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IN THE SUPREME COURT OF JUDICATURE QBENF 97/0414 CMS1

IN THE COURT OF APPEAL (CIVIL DIVISION )

(HIS HONOUR JUDGE BURSELL QC )

Royal Courts of Justice

Strand

London W2A 2LL

Friday, 20th February 1998

B e f o r e

LORD JUSTICE SIMON BROWN

LORD JUSTICE WARD

MR JUSTICE MOORE-BICK

BACCHIOCCHI

Appellant

v.

ACADEMIC AGENCY LIMITED

Respondent

(Transcript of the Handed-Down Judgment of

Smith Bernal Reporting Limited, 180 Fleet Street

London EC4A 2HD

Tel: 0171 404 1424

Official Shorthand Writers to the Court)

MR E DENEHAN (instructed by Messrs Withy King & Lee, Bath BA1 2JE) appeared on behalf of the Appellant/Plaintiff.

MR R STEAD (instructed by Messrs McCloy & Co, Bradford on Avon BA15 1JS) appeared on behalf of the Respondent/Defendant.

J U D G M E N T

(As approved by the Court )

©Crown Copyright

LORD JUSTICE SIMON BROWN: This is an appeal from that part of the order of Judge Bursell QC sitting as a judge of the High Court in Bristol on 21st February 1997 which held the appellant not entitled to statutory compensation for disturbance following the termination of his business tenancy. It raises an interesting question under s.38(2) of the Landlord and Tenant Act 1954.

The basic facts are these. From 1974 to 1994 the appellant ran a restaurant, "La Pentola", in the basement and cellars at 14 North Parade, Bath. He was the tenant of those premises under a 20 year lease dated 14th January 1974 - until 23rd April 1983 with a partner and thereafter alone. The respondents became his landlords on 11th July 1980. The annual rent, reviewable at five yearly intervals, started at £900 and rose finally to £2,875. The tenancy was one to which the Landlord and Tenant Act 1954 Part II applied. All statutory references hereafter are to that Act.

On 4th October 1993 the respondents served a s.25 notice seeking to determine the tenancy on 8th April 1994, and stating that any application by the appellant for a new tenancy would be opposed on the statutory grounds contained in paragraphs (f) and (g) of s.30(1). On 3rd November 1993 the appellant served a counter-notice stating that he was not willing to give up possession of the premises, and on 8th December 1993 he applied to the Bath County Court for an order for the grant of a new tenancy. On 5th January 1994 the respondents filed an answer stating that they would not oppose the appellant's application for a new tenancy but objecting to the terms proposed. The appellant too then changed his mind and on 29th April 1994 applied to the Court for leave to withdraw his application. On 11th May 1994 the appellant formally discontinued his application by notice under CCR Order 18 Rule 1. In the result, by operation of s.64, the tenancy was continued until 11th August 1994 and terminated on that date.

Generally speaking, a tenant in those circumstances would be entitled to compensation under s.37 - indeed, having occupied the premises for (more than) 14 years, to compensation calculated at twice the basic rate. It is common ground here that such compensation, if due, would amount to £15,030. The respondents, however, contend, and the judge below held, that no such compensation is payable: the right to it was excluded under the lease. True, s.38(2) provides that in certain circumstances such an exclusion is void. That, however, depends upon the premises having been occupied for the purposes of the business "during the whole of the five years immediately preceding the date on which the tenant ... is to quit the holding" (here 11th August 1994). Critically for present purposes, the appellant had vacated the premises and handed over the keys to his solicitors on Friday 29th July 1994. During the 12 days between then and 11th August 1994, so the judge held, the appellant was not in occupation of the premises. Those were the days "immediately preceding" 11th August 1994. It accordingly followed that the appellant had not been in occupation during the whole of the required five year period. Was the judge right to take that view? This is the critical issue raised upon this appeal.

With that brief introduction let me at once set out the relevant clause in the lease and the material parts of s.37 and 38.

Clause 4(7) of the lease provided that:

"If the tenancy hereby granted is within Part II of the Landlord and Tenant Act 1954 then subject to the provisions of sub-section (2) of s.38 of that Act neither the Tenant nor any assignee or under-lessee of the term hereby granted or of the demised premises shall be entitled on quitting the demised premises to any compensation under Section 37 of this same Act ..."

S.37 (as amended) so far as material provides:

"(1) ... where no other ground is specified in the Landlord's notice under section 25 ... than those specified in the said paragraphs (e), (f) and (g) [of s.30(1)] and either no application under ... section 24 is made or such an application is withdrawn, then ... the tenant shall be entitled on quitting the holding to recover from the landlord by way of compensation an amount determined in accordance with the following provisions of this section.

