr Upton, in answer to a direct question, able to suggest any to me in the present case.    

 

Scottish Residential Estates Ltd v Henderson

[35]      All that said, therefore, and leaving aside the case of Henderson, I would readily hold that in Scotland too, where it has been established that there is consensus in idem as to parties, premises, rent, duration and exclusive possession, and that possession is not referable, exceptionally, to another legal contract (such as in the case of a lodger or service occupier) then the agreement will as a matter of law be a lease and not a licence, and this will be so even if the parties did not intend it to have that legal characterisation.   

[36]      Does the decision in Henderson, insofar as its ratio is clear and so binding on me, compel a different conclusion?  In my view it does not.   This is because I consider (i) that it is distinguishable from the present case on the facts; (ii) that the observations of the Court on which Mr Upton particularly founds are strictly obiter; and in any event (iii) that with all due respect to the judges of the Second Division, I do not agree with these observations and am not willing to apply them in this case.

[37]      The facts of Henderson were, in summary, that the parties exchanged letters in December 1976 whereby the defender was permitted occupancy of the subjects, “on a rent free basis”, for an unspecified period.  Specifically the pursuer’s letter stated that:

“Unfortunately, I cannot give you a guarantee as to the length of time that the Forrester’s Cottage can be made available to you.  However, it is most unlikely that we will require possession of the property much before the end of 1978.”

 

The defender agreed occupancy on these terms.  For the purpose of the litigation, the pursuer conceded that the condition that the defender’s sons would cut the grass and maintain the woodlands was the equivalent of rent.    Like Mr Millar, and in the light of cases such as Mann v Houston, I wonder whether this concession was properly made.  In particular the parties’ letters clearly expressed an intention that the occupation would be “rent free”.  The obvious implication is that whatever else was agreed about grass cutting or woodland maintenance, it was not intended to represent a rent.   It is not clear what the Court made of the pursuer’s concession, however.  It is not expressly said that it was accepted, nor that it was rejected.  On the other hand, and on balance, I think that Mr Upton was correct to say that the Court’s decision did not in the end turn on the question of rent one way or the other.

[38]      In my view the determining feature of the case was the question of duration.  On this, the defender’s argument was that although no duration had been agreed between parties, the court should determine a period of the lease, under reference to the considerations in Gray v University of Edinburgh.  However:

“We asked counsel what duration of occupancy should be inferred from the offer letter.  He seemed to find that a difficult question to answer and his reply did not assist us, for he necessarily conceded that there was no agreement for perpetual occupation and that it could either be from year to year or terminable when the pursuers required possession.  We consider the alternative to be fatal to this branch of the argument…

 

… In our opinion the only reasonable construction of [the] offer [letter] is that it meant what it said:  “you and your sons may have use of the cottage until we require possession of it”… Accordingly, we are unable to construe these terms as offering the defender a lease of the property…

 

…No tenancy rights were offered but only the right of occupation until such time as the pursuers required her to vacate the cottage.  That is not the offer of a lease but ex facie the offer of occupation until the pursuers required repossession…”

 

I take from this, put shortly, that the Court was of the view that an agreement to occupy which was expressly terminable at any time, in effect at the pleasure of the grantor, was not, as a matter of law, a lease. 

[39]      Although not cited, the Court may have had in mind the not dis-similar circumstances arising in Stirrat v Whyte 1967 SC 265.  In that case the parties agreed that the defender could have occupation of two fields, but that this  “was to terminate in the event of the sale of … the farm at any time”.  In the Lord President’s view the agreement was on this ground not a lease, being a bargain terminable at any time at the instance of the pursuer, and “approximated much more closely to a revocable licence” (page 268).  Henderson can be seen as an application of this same approach, as can the more recent case of Morrison v Murdoch 1996 SLT 381, in which the pursuer was allowed a proof of averments that there was no lease of a croft, merely an informal arrangement, terminable at any time by giving notice.  In principle, of course, the duration of a lease need not be definite; it may be granted until the occurrence of a specified event:  Paton & Cameron, op cit., page 7; Rankine, op cit., page 115.     However ‘when we require the house back’ does not constitute such an event, and is inconsistent with the requirement of lease as to duration.   There is, in effect, an express agreement that there will be no ascertainable duration.  That being so, there is no room to infer a duration of one year (or any other period) per Gray v University of Edinburgh.

