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Beware informality...

26/10/2011

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United Kingdom

Beware informality….

This article was included in the Winter 2011 issue of Informer- the real estate newsletter

The recent decision in Mann Aviation (Engineering) Group Limited v Longmint Aviation is a timely warning that if not properly documented, letting someone use your property on an informal basis can cost the owner all the rights it would otherwise have to get the property back. 

How can letting someone use your property on an informal basis create a legal problem?  There are many reasons for being tempted to do this: from spare car parking spaces or storage, to group companies sharing premises or other friendly arrangements.  A formal lease contracted out of the Landlord and Tenant Act 1954 often seems entirely disproportionate to these sorts of occupation.

The case dealt with a tempestuous dispute at Fairoaks Airport.  It all started amicably, partly because all those involved, in terms of owners and occupiers, were part of the same group of companies.  Mann Aviation took over the running of the hangars at the airport to carry out engineering works.  They took responsibility, amongst other things, for satisfying the Civil Aviation Authority that they had the premises and personnel to look after aircraft.  Annual accounting entries were made in the various company books to deal with internal charging, which were noted down under "rent".  All continued to go well for some seven years, until a series of corporate acquisitions and restructurings left the freehold in the hands of Longmint's parent company.  They promptly granted a 10 year lease of the hangars to Longmint.  From that point onwards, things began to go wrong for both Mann Aviation (who went into administration) and Longmint Aviation, who fell behind with the rent.

Things came to a head when the administrators tried to sell Mann Aviation's business, rejecting a bid from Longmint in favour of someone else.  There was an altercation at the premises which led to a security guard being forcibly ejected and a court application to reinstate Mann Aviation. 

The court had no hesitation in concluding that Mann Aviation had a periodic business tenancy protected under the Landlord and Tenant Act 1954, and not some form of tenancy at will or licence.  Even though it had occupied the hangars with other group companies, it had sufficient control to exclude everyone else if necessary.  Therefore it had exclusive possession at a rent for a period, which given the way book entries were accounted for, must be yearly.  That tenancy was an overriding interest, taking precedence over Longmint's lease so far as the right to occupy was concerned.

Even though the tenancy could be terminated in theory, the practical considerations offered little consolation to Longmint.  They would need to give at least 6 months notice expiring at the end of a complete year.  They would have to serve this in conjunction with a section 25 notice to terminate the protected tenancy and if they were not to be required to grant successive new tenancies, they would have to find a statutory ground of objection, the key ones of which, even if successful, require payment of statutory compensation to the tenant.

The moral is that proper documentation is not an optional extra but a necessary precaution when allowing someone to use your property for the purposes of their business.

Article by Lesley Webber, Consultant in the Property Litigation Group at Fieldfisher.

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