by David Sheldon, The Law School, University of Bristol
Property guardianship is a relatively new phenomenon in England and Wales. Property guardianship has taken hold in urban areas across the country and is now performed by a sizeable minority. Government estimates suppose that between 5-7000 individuals are currently acting as property guardians whereas more recent measures suggest around 35,000 now occupy a room or space as a property guardian. Such numbers are likely to be an under-estimate signalling that property guardianship is not a niche form of occupation undertaken by eccentric young adults and popularised by the Channel Four comedy Crashing.
The idea of property guardianship is relatively straightforward. A landowner retains a property which is currently vacant. While they decide what to do with the property such as obtaining planning permission, obtaining a new long-term tenant, or even selling the property, they engage with a property guardian company. The purpose of this company is to install property guardians into the vacant property with the purpose of protecting the building from squatting, vandalism, and other forms of criminal damage. To achieve this goal, the guardian companies agree with the property guardians that they will live in the property in return for a licence fee. This fee is often far less expensive than alternative accomodation in the rental market.
The occupied buildings often need to be temporarily modified to turn non-residential accomodation such as commercial office space, commercial or industrial buildings in to residential accomodation to make them suitable for occupation by property guardians. This often includes the installation of kitchenettes and bathroom facilities which are shared by the guardians. Such buildings often lack basic safety features such as smoke alarms, fire blankets, gas and electric safety checks.
Once the landowner requires the property back, it is imperative for the guardian companies to remove the property guardians as quickly as possible. As such, guardian companies seek to only grant licence agreements to the property guardians by stating explicitly within the agreements that they are only granting licences and by headlining the documents as licence agreements. This is to allow for simple termination of the agreements. The alternative is a grant of a tenancy agreement to the property guardians which would mean a minimum of two months’ notice being needed for a valid termination of the lease under s.21 Housing Act 1988 which is itself not straightforward. This is the issue which has recently come before the courts in a string of cases seeking to determine the legal rights of property guardians. Are they tenants with a property right or are they mere licencees?
Leases, Licences and Exclusive Possession
Property guardians are by no means the first example of the debate which has existed over whether a right exists as a licence or as a lease. The seminal case of Street v Mountford stated clearly that the essential test for whether something has the hallmarks of a lease is that it grants the occupier exclusive possession, for a certain term at a rent. In later cases, the latter two requirements have been somewhat watered down by Mexfield Housing Co-operative v Berrisford and Ashburn Anstalt v Arnold respectively. Yet, the requirement of exclusive possession remains. Lord Templeman in Street stated that the enjoyment of exclusive possession granted the occupier a legal right which was good against the world, even the landowner. To find a lease, it must be found that the occupier has been granted the legal right of exclusive possession. Although, as noted by Lord Templeman in Street, there are times when exclusive possession does not necessitate the finding of a lease such as in the case of charity or service occupancy.
To determine if an occupier enjoys exclusive possession, the court following Street have determined that occupation agreements must be interpreted objectively. This involves not simply analysing the wording of the agreement but also accounting for the surrounding circumstances and the reality of the situation. Prior to Street, the wording of the agreement was paramount but Street abandoned such an approach. Any clauses which sought to remove the entitlement of exclusive possession had to be shown not to be a sham but an intentional addition. Therefore a clause to demand that an occupier be absent from the property for ninety minutes each week for the provision of cleaning services and to change bed linen which is never acted upon will be interpreted as a sham and will not defeat the finding of exclusive possession. Moreover, exclusive possession can be enjoyed by multiple occupants provided that is the intention for their occupation.
For a long time, this authoritative statement was conclusive, and the courts treaded carefully to maintain the distinction between licences as personal rights and leases as property rights. The property guardian sector however has breathed new life into this dormant area of law.
Global 100 v Laleva involved a former care home owned by the NHS who granted a licence to Global Guardians Management (GGM) who in turn granted a licence to their subsidiary, Global 100. This licence allowed Global 100 the right to grant temporary, non-exclusive licences to persons selected by Global 100 with the right to pursue possession proceedings against any of the guardians if necessary. Global 100 entered into an oral agreement, which later became a written agreement, with Laleva to function as a property guardian. The agreement stated that the “guardians did not have a right to a particular room.” The guardian was also required to stay in the property for at least five nights a week and was expected to share the property peacefully and amicably with the other guardians. Global 100 were entitled to terminate the agreement with twenty-eight days’ notice which would immediately bring the guardians right to occupy the property to an end. Ms Laleva agreed to the terms and during her occupation occupied her own numbered, lockable room to which she retained a key for, enjoyed shared use of the kitchen and bathroom facilities with the other guardians and paid a weekly fee which was termed a “licence fee” to Global 100.
In September 2020, the NHS gave notice to terminate their agreement with Global Guardians who then instructed Global 100 to serve notice on Laleva and the other guardians in the property. Laleva resisted arguing that she was a tenant and therefore the notice to quit was ineffective in terminating the agreement. Laleva argued that the agreement had granted her exclusive possession of her room in the property or alternatively that the agreement was a sham constructed to disguise the granting of a tenancy to her.