[40]      That being the ratio of Henderson I am satisfied that there are grounds to distinguish it from the present case   In this case I am satisfied that the defenders’ occupancy of the Lodge was for an agreed duration, namely the remainder of March 2015, and continuing on a monthly basis thereafter.  The agreement was not that the defenders’ occupation of the Lodge was to be at the pursuer’s pleasure, terminable at any time.  True, both parties intended and expected that defenders would purchase the Lodge at some point after March 2015, and that their occupancy agreement would end when this purchase was completed.  But it was known that the purchase was conditional on a matter outwith the parties’ control, that is, the lifting of the planning condition, and there was no agreement as to what would happen if the purchase did not complete.    Both parties anticipated, insofar as they gave the matter consideration, that the defenders’ would in fact leave the Lodge in this event.  But for the first defender this was simply because long term they wanted to purchase a home, not rent one, and they anticipated that if they could not buy the Lodge they would look to buy another house elsewhere.  But parties did not agree that the defenders’ right to remain under the occupancy agreement would automatically terminate if the proposed purchase did not proceed.   Nor was there any agreement that the defenders’ right to occupy under the agreement could be terminated by the pursuer at will if and when parties decided not to proceed with the purchase.  On the contrary, as the emails of 19 March 2015 made clear, parties were agreed that the occupancy agreement was quite separate from the agreement to purchase, and so was not conditional on the purchase proceeding or not.  In cross examination, Mr Mulholland accepted that he did not see one as having relevance to the other.  He said that he did not see how they could be “married together”, as least as regard payment and legal documentation.  In these circumstances the terms of the parties’ agreement was quite different from those under consideration in Henderson and Stirrat.  They had an agreed duration, which was consistent with the grant of a lease, not the grant of a revocable licence.

[41]      However I have to also address the fact that the Second Division also made observations on the place of the parties’ intentions in considering whether there was a lease or not:

“As appears from Gray, before an ish may be inferred, there must be a lease and that means that the terms of the offer and acceptance must be such as to constitute a lease and nothing other than a lease.  In our opinion that depends upon whether on a sound construction of these documents the pursuers intended to create a tenancy in favour of the defender and the defender accepted occupation of this cottage qua tenant…

 

… Counsel … conceded that the pursuer did not intend to give to the defender the security of a tenancy, but he submitted that in fact and in law the pursuers had done so.  We find this to be a peculiar proposition because the intentions of the parties must be found from the words used in the relevant documents together, if necessary, with the inferences to be drawn from the actings of the parties thereafter.”

 

With the greatest of respect to the judges of the Second Division, counsel’s proposition was far from peculiar.  Indeed it was the very proposition which the House of Lords had unanimously accepted five years previously in Street v Mountford, and has reaffirmed on more than one occasion since.   The Court’s opinion that the legal characterisation of the parties’ agreement could be determined by reference to their intentions, rather than its terms, cannot be reconciled with the English authorities.  Surprisingly, perhaps, Street v Mountford was not cited to the Court in Henderson.  Nor is there any consideration of the question of exclusive possession as a feature distinguishing leases and licences, for which as noted above there was already some authority in Scotland.   I cannot of course say what the Court would have made of these matters had they been put in issue.  But in circumstances where they were not, and in the light of the matters set out above, I am reluctantly unable to agree with the resulting analysis and, insofar as it appears to me to be strictly obiter, and with all due diffidence, I am unwilling to follow it.

[42]      The decision in Brador Properties provides further reason to pause in following Henderson in the present case.   Brador Properties was decided by a differently constituted Second Division, some 18 months after Henderson, which again had to consider the difference between leases and licences in Scots law.   The judgment is long and complex, but no reference is made to the decision in Henderson. The facts, in very short summary were that the tenants of commercial property were refused consent to sub let, and thereafter bore to grant licences to others to use certain offices in the building in return for a fee.   The landlord sought to irritate the lease, and the matter was referred to an arbiter.  He found that the agreements granted by the tenant were in reality sub-leases.  The tenants appealed to the Court of Session.  They argued, in particular, that there was no agreement as to premises, no exclusive possession, and – in effect – that the language of the agreements sufficiently showed that there was no intention to create a lease.  The occupiers were not tenants, but merely ‘business lodgers’, falling into one of Lord Templeman’s exceptional cases in Street v Mountford

