Raymond Cooper is a Consultant Property Lawyer
Proposition: Whilst charities occupying premises are clearly protected by Part II of the Landlord & Tenant Act 1954, there must be a question mark over whether Part I of the 1927 Act applies.
There is no doubt that charities occupying functional premises are protected by Part II of the Landlord & Tenant Act 1954. This is because of the extended definition in S.23(2) of the expression “business”. Under S.23(2) the expression “includes a trade, profession or employment and includes any activity carried on by a body of persons, whether corporate or unincorporate”.
Part I of the Landlord & Tenant Act 1927 confers rights on tenants of “holdings” to which the Act applies a right to receive, at the end of the tenancy, compensation for improvements carried out by the tenant during the tenancy. S.17(1) says;
“The holdings to which this Part of this Act applies are any premises held under a lease, other than a mining lease, made whether before or after the commencement of this Act, and used wholly or partly for carrying on thereat any trade or business …”
Words were added later to exclude agricultural holdings and farm business tenancies but that is not relevant for current purposes.
Unlike the 1954 Act, the 1927 Act contains no definition of “business”. In the absence of any direct authority on the point (and I cannot find one) one is therefore obliged to consider the ordinary meaning of the word “business”.
The bulk of the case law surrounding the meaning of business is concerned with covenants restrictive of use, i.e. covenants which prohibit the carrying on on the let premises of any business. The starting point must be the case of Rolls v Miller [1883.R.2413]. The case concerned a lease of a house which contained a covenant that the lessee should not “use, exercise, or carry on upon the premises any trade of business of any description whatsoever”. The use to which the landlord objected was as a home for working class girls without the tenant taking any payment. Lindley LJ used these words (referred to in a number of subsequent cases) :-
“The word” i.e. business “means almost anything which is an occupation, as distinguished from a pleasure – anything which is an occupation or a duty which requires attention is a business – I do not think we can get much aide from the dictionary. We must look at the words in the ordinary sense, and we must look at the object of the covenant; and looking at both, I have no hesitation in saying that this is clearly within the words and within the object of the covenant.”
However the stress on “the object of the covenant” is significant. Earlier, Lindley LJ had said:-
“You must look beyond the words, to the object of the covenant, and, looking to the object of the covenant, one sees plainly what it is. The house was a dwelling-house; it is so described in the lease. It was let as a dwelling house, and this covenant was inserted in the lease. Well, what is the object of that covenant? There can, I think, be but one answer to that question. It was to prevent the house being used otherwise than as a dwelling house.”
As already mentioned, the judgement of Lindley LJ in Rolls has been referred to in a number of subsequent cases including the House of Lords case of Town Investments Limited and Others and the Department of the Environment [1978]A.C.359. Interestingly, this case did not concern the meaning of “business” in a restrictive covenant; the question was whether the premises were occupied by the tenant for the purposes of “business” under the Counter-inflation (Business Rents) Order 1972 (s.I.1972 No. 1850), art. 2(2) and the subsequent Counter-inflation (Business Rents) Order 1973 (S.I. 1973 No. 741), art. 2(2). Addressing the question “Was the tenant’s occupation for the purposes of a business carried on by him or for those and other purposes?” Lord Diplock said :-
“The answer to this question depends upon how broad a meaning is to be ascribed to the word “business” in the definition of “business tenancy” in the two Counter-Inflation Orders. The word “business” is an etymological chameleon.; it suits its meaning to the content in which it is found. It is not a term of legal art and its dictionary meaning, as Lindley LJ pointed out in Rolls …”.
Lord Diplock then quoted Lindley LJ’s words referred to above but added:-
“That was said by the Lord Justice in connection with the construction of a covenant in a lease against the carrying on of any trade or business on the demised premises; and ever since then there has been a consistent line of cases in which this broad meaning has been ascribed to the word “business” in the context of covenants in leases restricting the permitted user of the demised premises.”
Later in his speech, Lord Diplock said:-
“The wide interpretation to be put upon the word “business” in restrictive covenants of this kind is dictated by the evident object of the covenants. The evident object for which powers were conferred by the Counter-Inflation Orders 1972 and 1973 to make Orders restricting more money coming into circulation without any corresponding increase in production of goods or services. Separate Counter-Inflation Orders were made under the Acts, dealing respectively with business rents, agricultural rents and the rents of dwelling houses. The mischief against which these Orders were directed did not depend upon who the tenant was or the use made of premises by him but upon the receipt by his landlord of a greater sum of money in return for what produced no greater contribution to the national wealth than it had produced before. This would suggest that the evident object of the two Counter-Inflation (Business Rents) Orders called for a broad construction of the word “business” in the definition of the tenancies to which they applied, so as to embrace all tenancies save those which fell within the scope of one of the two other Orders dealing respectively with the rents of agricultural and residential premises or were excluded from the definition of “business tenancies” by express words – as were “building leases” under the 1973 Order. I would therefore hold it to be legitimate to give to the word “business” in the definition of “business tenancy” in the two Orders a meaning no less wide than that to which it has been interpreted as having in covenants in leases restricting the user of the demised premises. This meaning is, in my view, wide enough to include the purposes for which [the premises in question] were occupied …”
One more case may be worth a mention, Florent v Horez [1983] 2 EGLR 105. In that case, the landlord claimed that the tenant was in breach of his covenant not to carry on “any profession, trade or business on the premises”. The tenant was chairman of a Turkish-Cypriot organisation in London and for all practical purposes the premises were the organisation’s offices – they were its mail address and meetings were held there. Dunn LJ also quoted the passage from Lindley LJ’s judgement in Rolls (above) and made the position even clearer by adding:-
“The reason for the wide interpretation to be put on restrictive covenants of this kind is, as Ormrod LJ said in Lewis v Weldcrest [1978] 1 WLR 1107 at p.1120, because such covenants are designed to preserve the amenities of residential premises and neighbourhoods, and if the word “business” is not given as wide a meaning as possible the purpose of the covenant could readily be defeated.”
All of this may appear not to be directly relevant to the issue under consideration but the point I am making here is that the reasoning which led to the wide interpretation of “business” in the quoted cases does not in any sense apply to the context of Part I of the 1927 Act. Far from imposing a restriction on tenants, Part I creates an entitlement and a consequent burden on landlords. There is therefore a case for a much narrower interpretation.
Of course, much would depend on the nature of the premises concerned. There must be little doubt that a charity shop where customers come on to the premises and goods change hands for monetary consideration is a business use within any definition of the phrase.
The other extreme, a charity occupying office premises which are not regularly visited by the public and where no money changes hands might well be outside the scope of Part I (although, as I have said, clearly within Part II of the 1954 Act).
It seems strange that (and I repeat, so far as I can see – if anyone knows of any authority on this topic I would be most grateful to hear from them) the issue has never had to be considered by the courts. The reason may well lie in the fact that despite its venerable age the 1927 Act is still little used – I have come across cases where tenants have claimed compensation for improvements under Part 1 but not often. Incidentally, in post “Tenants’ Right to Carry Out Improvements” the same comment might well apply. I note for example that in the Estates Gazette for 13th October 2012 a very useful analysis of the issue of reasonability in the case of a qualified covenant against alterations (“Reasonable reasons”) does not mention the alternative (that is to say alternative to claiming unreasonableness) possibility of an application to the court under Section 3 of the 1927 Act (oddly enough the same Act which in Part I confers the right to compensation!).
Conclusion: There may be a doubt in the case of premises occupied by charities in which no trading takes place as to whether the tenant would on the termination of the tenancy be entitled to compensation for improvements carried out by him during the term, pursuant to Part I of the Landlord & Tenant Act 1927.