In the case, Lewison LJ made it plain that the essential ingredient of a lease remains that of exclusive possession. Lewison LJ placed great weight on the importance of why Laleva were in occupation at all. It was concluded that they were only there because of the service they were providing to the landowner meaning that even if Ms Laleva did enjoy exclusive possession of the property, she was only doing so because she was providing a service. Even if she enjoyed exclusive possession, she was only capable of holding a licence over the land. The court felt compelled to make this finding as a similar conclusion had been found in a previous guardian case which held proeprty guardians were occupying the property for to protect the building and performing a service for the purposes of the payment of domestic or commercial taxes. It is contended here that such a conclusion is incorrect. The property guardians are not being employed by the guardian companies but are instead paying a licence fee for the privilege of residing in the property. While the court were correct in finding that property guardians are only licencees, there was little need to manufacture a route to achieve this goal.
It is argued here that a better and more reasoned doctrinal approach would have been to look more closely at the legal relationship in existence between the property guardians and the guardian company. Rather than describing it as service occupancy, the terms of the agreement and the surrounding circumstances indicated that there had been no grant of exclusive possession. The restrictions imposed in Laleva amounted at best to exclusive occupation of the room but was not of the same quality as demanded for the legal right of exclusive possession. Ms Laleva did not retain dominion and control over her occupation and could not obstruct everyone in the world from entering the property. As such, there was little need for the Court of Appeal to utilise the exceptions listed by Lord Templeman in Street as there was no exclusive possession enjoyed to begin with. Nevertheless, the correct decision was ultimately reached despite the contorted reasoning.
If this had been avoided, then issues about the type of interpretation being employed by the Court of Appeal in property guardianship cases will have been avoided as it would ostensibly be an objective approach as demanded by Street v Mountford. Rather, the focus on the purpose of the agreement and the focus on the wording of the agreement rather than the objective reality of the situation has led some commentators to argue that the courts have returned to a subjective interpretative approach. It is contended here that the court did adopt an objective approach but one which was contorted leading to this confusion.
The result for property guardians is that their occupation is not protected as a tenancy and is only capable of being understood as a license agreement between themselves and the guardian company. This leaves them in the position where they are unprotected by statute which enforce tenancy protections such as the Protection from Eviction Act 1977 and s.11 Landlord and Tenant Act 1985 which bestows upon landlords a statutory obligation of repair. Such protections would have been invaluable for property guardians living in modified non-residential accomodation. The decision in Laleva however is authoritative and while the reasoning can be questioned, the result can not be.
However, this is not the end of the story for Ms Laleva and the other property guardians as the issue has once again recently come before the Court of Appeal in the case of Global 100 v Jiminez. In this case, a conjoined appeal from the Upper Tribunal (Lands Chamber), the issue was whether property guardian company’s were running unlicensed Homes of Multiple Occupation (HMO’s). In the First-Tier Tribunal, the courts in both conjoined cases found in favour of the property guardians, Jiminez and Laleva, that a building occupied by multiple property guardians should rightly be classed as an HMO. As such, in the lower tribunals, the property guardians were awarded Rent Repayment Orders against the guardian company’s.
In the Court of Appeal, there were three substantive issues which were resolved:
- Whether the guardians living in the accomodation constituted their sole use of the accomodation?
- Whether the guardian company was in control or management of the property?
- Whether the rack-rent of the property was paid to the guardian company in control or management of the property?
The answer to all three questions was answered in the affirmative. In answer to question one, the court found that while part of the guardians purpose in the property was to protect it from vandalism and criminal damage, this was a concern for the landowner and the guardian company. The use of the property for the property guardians was primarily as living accommodation. This met the requirements of s.253(2)(d) Housing Act 2004. For the second question, s.264 Housing Act 2004 stipulates that someone can only be in control or management of the property if they are the owner or lessor of the property. Given that the agreement between the landowner, NHS Property Services, and the guardian company, Global Guardians, was created by a tenancy, it was apparent that Global Guardians were indeed someone capable of controlling or managing the property. On the third question, the Rack-rent as defined in s.263(2) as a rent which is not less than two-thirds of the full net value of the premises. Lewison LJ noted that guardian companies are not in the business of charity and therefore the licence fees which were paid to them by the property guardians should be taken as the market value of the property. As these were paid to the company, they were in receipt of the rack rent. Therefore, the Court of Appeal unanimously decided that the companies in the case were running unlicensed HMO’s and the Rent Repayment Orders granted in the lower tribunals should be upheld.
The latest decision for property guardians is vital. It now means that property guardians will be protected by the extensive set of HMO regulations which means many of the safety and repair concerns raised as to whether they were licensees or tenants will now be resolved. However, the HMO regulations do not assist them in terms of protection from eviction. It does however mean that a failure of guardian companies to licence the properties accordingly will result in Rent Repayment Orders being granted. Further, property guardians are now likely to have to pay more for their accommodation, which will likely still be cheaper than the traditional rental market, will make acting as a property guardian a more costly endeavour with only slightly more protections offered through the HMO licencing.
It is also interesting to note that in Jiminez, the argument of protecting the property and the purpose of the guardianship scheme was given such short shrift when uncovering the sole use requirement for property guardians. It is interesting because it was so pivotal in finding that property guardians could only ever be regarded as licencees. This seems to be the court saying that property guardian companies cannot have their cake and eat it. They are either tenants or licencees, but they cannot be completely unprotected in this new and upcoming form of property occupation.