[43]      It was held, refusing the appeal, that the arbiter was entitled to conclude that the agreements were sub-leases and not licences.   Street v Mountford was held to be of no assistance, but this was because the definition of lease in Scotland was wider, not narrower, than that which existed in England and Wales – and presumably therefore prima facie less likely to regard an occupancy agreement as a licence.   Approval was also given to Lord Pitman’s pithy statement in David Allen & Sons Billposting Ltd v Assessor for Clydebank 1936 SC 318 at 335, that “a licence to use a heritage is just a lease of heritage”.  There was however no suggestion that Lord Templeman was wrong to hold that exclusive possession was the touchstone for the existence of a lease rather than a licence, indeed it is implicit in the Second Division’s decision that exclusive possession was also necessary to holding that the agreements under consideration were sub-leases under Scots law.   Furthermore, while the intention of the parties to the agreement was clearly to create a right of occupancy falling short of a sub-lease, the court determined the question as a matter of law, and found that the agreements were truly sub-leases.  Undoubtedly the Court was influenced by the concern that the agreements were a sham, framed in such a way as to get round the prohibition on sub-letting.  But while this called for greater scrutiny of what was done, it did not alter the need for the Court to analyse whether the agreements were truly leases or licences.   And in doing so, it was clearly not enough for the Court to simply give effect to the parties’ intentions as expressed in the agreements.  It was necessary to look to the realities of the situation, and to determine the correct characterisation of the agreements as a matter of law.    

[44]      In my view it is therefore hard to reconcile the approach in Brador Properties with the approach of the same court in Henderson, and in particular any willingness expressed in the latter case to give in effect determinative force to the parties’ intentions as to the legal status of the agreement.   In my view that was not done in Brador Properties, and the differing approach to freedom of contract cannot be explained away simply by labelling the agreement as a sham.  All this causes me further reluctance to follow the observations in Henderson to which I have referred above.

 

Conclusions on lease or licence in the present case

[45]      Applying all this to the facts in the present case, the result is in my view clear.   Mr Upton did not dispute that there was agreement between the pursuer and the defenders as to the essentials of a lease of the Lodge.   There is no dispute that the intention of parties was that the defenders should have exclusive possession of the Lodge, on a month to month basis, at a rent of £2,000 per month.  There was no suggestion that the agreement for exclusive possession was referable to an agreement other than a lease or licence, such as a service contract.   For the reasons I have already explained, this was not a case where the defenders’ occupancy was terminable at will, or terminated automatically on the failure of the proposed purchase.   

[46]      Although at one point Mr Upton suggested that there was an element of ‘grace and favour’ in the agreement, I do not accept this.  ‘Grace and favour’ implies an absence of payment of rent (as in Hutchison), and that is clearly not the position in the present case.  There was a degree of informality in the manner in which the agreement was made, which arose from the fact that parties were then on amicable terms.  Sadly that is no longer the case, and the court is therefore left to construe the agreement which they actually made.   Whatever else, though, the agreement was clearly a commercial one, with benefits on both sides.

[47]      Ultimately the only ground on which Mr Upton submitted that that the agreement was a licence and not a lease, is that parties did not intend it to be a lease.   I will come back to the factual accuracy of this submission in a moment.    But even assuming for the moment that it is a correct characterisation of the parties’ intention, I am unable to accept that such an intention is relevant to determination of the question of whether their agreement is indeed a lease or a licence.   I consider that the reasoning of Lords Templeman and Hoffman, in the passages from Street and Bruton quoted above, is compelling in this regard.  Insofar as the Court in Henderson advocates a different approach, I am, with all due respect, unable to agree for the reasons I have sought to explain.   All the essentials of a lease being present, including exclusive possession, I consider that as a matter of law it is a lease and not a licence which the parties by their agreement created, whatever their intentions as to its legal status.