(2) ... the said amount shall be as follows, that is to say,

(a) where the conditions specified in the next following sub-section are satisfied it shall be the product of the appropriate multiplier and twice the rateable value of the holding,

...

(3) The said conditions are -

(a) that, during the whole of the 14 years immediately preceding the termination of the current tenancy, premises being or comprised in the holding have been occupied for the purposes of a business carried on by the occupier or for those and other purposes;

... "

S.38 so far as material provides:

"(2) Where -

(a) during the whole of the five years immediately preceding the date on which the tenant under the tenancy to which this Part of this Act applies is to quit the holding, premises being or comprised in the holding have been occupied for the purposes of a business carried on by the occupier or for those and other purposes, and

...

any agreement (whether contained in the instrument creating the tenancy or not and whether made before or after the termination of that tenancy) which purports to exclude or reduce compensation under the last foregoing section shall to that extent be void ...

(3) In a case not falling within the last foregoing subsection the right to compensation conferred by the last foregoing section may be excluded or modified by agreement."

We were referred to a number of cases decided under Part II of the 1954 Act which consider the question of what constitutes the occupation of business premises. All but one of these, one should note, were concerned with the basic question arising under s.23, the question whether, when the contractual term ends, the tenant is occupying the premises for business purposes and thus entitled under the Act to continue his tenancy. The question of occupation in the present case arises in a rather different context; here by definition there is to be no continuation of the tenancy. It is nevertheless important to discover the central principles emerging from the s.23 authorities.

I start with the most authoritative of the cases, the recent decision of the House of Lords in Graysim Holdings Limited v P & O Property Holdings Limited [1996] 1 AC 329, far removed though that case was from the present. The question there was not whether anyone was in business occupation of the premises but rather which amongst competing candidates for that role was properly to be regarded as occupier. Was it the respondent, the tenant of the enclosed market hall, or was it the individual stallholders who had exclusive possession of their stalls? In holding the latter, Lord Nicholls in the single reasoned speech made, under the heading ´Occupied', these important general observations:

"... As has been said on many occasions, the concept of occupation is not a legal term of art, with one single and precise legal meaning applicable in all circumstances. Its meaning varies according to the subject matter. Like most ordinary English words ´occupied', and corresponding expressions such as occupier and occupation, have different shades of meaning according to the context in which they are being used. ... In many factual situations questions of occupation will attract the same answer, whatever the context. A tenant living alone in a detached house under a residential lease would be regarded as the sole occupier of the house. It would need an unusual context to point to any other answer. But the answer in situations which are not so clear cut is affected by the purpose for which the concept of occupation is being used. In such situations the purpose for which the distinction between occupation and non-occupation is being drawn, and the consequences flowing from the presence or absence of occupation, will throw light on what sort of activities are or are not to be regarded as occupation in the particular context. In Part II of the Act of 1954 ´occupied' and ´occupied for the purposes of a business carried on by him' are expressions employed as the means of identifying whether a tenancy is a business tenancy and whether the property is part of the holding and qualifies for inclusion in the grant of a new tenancy. In this context ´occupied' points to some business activity by the tenant on the property in question. The Act seeks to protect the tenant in his continuing use of the property for the purposes of that activity. Thus the word carries a connotation of some physical use of the property by the tenant for the purposes of his business.

This is a good starting point but it is not a test which will provide an answer in all cases. Occasionally the question will be whether the property is occupied or unoccupied. Wandsworth London Borough Council v Singh [1991] 89 LGR concerning a small public open space at St. Johns Hill in Wandsworth, is an example of this. More usually, however, when disputes arise about business tenancies there is no question of the property being unoccupied. Rather, there is competition for the role of occupier."

The present, of course, is one of those ´occasional' cases where the question is "whether property is occupied or unoccupied." Amongst other such cases referred to us were I & H Caplan Limited v Caplan No. 2 [1963] 1 WLR 1247, Morrison's Holdings Limited v Manders Limited [1976] 1 WLR 533, Handcock & Willis v G.M.S. Syndicate Limited [1983] 1 EGLR 70, and Wandsworth LBC v Singh [1991] 89 LGR 75 (the one referred to by Lord Nicholls).

I propose to deal with these cases very briefly indeed, quoting only very selectively from the judgments.

For some months whilst the tenants' right to a new tenancy was being litigated they ceased trading and vacated the premises. Having succeeded before the Court of Appeal they started trading afresh. Cross J subsequently held that although it was "distinctly a border-line case", the "thread of continuity" was not broken. He said:

"I think it is quite clear that a tenant does not lose the protection of this Act simply by ceasing physically to occupy the premises. They may well continue to be occupied for the purposes of the business although they are de facto empty for some period of time. One rather obvious example would be if there was a need for urgent structural repairs and the tenant had to go out of physical occupation in order to enable them to be effected. Another example would be that which the Court of Appeal had to deal with in Teasdale v Walker [1958] 1 WLR 1076. That was a case where premises were only occupied during the seasonal periods: they were closed and empty in the winter and only used in the summer. On the other hand, as the Court of Appeal pointed out in Teasdale v Walker , a mere intention to resume occupation if you get a new tenancy will not preserve the continuity of the business user if the thread has once been definitely broken."

