The claimant in this case was occupying premises for the purposes of his business running a cash and carry. However, the status of his occupation was unclear. He had initially moved in while negotiating with the then tenant for an assignment of the lease. However, no assignment had ever been completed. The landlord had been happy to accept rent from the claimant, and commenced negotiations with the claimant for the grant to it of a new 21-year lease.

However, nothing was ever concluded, and the claimant continued to occupy on fairly amicable terms with the landlord for a number of years, although no formal documentation was in place. When the parties eventually fell out, the claimant served a request for a new tenancy under section 26 of the Landlord and Tenant Act 1954. The landlord served a counter-notice which opposed the claimant's request on the ground of the claimant's persistent delay in paying rent.

The issue before the court was whether the claimant was entitled to a new lease and, if so, on what grounds.

Since no assignment of the original lease had been completed, the claimant's occupation was either on the basis of a periodic tenancy, or as a mere tenant at will.

The judge at first instance found that the claimant was a tenant at will. The claimant had initially gone into occupation in the expectation of terms being agreed for an assignment. When negotiations for that broke down, he remained in occupation in the expectation of terms being agreed for the grant of a new lease.

The Court of Appeal did not find it necessary to decide the point, although it did indicate that the claimant had not persuaded it that the trial judge's conclusion was wrong. The reason it was unnecessary to reach a firm conclusion on the question of whether the claimant was a periodic tenant or a tenant at will was that in neither case was the claimant entitled to serve a section 26 request. Such a request can only be made by a tenant under a fixed term lease exceeding one year, not a periodic tenancy. Tenancies at will are outside the scope of the Act altogether. The request made by the tenant was therefore of no effect.

Were there any other grounds on which the claimant was entitled to a lease? The court held that there were. The claimant had spent money improving the premises under the landlord's encouragement of an expectation in the claimant that he would be granted a 21-year lease. This gave rise to a proprietary estoppel in the claimant's favour.

The general rule in relation to proprietary estoppel is that the court must award the minimum equity necessary to do justice to the claimant. The landlord argued that this would mean reimbursing the claimant for his expenditure. However, the court disagreed, as the claimant had invested heavily in the business being run at the property. Instead, the court declared that the claimant was entitled to a 21-year lease of the premises.

The landlord had argued that the claimant ought not to be granted a new lease because of his persistent delay in paying rent. That was initially raised as a defence to the claimant's request for a new lease under the Act, but the landlord argued that it was also a circumstance which ought to defeat the claimant's proprietary estoppel. The court found that the landlord had acceded to the late payments, and that it was not a factor which would disentitle the claimant to a lease.

Things to consider

This case illustrates the dangers of allowing occupation without formal documentation in place. The landlord's problems began when it did not take decisive action following the change in occupier under the original lease.

Although in this case the court found that the claimant was only a tenant at will, where rent is accepted there is always a risk that this will give rise to a periodic tenancy which will benefit from security of tenure under the Landlord and Tenant Act 1954. In this case, despite the finding in the landlord's favour on the tenancy at will point, the landlord was by its conduct estopped from denying the claimant a new lease.

On a lease renewal claim under the Act, the maximum term a court can order is 15 years. Since the claim in this case was founded in proprietary estoppel, the court was not limited by the Act and ordered a 21-year lease.

Nazam (trading as New Dadyal Cash and Carry) v Manton Securities Ltd