[48]      Even if I am wrong about Henderson, however, and Mr Upton is correct to say that I am bound by this decision to give effect to the parties’ intentions in relation to whether they intended to create a lease, I would nevertheless have held that they did in fact have this intention, and so did in any event create a lease on this basis.  I would however not have accepted his further submission – in my view going beyond anything warranted by Henderson – that even if there was a tenancy it was not an assured tenancy under the 1988 Act, because the parties did not intend to create such a tenancy.   But even if Mr Upton was right that there was a tenancy but not an assured tenancy, I would still have held that the pursuer is not entitled to decree as first and second craved. 

 

Housing (Scotland) Act 1988:  assured tenancies and holiday lets

[49]      Consideration of these matters first requires some examination of the terms the 1988 Act.  Section 12(1) provides that:

“a tenancy under which a house is let as a separate dwelling is for the purpose of this Act an assured tenancy if and so long as –

(a)  the tenant or, as the case may be, at least one of the joint tenants is an individual; and

 

(b)  the tenant or, as the case may be, at least one of the joint tenants occupies the house as his only or principal home; and

 

(c)  the tenancy is not one which, by virtue of subsection (2) below, cannot be an assured tenancy.” 

 

Accordingly section 12(1) provides that where an individual occupies a house as his only or principal home by virtue of a lease the tenancy “is” (not may be) an assured tenancy.  As such the tenant will have statutory security of tenure as provided for by sections 16 to 18, and schedule 5 to the Act.   There are two particular exceptions to this. 

[50]      Firstly, subsection 12(2) provides that:

“if and so long as a tenancy falls within any paragraph of schedule 4 to this Act, it cannot be an assured tenancy; and in that schedule “tenancy” means a tenancy under which a house is let as a separate dwelling.”

 

Schedule 4 of the 1988 Act specifies a number of tenancies which for policy reasons Parliament decided should not be assured tenancies and so should not attract any of the protections of the Act.   These include tenancies at low rent, tenancies of shops, student lettings, tenancies with resident landlords, Crown tenancies, and accommodation for homeless persons, offenders and asylum seekers.  Of particular importance in the present case is paragraph 8 of schedule 4, which specifies as an excluded tenancy:

“a tenancy the purpose of which is to confer on the tenant the right to occupy the house for a holiday”. 

 

A ‘holiday let’ is therefore still a tenancy, and one which but for the statutory exclusion in section 12(2) would be an assured tenancy assuming that the other requirements of section 12(1) are satisfied.

[51]      Secondly, in an important measure designed to make the residential letting market more attractive to potential landlords, Parliament introduced by the 1988 Act the concept of the short assured tenancy, for which provision is made in sections 32 to 35 of the Act.    The critical benefit for the landlord is that there is no security of tenure under such tenancies.   In principle, if the landlord wants possession of the house at the end of the lease, he is entitled to it.   But it is important to recognise that in order for the landlord to avail himself of this benefit, detailed requirements as to the creation and termination of the tenancy must be complied with.   It must be of not less than six months duration:  section 32(1)(a).  A statutory notice must be served, at a prescribed time and in a prescribed form:  section 32(1)(b), (2).   If these requirements are not complied with, the tenancy will simply be an assured tenancy (see section 32(1)) and so will attract security of tenure.  Furthermore, in order to be entitled to recover possession, the landlord must serve a valid notice to quit, and give notice under section 33(1)(d).   

[52]      It is also important to note that the 1988 Act makes additional provisions regulating the relationship of landlords and tenants in relation to assured and short assured tenancies.  In particular, there is provision regulating rent increases and council tax, and giving parties access to the private rented housing committee to determine such questions:  sections 24 – 25B.   The tenant is entitled to a written tenancy agreement, a right enforceable by application to a sheriff:  section 30.   His spouse or civil partner may have a right to succeed to the tenancy (section 31).  There are further protections for tenants, including a prohibition on premiums and other payments (section 27) and securing the rights of lawful sub-tenants (section 28).   And there are also specific protections for landlords, including a prohibition on assignation without consent (section 23) and a right to access for repairs (section 26).  All this is dependent on the existence of an assured (or short assured) tenancy.

[53]      Parliament has therefore put in place in the 1988 Act a detailed scheme regulating the rights and duties of landlords and tenants in the residential property market.   Certain tenancies are excluded from the scheme for policy reasons.  However where the let does not fall within the terms of one of the exclusions, the default position is that an individual tenant who pays rent and occupies a separate dwelling house as his only or principal home for an agreed period will be an assured tenant, and in particular will have security of tenure.   If the landlord does not wish the occupier to have such security, it is in his hands to deny him it by complying with the formalities necessary to create a short assured tenancy.    Even then, however, the tenant will still have other protections in relation to the regulation of the tenancy, as mentioned above.