The tenants had to cease trading as a result of a catastrophic fire next door. They required the landlords to reinstate and expressed their desire to continue trading as soon as possible. Following the landlord's demolition and reconstruction of the premises the tenants were held entitled to a new tenancy. Scarman LJ approved what Cross J had said in Caplan, and at page 540 continued:

"I would put it in my own words as follows: in order to apply for a new tenancy under the Act the tenant must show either that he is continuing in occupation of the premises for the purposes of the business carried on by him, or, if events over which he has no control have led him to absent himself from the premises, if he continues to exert and claim his right to occupancy. ... the temporary absence in Caplan v Caplan which did not destroy the continuity of occupation was absence at the volition of the tenant. In the present case the absenting by the tenants of themselves from the premises after the devastating fire was not their choice but was brought about by the state of the premises created by the fire ..."

The solicitor tenants moved to larger premises and for six months licensed the subject premises to others save for the wine cellar and save that they reserved to themselves the right to use the dining area twice a month. The Court of Appeal held that the thread of continuity had been broken. Eveleigh LJ said at page 72:

"The words with which we are concerned import, in my judgment, an element of control and user and they involve the notion of physical occupation. That does not mean physical occupation every minute of the day, provided the right to occupy continues. But it is necessary for the judge trying the case to assess the whole situation where the element of control and use may exist in variable degrees. At the end of the day it is a question of fact for the tribunal to decide, treating the words as ordinary words in the way in which I have referred to them."

The Local Authority were lessees of some 500 square metres of public open space which they and their horticultural sub-contractors visited periodically. The Court of Appeal held that sufficient to constitute occupation. Ralph Gibson LJ said at page 79:

"The concept [of sufficiency of physical presence and of use] was whether the occupation of the premises by the tenant were shown to be such as Parliament tended to be covered by the words used in s.23(1) and (2)."

Depending always, therefore, upon their individual facts, these s.23 cases seem to have turned essentially on:

1. The extent of the tenant's physical presence on, use of, and control over the premises.

2. Whether or not the tenant vacated the premises voluntarily or involuntarily in the sense of leaving for reasons beyond his control.

3. Whether or not, having vacated, the tenant evinced an intention to return.

4. Whether the thread of continuity was broken. In determining this, however, the fact that business use may be interrupted by circumstances such as seasonal closure, holiday periods and repair work was not to be regarded as inconsistent with the notion of continuing occupation.

I come now to the authority closest in point, one concerned not with the general concept of occupation for business purposes under s.23 but with the more directly relevant question whether a tenant has occupied the demised premises "during the whole of the fourteen years immediately preceding the termination of the current tenancy" within the meaning of s.37(3)(a), a very similar question to that arising here. Falconer J in Department of the Environment v Royal Insurance Plc [1987] 1 EGLR 83 had to decide whether the fact that the tenants under a fourteen year lease had entered into occupation of the premises one day after the term began meant that they had thereby failed to occupy for "the whole of the fourteen years," in which event, of course, they were entitled only to the basic rate of compensation when at the end of the fourteen year term they quitted the premises. In holding that the tenants had indeed failed to satisfy the requirement for double compensation, Falconer J said of the s.23 authorities:

"It seems to me that all those sorts of cases are different from the present case in that they were all examples of cases where there had been physical occupation prior to the gap or break which occurred and the real question to be determined every time by the courts was: had the absence for that period, for whatever reason, effected a cesser of the occupation which had already been in existence? In the present case, as I say, it is common ground that as a physical fact the initiation of the occupation by the contractors going in did not commence until [the second day of the term]."

Falconer J rejected too the tenants' alternative, de minimis, argument:

"In s.37(3)(a) as I think I have already indicated, it seems to me that Parliament has made its intention perfectly clear. It provides for a period of fourteen years and not only does it provide for a period of fourteen years immediately preceding the termination to be the qualifying period for the higher rate under para (a) of sub-section (2) it says: ´During the whole of the fourteen years immediately preceding', emphasising in my mind that there must be a complete fourteen years. Cases have arisen, of course, where the occupancy has been broken in the ways I have indicated; they give rise to the question of whether the break that occurs causes a cesser of the occupation. But that question does not arise when the occupation has not yet commenced."

