Leases and licences for schools and places of worship

Leases and licences for schools and places of worship – the reminder in Ruby Triangle Properties Ltd v Jesus Sanctuary Ministries Ltd

The recent case of Ruby Triangle Properties Ltd v Jesus Sanctuary Ministries Ltd is a reminder to carefully consider the differences between a lease and a licence, particularly where the property is used for business purposes and a landlord wants to evict an occupant. Interestingly, the tenant in this case was using the premises as a place of worship, which may not strike all readers as being a "business purpose".

Licence vs Lease

The distinction between a lease and a licence can have significant implications for business occupancies. 

Key characteristics of a lease include exclusive possession of defined premises and certainty of term. Payment of rent might be an indication of a lease, but it is not required for a lease to exist. If these characteristics are present, the arrangement is likely to be a lease. 

A licence does not create a legal interest in land and is merely a personal contractual permission to occupy a property. A lease on the other hand creates a legal interest in land and places certain obligations on both parties, particularly in relation to security of tenure where the occupation is for business purposes under the Landlord and Tenant Act 1954.

If a landlord is considering terminating an occupancy arrangement, it is crucial that they consider whether the arrangement is a lease or a licence to ensure the correct legal procedures are carried out.

Landlord and Tenant Act 1954 (the "Act")

Under the Act, a tenant who occupies a property for the purposes of a business is granted security of tenure when the term of its lease comes to an end.

Where a business is carried on by an individual, 'business' is only deemed to refer to trade, profession or employment, whereas if a business is carried on by a body of persons, the definition is expanded to include 'activities'.

Case law such as Secretary of State for Transport v Jenkins and Abernethie v A M & Kleinman Ltd suggest that where the tenant is an individual, there must be an intention to make a profit in order to benefit from the Act. However, Wandsworth London Borough Council v Singh suggests that where the business is carried out by a body of tenants, an activity can be protected under the Act even if it is not carried out for profit.

The Act grants a tenant the right to remain in occupation at the end of the contractual term of the lease and the right to apply for the grant of a new lease. The landlord can only object and regain possession of the property if it has the specific grounds under the Act to do so. Parties to a lease can agree to exclude security of tenure granted under the Act.

The Act sets out procedures for ending a tenancy and serving notice on a tenant to which the Act applies. If a Landlord gives notice under a supposed licence but in reality the arrangement is a protected lease, the lease can only be terminated in accordance with the Act and the Landlord can be liable to pay financial compensation for unlawfully trying to evict the tenant.

Consequently, in addition to establishing whether an arrangement is a lease or a licence, particular care should be taken with business occupancies where the tenant may be protected under the Act.   

Ruby Triangle Properties Ltd v Jesus Sanctuary Ministries Ltd

Ruby Triangle Properties Ltd ("RTP") v Jesus Sanctuary Ministries Ltd ("JSM") raised questions about whether JSM was a tenant or licencee and whether their eviction from the property was legal.

RTP is the proprietor of Ruby Triangle in London and JSM had occupied a property within Ruby Triangle for the purpose of a worship centre. JSM occupied the property since 2009 under a rental agreement where JSM was referred to as a licensee. The agreement had certainty of term, annual rent and granted exclusive possession of certain parts of the building.

JSM stayed in occupation after the termination of the agreement. In 2019, RTP served JSM with an eviction notice on the basis that JSM was illegally occupying the property, had no tenancy agreement and had not paid rent.

JSM claimed that it was a tenant and enjoyed protection under the Act and claimed damages for unlawful eviction. RTP issued a counter claim arguing JSM was in occupation as a licensee and their occupation had been validly terminated. At the outset of the trial, RTP's counterclaim collapsed as it accepted that the rental agreement gave rise to a tenancy in favour of JSM as opposed to a licence.

The Chancery Division held that JSM had a tenancy that was protected by the Act and was entitled to remain in possession until the tenant was determined in accordance with the Act. JSM was awarded exemplary damages but was liable to pay arrears of rent to RTP. When calculating damages, one factor considered by the court was that activities such as a place of worship are capable of being protected by the Act.

Comment

The case reinforces that an occupancy arrangement will be assessed on its substance rather than its label. If the characteristics of a lease are present, the arrangement is likely to be considered a lease, even if the document is called a 'licence'.

The case is a warning to landlords to take care in eviction scenarios and ensure they have the legal grounds to do so, particularly where the property is for business purposes. It also suggests that the meaning of 'business' under the Act can encompass places of worship. This may be particularly helpful for proprietors of places of worship which may wish to resist eviction by their landlords. 

For governing bodies of maintained schools in England and Wales, one way of avoiding being found to have allowed a tenancy under the Landlord and Tenant Act 1954 is to expressly enter into a transfer of control agreement under the School Standards and Framework Act 1998 and no other document. This, if properly done, would not grant a tenancy and the governing body would be able to retain flexibility to bring the arrangement to an end, either at the expiry of the agreement or if it needs to take back control of the part of the premises for its own purposes. For non-maintained schools (including academies), governing boards and landowners must be careful not to enter into arrangements which are express tenancies or are tantamount to being tenancies, without careful thought and without excluding the security of tenure provisions in the Landlord and Tenant Act 1954. The dangers are particularly present when a governing board allows a third party into occupation (such as a private nursery) without a written lease, licence or transfer of control agreement and then allows that body to occupy a part of the school premises exclusively.  

For further advice please speak to Ian Blaney (ian.blaney@LBMW.com) or Ella Westby (ella.westby@LBMW.com).