There have been a number of cases dealing with disputes as to the correct statutory authorities governing premises with combined business and residential purposes. Two recent English Court of Appeal decisions have clarified the practical application of the statutory position. While the cases do not introduce any new points of law, nevertheless their importance lies in the fact that they provide guidance on the interpretation of the various statutes applying to business premises and residential premises.

Broadway Investments Hackney Limited v Grant [2006] EWCA Civ 1709

Mr Grant was granted a lease for 10 years of premises which comprised basement, ground and first floor. At the outset the premises were in a state of disrepair. As tenant, Mr Grant carried out the works to the first floor and used this as residential premises. Later, by January 2000 the ground and basement were fit for use as a shop selling fish and groceries. In 2002 the freehold title was transferred to Broadway Investments Hackney Limited who commenced proceedings three years later to take possession of the premises by way of forfeiture due to rent and other arrears. The District Judge made an Order for possession concluding that the tenancy was a business tenancy. The tenant appealed to the Circuit Judge who interpreted the lease as an assured tenancy and set aside the Absolute Possession Order and substituted an Order, suspended on terms that the tenant pay the current rent and pay off the arrears. The matter was then appealed by the landlord to the Court of Appeal.

Business use means business tenancy

In reaching a decision, the Court of Appeal considered the various statutory provisions and upheld the original decision. They looked at the Housing Act 1985, the Housing Act 1988 and Part II of the Landlord and Tenant Act 1954.

In deciding which of the statutory provisions were relevant to the case, the Court of Appeal considered the facts of the case and found that as a matter of fact the tenant occupied the ground and basement floor of a shop as a business and had done so since the year 2000. In addition, the lease itself referred to a lease of shop premises and a number of the definitions including the permitted use referred to business uses for the ground and basement premises. In addition, there was a provision positively obliging the tenant to use the premises for the permitted use as a shop and included a clause obliging the tenant to keep open the shop premises.

On the basis of these facts it was clear that Part II of the Landlord and Tenant Act 1954 applied. It was concluded that once the tenant began trading he fell within the business code. Accordingly in terms of Section 23(1) of the 1954 Act the premises occupied by the tenant for residential purposes were deemed to be occupied for the purposes of a business carried on by him. It made no difference that the premises had only been used for residential purposes in the earlier years before the premises were fit for the purpose as a shop. The case clarified that any tenancy to which Part II of the 1954 Act applied is excluded from the Housing Act 1985 and also the Housing Act 1988.

It was stated that the facts of the case fell within the test that had been laid down in the case of Cheryl Investments v Saldanha [1978] 1WLR1329 which stated that the business occupation must exist both at the time of the contractual tenancy commencing and also at the time of the service of the notice to quit.

Tan and Another v Sitkowski [2007] EWCA Civ 30

In this case the tenant used the ground floor of leased premises for an electrical retail business and lived in the first floor flat with his family. In the Rates Register the premises were referred to as "shop flat and premises". The lease described the premises as "that shop and premises known as" and the tenancy agreement described the use as that of a retailer and repairer of televisions and radios. The lease agreement included a provision for re-entry in usual terms. More than 20 years into the tenancy, the tenant closed his business and ceased to trade from the ground floor. The ground floor was then used as storage in connection with his residential use of the upper floor.

The freehold title was subsequently sold and the new landlord served a series of notices to quit. The landlord then brought proceedings for possession and a Possession Order was granted. The tenant appealed.

What protection applied to the tenant?

The Court of Appeal first of all looked at the protection given to business tenants under the Landlord and Tenant Act 1954. The Court also considered the protection to residential tenants under a series of Acts however it was again concluded that these did not apply where the tenancy is a tenancy to which Part II of the Landlord and Tenant Act 1954 applies.

The tenant argued that when the tenancy was originally granted the tenant enjoyed the protection of the Landlord and Tenant Act 1954. However, once the premises ceased to be used for business purposes, he claimed protection under the Rent Act 1977. The effect of this was at the time of the service of the notices to quit in 2004 the tenant was a protected tenant and therefore became a statutory tenant upon expiry of the relevant notice.

The landlord's arguments were that where premises are mixed they do not constitute a dwelling for the purposes of Section 1 of the Rent Act 1977 and, it is not possible to change by altering the use.

The Court held that the Rent Acts no longer applied to premises used for mixed purposes. Therefore the premises could not be treated as "let as a dwelling" unless they were let for purely residential purposes. Accordingly, the tenant's argument was rejected. Another issue was raised in the Court namely whether the nature of the tenancy can change where the landlord has agreed to a change in user i.e. from mixed to residential use only. The Court held, in this case, that the landlord knowing that a business use had ceased and that the only use currently made was residential was not enough to constitute assent. More would be required actively by the landlord to constitute positive assent to the change of use.

Treatment as a business will be difficult to displace

In the Broadway Investments case, the Court did consider various of the authorities raised by the tenant's solicitor but held that these were either cases which had their own peculiar facts or actually focussed on different issues.

The second case clearly shows that there is still scope for ambiguity in the interpretation and interaction of the various Acts in the case of mixed premises.

However, the combination of the decisions shows that generally the Courts will engage the provisions of the Landlord and Tenant Act 1954 where there is or has been a business tenancy in place.

The full texts of the decisions in both cases are available at:

- Broadway Investments Hackney Limited v Grant [2006] EWCA Civ 1709

- Tan and Another v Sitkowski [2007] EWCA Civ 30