Mr Stead, for the respondents, submits that the present case is a fortiori to the DOE case: there, after all, the intention was to occupy after the one day's period of absence, here there was no such intention; and here in any event the premises were empty for substantially longer. Mr Denehan for the appellant also seeks to distinguish the DOE case on two grounds, first, because there was no break there in an existing period of occupation: occupation had simply not commenced in time; secondly, because the date that business occupation was to commence was there entirely in the tenants' hands whereas here the appellant had to ensure that he gave vacant possession by 11th August.

For my part I would reject every one of these arguments. There seems to me no distinction whatever between the two cases and certainly none in principle. If DOE was rightly decided, then the present appeal too must fail.

Before coming to a final conclusion on the point it is necessary to return briefly to the facts to see just why the appellant here physically vacated these premises twelve days before he needed to - twelve days during which, of course, he remained liable under the lease for rent and subject also to all other relevant covenants, including for example as to the state of the premises. The factual position can, I think, be fairly summarised as follows:

1. In early 1994 the appellant changed his mind about wanting a new lease because he decided it was time for him to retire. He was sixty years of age and had been in the restaurant business for nearly forty years. He did not want the responsibility of taking on a new long term lease.

2. His solicitors mistakenly thought that under the statute the tenancy terminated on 29th July. On 9th June they wrote to the respondents' solicitors: "as previously confirmed our client will be leaving at the end of July." On 24th June 1994 they wrote:

"... the application was withdrawn by us on 29th April - see copy application to the Court herewith. Accordingly rent is due up to the 29th July."

On 5th July the respondents' solicitors pointed out that time runs from when the proceedings are actually discontinued and that the lease would therefore end on 11th August. Their letter concluded:

"If your client is saying that he will give possession at the end of this month and wants us to consider with our client whether he is prepared to forego the rent if early possession is given, we will take our client's instructions."

On 22nd July 1994 the appellant's solicitors replied:

"Our client proposes vacating on the 29th July providing he is released from any further liability for rent and we shall be obliged if you will confirm this is agreed by return."

There was no response to that letter.

3. As stated, the appellant vacated the premises and handed over the keys to his own solicitors on Friday 29th July 1994. The restaurant had closed the previous Saturday, 23rd July. The intervening six days had been spent cleaning up the premises.

Woodfall's Law of Landlord and Tenant (1994 Edition) in paragraph 22.172, after referring to the DOE case, says this:

"It is not clear what the position would be if a tenant who had been in occupation for more than fourteen years at the date of service of the landlords' s.25 notice quits some months before the date of termination. On one view he would not have been in occupation for the whole of the fourteen years preceding the termination of the tenancy, and consequently would not be entitled to higher rate compensation. The justice of this is hard to see, but it may be compelled by a literal reading of the Act."

That so-called literal reading of the Act is what Mr Stead contends for here. He submits that the words "immediately preceding" are strong words, clearly designed to ensure that compensation is only payable in cases where the business use has continued to the very end. Such a conclusion, he argues, is not unjust, particularly in a case like the present where the appellant had agreed to an exclusion of the right to compensation for disturbance and where in any event, when the opportunity of a fresh tenancy was put before him, he withdrew his application. True, at the other end of the merits spectrum would be a s.37(3)(a) case in which neither of these considerations arose, but, contends Mr Stead, there is always the possibility of casualties from the strict construction of any legislation.

To my mind, however, the question here is not whether the words of the statute should be construed literally or otherwise but rather what is meant in this specific context by the words "occupied for the purposes of a business." It is at this point that the s.23 authorities provide some help.

Once it is recognised that premises can be occupied for the purposes of a business even when they are closed for the season, or for holidays, or for repairs (as those authorities plainly establish), it must surely follow that s.38(2)(a) can perfectly well be satisfied notwithstanding that the tenancy comes to an end during such a period of closure. So much, indeed, the respondents recognise and accept; that is why they do not seek to rely upon the six day period between 23rd and 29th July when the restaurant was shut for the premises to be cleaned.

What, then, is different about the final ten days of this appellant's lease? Mr Stead argues that none of the touchstones of occupation established by the s.23 authorities were satisfied during that period: the appellant vacated these premises voluntarily, left them empty, and had no intention of ever returning. But all that would have been equally true had the lease ended during a holiday period. What is it, therefore one asks, about periods of mid-term closure for repairs and the like that in the eyes of the law they do not destroy the continuity of business occupation? That is the critical question and the answer surely is this: each of these events is recognisable as an incident in the ordinary course or conduct of business life. By the same token that trading may have to cease mid-term for repairs, so also it may have to be delayed for the premises to be fitted out in the first place, or may have to end before the term of the lease expires so that the premises may be cleaned up and handed over with vacant possession on the due date.

