Shared Occupation and Business Tenancies

The decision of the Court of Appeal in Lie v Mohile [2014] EWCA Civ 728 has again highlighted Court’s robust approach to interpreting the Landlord and Tenant Act 1954 (the Act), and illustrated the difficulties that a business tenant in shared occupation may face when making an application for a new tenancy.

In this case, the premises were occupied by two general practitioners pursuant to a partnership agreement. The premises were owned by the Defendant, who granted a periodic tenancy to himself and the Claimant as joint tenants in order to carry on the partnership business. Following a dispute, the Defendant attempted to dissolve the partnership and terminate the tenancy. The Claimant issued an application under Section 24 of the Act, seeking the grant of a new tenancy alone for a term of 15 years. It was held, however, that the application, made by only one of the two business partners occupying the property, was invalid.

The Court considered the case of Jacobs v Chaudhuri [1968] 2 QB 470, which provides binding authority that both joint tenants must join in any application for a new tenancy under the Act unless they can benefit from one of the statutory exceptions.

In this instance, the relevant provision is contained within Section 41A of the Act, which provides an exception for partnerships where not all of the joint tenants continue to use the premises for the purpose of the partnership business. However, in order to rely on this exception, the following criteria must be satisfied for an application:

1. The lease must be vested in by at least two joint tenants;
2. The demise must include property occupied for the purpose of the business;
3. The business must, at some time during the tenancy, have been carried on in partnership by all of the joint tenants; and
4. The business now must be carried on by at least one of the joint tenants, either alone or in partnership with others, with no part of the property being occupied under the tenancy for the purpose of a business carried on by the other joint tenant.

This exception often proves beneficial for professional partnerships in which one or more of the partners no longer uses the premises, for example, due to retirement. In this case, however, it was held that the fourth condition was not satisfied; the premises continued to be occupied by both partners for the purpose of the partnership business. Although the Court recognised the potential unfairness that could be caused by Jacobs v Chauduri, it was noted that the exception in Section 41A goes some way to addressing this issue and thus should not be subject to judicial expansion.

This decision serves as a crucial reminder to professional partnerships and others operating from shared premises, highlighting the need to give full consideration to the legal structure and extent of property ownership at the outset.

For further information regarding shared occupation and business tenancies or any other property and construction matter, please contact the Edwin Coe Property team.

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