[54]      Against that background, I have no difficult accepting that Mr Mulholland did not want to give the defenders security of tenure as assured tenants.  However the means that he chose to achieve this result was to offer the defenders a lease, which he thought would be a holiday let.   He produced a draft agreement, modelled on a holiday let agreement which the pursuer used in its Piperdam business.  He referred to the occupancy agreement throughout as a ‘holiday let’.   But as I have explained, a holiday let is simply a tenancy which, if it satisfies the terms of paragraph 8 of schedule 4 to the 1988 Act, will not be an assured tenancy.  Critically, in my opinion, whether or not the terms of paragraph 8 are satisfied is a matter of for the Court to determine in the light of the evidence before it.   The tenancy does not become a holiday let just because one or both of the parties wish it so or describe it as such in a written agreement.   The reality is that since March 2015 the defenders have occupied the Lodge as their only or principal home; indeed they have done so since 2007.   At no time did they agree that their occupancy was for the purpose of a holiday.  Nor could they have done, given that it manifestly was not.  On the evidence I am quite clear that in fact and in law the defenders’ occupancy of the Lodge since March 2015 has at no point been for the purpose of a holiday. So paragraph 8 of schedule 4 is not in play, and the tenancy which the parties created is not precluded by this paragraph from being an assured tenancy. 

[55]      Returning to Henderson, therefore, the position is that parties’ intentions, properly understood, were that they did intend to create a tenancy.  Mr Mulholland was simply mistaken in thinking that it would not be an assured tenancy.   All the requirements of section 12(1) of the 1988 Act are satisfied.  The defenders agreed to the terms proposed, which constituted the tenancy, and did not disabuse Mr Mulholland of his mistaken belief as to its legal status.   But they were under no obligation to do so.  Mr Upton sought to place some reliance on the second defender’s familiarity with residential lettings as a result of her employment, and that she had not specifically asked the pursuer for an assured tenancy rather than a holiday let.  Her position however was that the defenders were vulnerable in March 2015.  Their business had failed.  They were facing eviction from their family home of seven years.  The pursuer had been willing to reduce the proposed rent, but otherwise the defenders were in no position to dictate terms.  So in effect they took what they were offered.   I accept all this.  However ultimately I take the view that the defenders’ opinions as to whether the occupancy agreement was a holiday let are as irrelevant as those of Mr Mulholland.   It either is such a let, as a matter of law, or it is not.  And in my view, it is not.

[56]      I am willing to accept Mr Upton’s submission that even if Mr Mulholland is to be taken as having intended that the occupancy agreement was a tenancy, he did not intend that it would be an assured tenancy, and did not intend that the defenders would have security of tenure.   However I do not accept the further submission that without such intention the defenders did not have an assured tenancy, that is, even if the let does not come within the exclusion in paragraph 8 of schedule 4.  In my view this submission goes beyond anything that might be derived from Henderson, which at its highest is concerned solely with the relevance of parties’ intentions to the creation of a lease at common law.   Mr Upton’s submission was, in effect, that parties who have agreed a tenancy, which in every respect falls within the terms of section 12(1) of the 1988 Act, and which Parliament therefore intended should be an assured tenancy subject to all the obligations and safeguards of that Act, can simply contract out of the statutory scheme.   That cannot be right.  I have already held that whether an occupancy agreement is a lease or a licence at common law is a matter of law, not parties’ intentions.  A fortiori the question of whether a tenancy is or is not an assured tenancy is also a matter of law.   To allow parties to say in effect that “this is a tenancy which falls squarely within the terms of section 12 of the 1988 Act, but is still not an assured tenancy, because we don’t want it to be”, is to ride a coach and horses through the detailed scheme which Parliament has provided, and which I have summarised above.   If landlords do not wish to give security of tenure, then they can offer short assured tenancies, and comply with the formalities associated with this.   If they do not do so, and the requirements of section 12(1) are satisfied, the tenancy which parties have created is an assured tenancy, and any intentions of parties to the contrary are irrelevant.