If, as one would readily have inferred in the DOE case, it suited the tenants for business reasons to go into occupation a day late - perhaps because architects or fitters could not conveniently attend earlier - that seems to me no less an incident of the overall business use of the premises during the period of the lease than had mid-term repairs taken a day longer for the same reason. Indeed, whenever business premises are empty for only a short period, whether mid-term or before or after trading at either end of the lease, I would be disinclined to find that the business occupancy has ceased (or not started) for that period provided always that during it there exists no rival for the role of business occupant and that the premises are not being used for some other, non-business purpose. That to my mind is how Part II of the 1954 Act should operate in logic and in justice. It has nothing to do with the de minimis principle. Rather it is a recognition that the tenant's business interests will not invariably require permanent physical possession throughout the whole term of the lease and he ought not to have to resort to devices like storage of goods or token visits to satisfy the statutory requirements of continuing occupation. If, of course, premises are left vacant for a matter of months, the court would be readier to conclude that the thread of continuity has been broken.

In the present case it seems plain that, having planned for some time on vacating the premises in late July through a misunderstanding of when the lease was to end, the appellant found it commercially sensible to stick to this plan even though ultimately he obtained no rent rebate (which no doubt is why he left the keys with his solicitors instead of giving immediate vacant possession to the respondents). All of this I regard as no less an incident of normal business life than the events so regarded in the s.23 cases. Here, of course, unlike in those cases, the tenant when vacating the premises had no intention of returning. But that, as I observed earlier, is because the present context necessarily predicates the ending of the business tenancy. The court in the DOE case, just as Judge Bursell QC here, to my mind paid too much attention to the words "immediately preceding" and thereby overlooked the correct approach to the concept of continuing occupation as it applies at each end of the term of a business tenancy. Had the ordinary s.23 approach been adapted to the present, different context, I have no doubt that on the facts this appellant must have been found entitled to the statutory compensation. I would therefore allow his appeal and alter Judge Bursell's order accordingly.

In those circumstances the respondents' cross-appeal on costs does not arise for decision. It was in any event brought improperly without leave.

LORD JUSTICE WARD:

The Material Facts.

1. After carrying out certain renovations and improvements, the appellant opened his restaurant business at the premises in April 1974. He served his last meal there more than 20 years later on Saturday 23rd July 1994.

2. He took some days to clear up and leave the premises in good order. He locked the doors on Friday 29 July and did not return.

3. That was the chosen date for closure because his solicitors mistakenly thought that it was the date he had to quit being 3 months after they had applied to the Court for leave to withdraw his application for a new tenancy.

4. It is now common ground that the application was only finally disposed of by the court’s granting that leave on 11th May with the result that the date on which he was to quit was Thursday 11th August.

5. The landlords held him to that later date and he remained liable under the terms of the lease and for rent until then.

6. Consequently the premises stood empty for 12 days before the proper date to quit.

7. By clause 4 (7) of the lease the parties had contracted out of the obligation to pay the statutory compensation for disturbance but that clause would be void if section 38 (2) of the Landlord and Tenant Act 1954 applied.

The question in this appeal is, therefore, whether in the circumstances this is a case where:

"during the whole of the five years immediately preceding the date on which the tenant under a tenancy to which this Part of this Act applies is to quit the holding, premises being or comprised in the holding have been occupied for the purposes of a business carried on by the occupier or for those and other purposes.”

That question poses a dilemma for me. On the one hand, successfully to argue that quitting 12 days early has the effect of breathing life into what, as the decades rolled by, must have seemed to be an increasingly moribund clause 4 (7), is to achieve the triumph of technicality over merit. On the other hand, there is a remorseless compulsion to the literal construction of section 38 (2) adopted by the judge. I have not found it an altogether easy matter to decide.

1. The purpose of the statutory scheme provided by Part II of the Act was expressed by Ackner L.J. in Cardshops Ltd. -v- John Lewis Properties Ltd. [1983] Q.B. 161,179 to be:

"Parliament intends that the tenant should be properly compensated for the disturbance in having to vacate the premises.”

This disturbance is suffered equally when, as here, the tenant withdraws his application for a new tenancy and a tenant in these circumstances is just as much entitled to his compensation.

2. Section 38 operates to restrict the freedom of contract which would otherwise allow the parties to agree that no such compensation shall be paid. It operates in favour of the tenant and against the landlord. Its purpose is to ameliorate the tenant's position by imposing the statutory scheme of compensation on the landlord once the tenant qualifies for relief through five years’ occupation for business purposes. To give effect to that statutory purpose, the question should be approached broadly rather than narrowly.

3. Reference to the "whole of five years” is an indication that continuous occupation for that period is required.

4. "Immediately preceding" indicates that the occupation must continue up to the date of quitting.

5. In the wholly different context where the court’s jurisdiction to grant a divorce is dependant upon habitual residence for 12 months immediately preceding the presentation of the petition, I would not find it difficult to decide that the requisite period is 365 days, not 364 days and that if the petitioner had abandoned his residence 12 days before the presentation of the petition, jurisdiction would not be established and it would not avail the petitioner to pray in aid the 20 years’ previous residence. This was the judge’s approach and I have already acknowledged the force of his reasoning.

6. It seems to me that the case must turn upon the meaning to be given to the words "occupied for the purposes of a business carried on by the occupier.”

7. None of the decided cases is exactly on the point we have to decide. Department of the Environment -v- Royal Insurance P. L. C. [1987] 1 EGLR 83 is closest. For my part I find it very difficult to accept Falconer J.’s reasoning that in circumstances where the lease was taken on 23rd August but the builders were not put into the premises until the 25th to begin the work everyone contemplated was to be done before the tenant's business could commence, it was appropriate to find there was no intention to occupy the premises on the first day simply because the builders began work on the second day.

8. The other reported decisions all seem to be cases where the tenant was seeking a new tenancy which gave rise to a question under section 23 whether or not the premises were being occupied for the purposes of a business. Being in the same part of the Act, the words in sections 23 and 38 should bear an allied meaning.

9. The authoritative decision is Graysim Holdings Ltd -v- P.&O. Property Holdings Ltd. [1995] 1 A.C. 329 from which I extract these propositions from the speech of Lord Nicholls of Birkenhead. Firstly, with my emphasis added:

"The concept of occupation is not a legal term of art, with one single and precise meaning applicable in all circumstances. Its meaning varies according to the subject matter. Like most ordinary English words "occupied,” and corresponding expressions such as occupier and occupation, have different shades of meaning according to the context in which they are being used.....

... the answer in situations which are not so clear cut is affected by the purpose for which the concept of occupation is being used. In such situations the purpose for which the distinction between occupation and non-occupation is being drawn, and the consequences flowing from the presence or absence of occupation, will throw light on what sort of activities are or are not to be regarded as occupation in the particular context. In Part II of the Act of 1954 “occupied” and “ occupied for the purposes of a business carried on by him” are expressions employed as the means of identifying whether a tenancy is a business tenancy and whether the property is part of the holding and qualifies for inclusion in the grant of a new tenancy. In this context “occupied” points to some business activity by the tenant on the property in question. The Act seeks to protect the tenant in his continuing use of the property for the purpose of that activity. Thus the word carries a connotation of some physical use of the property by the tenant for the purpose of his business.”

There are, however, important qualifications in his speech which I again emphasise:

" This” (physical use of the property by the tenant for the purposes of his business) “is a good starting point but it is not a test which will provide an answer in all cases. ....

To look for a clear line between these instances would be to seek the non-existent. The difference between the two extremes is a difference of degree, not of kind. ... It is, moreover, a question of fact in the sense that the answer depends upon the facts of the particular case. The circumstances of two cases are never identical, and seldom close enough to make comparisons of much value. The types of property, and the possible uses of property, vary so widely that there can be no hard and fast rules. The degree of presence and exclusion required to constitute occupation, and the acts needed to evince presence and exclusion, must always depend upon the nature of the premises, the use to which they are being put, and the rights enjoyed or exercised by the persons in question.

Since the question is one of degree, inevitably there will be doubt and difficulty over cases in the grey area. ”

10. Earlier decisions also give some helpful guidance. In I. & H. Caplan Ltd.- v - Caplan [1963] 1 W.L.R. 1247, Cross J. said:

" I think it is quite clear that a tenant does not lose the protection of the Act simply by ceasing physically to occupy the premises. They may well continue to be occupied for the purposes of a business although they are de facto empty for some period of time....A mere intention to resume occupation if you get a new tenancy will not preserve the continuity of business user if the thread has once been definitely broken....The thread of continuity... was not broken in this case.”

In Morrisons Holdings Limited -v- Manders Property (Wolverhampton) Ltd [1976] 1 W.L.R.533, the fire damage case, Scarman L.J. said:

"... if events over which he has no control had led him to absent himself from the premises,” (he must show he) “continues to exert and claim his right to occupancy.“

In Hancock & Willis (a firm) -v- GMS Syndicate Ltd [1983] 1 EGLR 71 Eveleigh L. J. said:

"The words with which we are concerned import, in my judgment, an element of control and user and they involve the notion of physical occupation. That does not mean physical occupation every minute of the day, provided the right to occupy continues. But it is necessary for the judge trying the case to assess the whole situation where the element of control and use may exist in variable degrees. At the end of the day it is a question of fact for the tribunal to decide.”