[57]      In saying this I acknowledge that the 1988 Act is irrelevant to the question of whether, at common law, the agreement which parties have created is a lease or a licence.   That is so even though, if parties are free to agree a licence simply by virtue of not wanting it to be a lease when in all other respects it otherwise would be, the protections of the 1988 Act would also be avoided.   As Lord Templeman put it in Street v Mountford:

“If Mr Street has succeeded, where owners have failed these past 70 years, in driving a coach and horses though the Rent Acts, he must be left to enjoy the benefit of his ingenuity unless and until Parliament intervenes…” (at 819)

 

That has resonance in that if Henderson is correct on the facts, as well as on the question of parties’ intentions, then the 1988 Act might in principle be avoided by the simple device of entering into an agreement for occupation which, because it is agreed to be terminable by the landlord at any time, is a licence not a tenancy.  But the present question is quite different.  Once it is accepted that there is not a licence, but a tenancy which would otherwise be an assured tenancy because it satisfies all the requirements of section 12(1), then the whole question becomes one of whether parties have freedom to contract out of the 1988 Act.   I am quite clear that they do not. 

[58]      I am therefore satisfied that the tenancy in the present case is an assured tenancy by reference to section 12(1) of the 1988 Act.  Strictly speaking, however, it is not necessary for me to go so far as to hold that the tenancy is an assured tenancy in order to refuse the pursuer’s first two craves.   That is because if there is indeed a lease, as I consider that there is, then there has been no evidence that it has been validly ended by a notice to quit complying with the requirements of the common law: see Stair Memorial Encyclopaedia, Landlord and Tenant, paragraphs 386, 390.  Until and unless the contractual tenancy has been effectively brought to an end by notice to quit the provisions of the 1988 Act conferring security of tenure are not in play:  see section 16(1).   The absence of evidence to establish that a valid notice to quit has been served would therefore in itself sufficient to defeat the pursuer’s first and second craves, based as they are on averments of no right or title to remain, even if the tenancy was not held to be an assured tenancy. 

[59]      To sum up.   I am satisfied that the occupancy agreement which the parties agreed in relation to the defenders’ occupancy of the Lodge from March 2015 was a tenancy as a matter of common law, regardless of any intention of parties to the contrary.  Even if I am wrong about that, then I am in any event satisfied that parties did in fact intend that the defenders’ occupancy would be under a tenancy, that it was an assured tenancy by operation of the statute, and not a holiday let, regardless of any intention of parties to the contrary.  Either way, the pursuer’s first two craves fall to be refused.  

 

The craves for payment

[60]      In the light of the above, I can deal with the pursuer’s other craves more shortly.    Mr Upton conceded that if there was a lease then the pursuer’s craves for payment of unpaid licence fees and violent profits could not be granted.    Notwithstanding Mr Millar’s pragmatic concession to the contrary, I consider that it would not be appropriate to grant decree for any sum as third and fifth craved.  

[61]      The sum third craved is in respect of ‘unpaid licence fees’.  However the position in law is that the defenders have continued to be tenants since December 2015, and so owe rent to the pursuer at the rate of £2,000 per month for the period since then.   Their position is that they remain willing and able to pay the rent due, and indeed that it has been tendered and refused.  In these circumstances it would in my view not be appropriate to grant decree for payment in the present action.  If in the light of my decision the pursuer were to demand payment of unpaid rent from the defenders, and it is not forthcoming, the pursuer would then – as Mr Millar accepted – appear to have an unanswerable claim for payment, and indeed a basis for entitlement to recovery of possession under ground 8 of schedule 5 to the 1988 Act.   But that is not a matter for determination in the present action.

[62]      Similarly, there has in my view been no occupation without right or title, and therefore there is no good claim in recompense, whether for violent profits or otherwise.  For this reason the pursuer’s fifth crave must be refused.  For what it is worth, even had the pursuer’s occupancy been precarious since April 2016, I would have preferred Mr Millar’s submissions on this chapter.   I do not accept that the defenders’ position was that they accepted that they would have to leave the Lodge if the sale fell through.  Their position was that they would have intended to leave in these circumstances, but not that they were obliged to.  As the first defender made clear, their circumstances changed with the collapse of the purchase, and they stayed because they believed that they had a right to do so, as tenants.  Accordingly I would not have accepted that they acted in bad faith in not removing.  Even had I been against them on that, I would have accepted that they had probabalis causa litigandi to contest the action, and therefore that one of the tests for damages by way of violent profits set out in Houldsworth would not have been made out. 