In Wandsworth London Borough Council -v- Singh [1991] 2 EGDR 75 Ralph Gibson L.J. said:

" Thus if the physical occupation is not continuous, the right to occupy must continue in order for the continuity of occupation to be preserved for the purpose of section 23.”

When I draw these strands together, it seems that I can properly arrive at the following conclusions.

1. At the heart of the problem is the need to establish business activity for the requisite period of five years.

2. The decided cases are useful as far as they go but it must be remembered that these cases (except DOE) were concerned with establishing a continuing business activity in order to lay the foundation for a renewal of the tenancy. Here the focus is different: here it has to centre on business activity which is now being conducted with a view to discontinuing that business on those premises and quitting them.

3. Just as the business activity will be treated as continuous notwithstanding seasonal breaks or interruptions for the carrying out of repairs after fire damage, so should the business activity be capable of being treated as continuous where there is an interruption caused for the purpose of quitting the premises. The thread of continuity has a degree of elasticity to it and it has that elastic quality at the end as well as in the middle of the thread.

4. What is necessary in the section 23-type case is the intention to return, or at least the intention to continue to exert and claim the right to occupy. Having regard to the different nature of business activity which is involved in running down a business in order to remove from the premises, there must be an associated intention not so much to return but rather to quit on the proper date, as that date is defined in the Act, and to remain responsible under the tenancy till then.

5. To insist, as the application of DOE would require, that there be precise coincidence of time between cessation of all activity and the moment when the obligation to quit arises, will produce commercial absurdity. It is an affront to common sense to require a pot and pan to be left on the premises till the clock strikes midnight on the last day. Common sense surely dictates that there be an allowance for reasonable leeway.

6. Once it is established on the particulars facts of the case that leaving the premises unattended is associated with cessation of business activity for the purpose of quitting pursuant to the statutory scheme, then it is a matter of degree whether the period of inactivity is reasonably incidental to the commercial decision to cease trading from those premises.

7. Thus it seems to me that the proper approach requires answers to questions like these:

(a) What was the purpose of leaving the premises unattended? Was it linked to or part and parcel of the business activity which was then necessarily geared to winding down preparatory to vacating for good? I find it was.

(b) What was the intention lying behind the decision to leave the premises unattended? Was it total abandonment not only of the premises but also of the accruing right to compensation, or was it to quit in orderly fashion in order to comply with the statutory obligation to do so? I find it was the latter.

(c) As a matter of fact and degree, was the period of non-activity reasonably incidental to the winding down for the purpose of ending all business activity on the day the tenant was required to quit? I find it was.

(d) Bearing in mind the elasticity of the thread of continuity, does the thread stretch from the commencement of the business to the quitting of the premises looking at it as a coherent whole? Changing the metaphor, is there an unbroken link between the beginning and the end? I find there was.

8. Consequently I am satisfied that section 38 does operate so as to render clause 4 (7) void because in my judgment during the whole of the five years immediately preceding the date on which the tenant was to quit the holding, the premises were being occupied for the purposes of a business carried out by the occupier. I therefore agree with my Lords that the appeal should be allowed.

MR JUSTICE MOORE-BICK: I agree that this appeal should be allowed.

In Graysim Holdings Limited v P & O Property Holdings Limited [1996] 1 A.C. 329 Lord Nicholls emphasised that the words "occupation", "occupied" and corresponding expressions used in Part II of the Landlord and Tenant Act 1954 are not legal terms of art but are ordinary English words which bear different shades of meaning according to the context in which they are used. As my Lord, Simon Brown L.J. has pointed out, all but one of the authorities cited to us were concerned with the position of a tenant who wished to continue his existing business and was seeking a new tenancy for that purpose. In none of them was the court concerned with the situation which arises at the end of the contractual term when the court is precluded from granting a new tenancy. In such cases there can be no continuing occupation in the future under the provisions of the Act and the business will no longer be carried on from those premises.

As Mr. Denehan pointed out, the tenant under these circumstances is obliged to give vacant possession at the conclusion of the term. He is not entitled to hold over beyond that date in order to wind down his business and clear out his possessions. It is inevitable, therefore, that he will have to cease trading from the premises some time before the contractual term comes to an end and will remain in occupation merely in order to make preparations for giving possession. The likelihood is that a prudent businessman will ensure that the arrangements he makes for the removal of stock and equipment will result in the premises being substantially vacated before the very last day of the term. Unless he leaves some possessions in the premises for purely symbolic purposes, therefore, it is unlikely that he will remain in physical occupation until the last moment, although he will continue to have a right of access and to be responsible for safety of the premises as well as for outgoings such as rent, rates, insurance and so on. This is the practical business context in which sections 37 and 38 of the Act have to be construed.

The relevant part of section 38(2)(a) refers to the position where

"premises being or comprised in the holding have been occupied for the purposes of a business carried on by the occupier or for those and other purposes . . . ."