[63]      As regards the claim for reimbursement of the costs of electricity, the pursuer’s fourth crave (as amended) seeks payment of £1,070.   When the pursuer purchased the subjects and the lodges in February 2015 they were all supplied by a common electricity supply.  The pursuer took over responsibility for the account and thereafter received and paid the bills relative to it.   I am satisfied that it was part of the agreement between the pursuer and the defender relative to their occupation of the subjects that the defenders would reimburse the pursuer for the cost of the electricity used by them in the Lodge.   Indeed they both accepted this, and remained willing to pay what they were due.   

[64]      Because there was a common supply in February 2015 it was not possible to distinguish between the electricity being used by the defenders and that being used by the occupants of the lodges.  So soon after the defenders moved back into the subjects the pursuer had a card meter installed.  Rather than requiring the defenders to buy power cards themselves, the pursuer supplied them with such cards.  To further assist them, the pursuer had the tariff on the meter adjusted so as to greatly decrease the frequency with which the defenders would have to ask for replacement cards.   By around June 2016 the lodges were taken off the common supply, with the result that only the subjects were now supplied from this source.  But in any event, because the meter continued to record both the actual kilowatt usage within the subjects and the number of cards used, it should have been entirely possible to obtain a reading of the meter and so to calculate precisely both the actual usage since March 2015 and the total cost thereof.  

[65]      The pursuer did not do that.  It did not even attempt to do it.  It did not ask the defenders for access to read the meter.  It did not call on the defenders to provide a reading.  It did not even produce a statement of account from the supplier, for example from the period from June 2016 onwards when only the defender was drawing electricity from this supply.  Instead, it relied on Mr Mulholland’s recollection that in around July or August 2015 the defenders paid the sum of £450 which he said they, the defenders, said represented the cost of their electricity usage to the point of payment.  From this, the pursuer estimates that the cost to that point was around £100 per month, perhaps slightly less.  It then asked me to infer that the same amount of electricity will have been used each month since then, at the same estimated cost, and to grant decree for the total amount.  I did not find Mr Mulholland’s evidence to be reliable as to the date on which the payment of £450 was made.    Even if I had it is still unclear to me how the sum of £1070 has been arrived at.   The first defender, in his evidence, did not accept that their electricity usage had been as high as Mr Mulholland had suggested.  He estimated the usage at perhaps £12 per month, perhaps less, although of course he had only resided in the property for short periods since March 2015, and so was not best placed to know.  The second defender, whose evidence I thought most likely to be reliable on this point, accepted that the defenders paid £450 in 2015, representing their usage to date of payment, but that this payment was made in December 2015, not July or August.

[66]      To say that this is an unsatisfactory way for the pursuer to proceed in a claim of this nature is an understatement.  Evidence was readily recoverable from which a precise (or at least relatively precise) quantification could have been produced.   For no good reason that I can see, that evidence was not recovered.   I was then asked to grant decree based on conflicting and imprecise estimates based on the witnesses’ recollections.   In these circumstances I was tempted by Mr Millar’s invitation to simply refuse the fourth crave for the pursuer.   Ultimately, however, it is apparent that some payment is undoubtedly due, and, unlike in relation to third and fifth craves, that the defenders have not made or offered payment since December 2015.   With some hesitation therefore I think that the better approach is to simply to hold that the pursuers have failed to prove the claim beyond an average monthly amount calculated by reference to the second defender’s evidence, but that they should be entitled to payment of this amount.    Accordingly accepting the second defender’s evidence that their usage for March to December 2015 was £450, gives an average monthly usage of £50.  From January 2016 to date of decree is 15 months.   The total estimated cost of the defenders’ electricity usage for this period is therefore £750.

 

Disposal

[67]      I will therefore grant decree as fourth craved in the sum of £750, I will dismiss the craves for payment in respect of the defenders’ occupancy of the Lodge since December 2015, and quoad ultra I will grant absolvitor.  As requested by Mr Millar, I will direct that a hearing on expenses be fixed in due course.