(emphasis added). The question facing the court, therefore, is whether in the circumstances which existed in the present case the appellant was occupying the premises for the purposes of his business within the meaning of this section. In the ordinary way the fact that the tenant has ceased trading from the premises is likely to lead to the conclusion that he is no longer in occupation of them for the purposes of a business, particularly if he has not retained any physical presence in the form of furniture, equipment or stock. In Aspinall Finance Ltd v Viscount Chelsea [1989] 1 EGLR 103 the premises in question had been used as a gaming club. About 5 years before the term expired the tenant obtained more favourable premises for which it was able to obtain a licence only by agreeing to give up its licence on the original premises. It therefore closed down the original premises and transferred its business to the new premises. The tenant retained its lease on the original premises and hoped, and indeed intended, to resume operations there if it could obtain a fresh licence, but the Gaming Board refused to grant a new licence until a new tenancy had been obtained. The court had to decide whether the tenant was still in occupation of the original premises for the purposes of a business carried on by it. The judge recognised that a business does not have to be carried 24 hours of the day, or even 52 weeks of the year, for the tenant to be in continuous occupation. He said

"The mere fact that the tenant is not occupying at the relevant date is not conclusive. Tenants do not have to occupy and carry on business for every hour of every day. Some breaks are inevitable. At the smallest level, the premises may be closed for the night for business. They may be closed for a longer period while repairs can be carried out. They may be closed in order that the tenant and his staff can have a holiday. They may be closed because the business is a seasonal one. So one gets businesses that are only open in the summer months and are closed throughout all the winter months.

In all those types of case it can be said that the tenants are occupying for business purposes, even though when the application is made or when the lease ends, or both, falls within a period of closure. "

On the other hand, it is not enough that the tenant is still entitled to occupy the premises and is responsible for their upkeep. In that case the Court held that the tenants had ceased to occupy the premises for the purposes of their business because, having a clear choice either to continue in the old premises or to go to the new premises they had elected of their own choice to go to the new premises. That, with respect, seems correct as a matter of common sense, even though the tenant retained the right to occupy the premises and remained responsible for the outgoings. Similarly, if in the present case the appellant had closed the restaurant and vacated the premises six months before his tenancy expired because it was losing money, or because his health was deteriorating or because the chef had left, I think it would be difficult for him to say that he had remained in occupation for the purposes of a business right up to the end of the term.

Here, however, the closure of the restaurant and the removal of all the appellant's possessions were a direct consequence of the expiry of his tenancy. In many cases it must be difficult for a tenant to give vacant possession without having cleared the premises a few days before the tenancy expires, but if Mr. Stead is right, the tenant would in such cases invariably lose the protection of section 38(2) (and for that matter the benefit in an appropriate case of the enhanced level of compensation provided for in section 37(3)), however long he had been in occupation before the business closed. I find it difficult to accept that that is what Parliament intended.

If the premises remain empty and unused for a brief period of time after closure of the business due to the impending expiry of the tenancy, I think that should ordinarily be regarded as a normal aspect of carrying on the business at those premises, and as a matter of ordinary usage I think the tenant can properly be said to continue in occupation during that period for the purposes of the business. The fact that he overestimates the time needed to clear the building, or makes a mistake of a few days about the date on which he must give possession, or simply decides to clear the premises a little earlier than he need do so in order to suit his own convenience does not in my view detract from that provided that the expiry of the tenancy is the real cause of the closure of the business and the vacating of the premises. I agree with my Lord, Simon Brown L.J., that a similar approach ought to be taken to a period of delay in moving into the premises at the commencement of the tenancy where that is directly attributable to arrangements which have to be made to enable the premises to be used for the business purposes of the tenant. Here again the context plays an important part and requires one to give a rather broader meaning to the word "occupy" and corresponding expressions than might be appropriate under section 23. In Department of the Environment v Royal Insurance PLC [1987] 1 EGLR 83 Falconer J. held that the tenant had not been in occupation during the whole of the fourteen years immediately preceding the termination of its tenancy because the contractors who were to carry out work on the premises prior to its use by the tenant did not begin work of any kind until the second day of the fourteen year term. I agree that the case was wrongly decided. With all respect to the learned judge, I think he was persuaded to pay too much attention to cases concerned with the application of section 23 and so failed to consider whether as a matter of ordinary usage the tenant could properly be said to have been in occupation of the premises as from the first day of the tenancy. Had he done so, I think he would have been bound to conclude that it was.

For these reasons and for the reasons given by my Lord, Simon Brown L.J., I too would allow the appeal.

ORDER: Appeal allowed as per judgment with costs; cross-appeal dismissed with costs; respondent to pay three-quarters of appellant's costs below.