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IN THE SUPREME COURT OF JUDICATURE CCRTF 96/1744/E

(HIS HONOUR JUDGE COWELL )

Royal Courts of Justice

Strand

London WC2

Wednesday, 30 July 1997

B e f o r e:

LORD JUSTICE LEGGATT

LORD JUSTICE MORRITT

LORD JUSTICE BROOKE

- - - - - -

CHURCH COMMISSIONERS FOR ENGLAND

PLAINTIFF/RESPONDENT

- v -

BAINES

DEFENDANT/APPELLANT

- - - - - -

(Transcript of the handed down judgment of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 831 3183

Official Shorthand Writers to the Court)

- - - - - -

MR D WATKINSON [MR S SIMBLET 30-7-97 ] (Instructed by Messrs Ashley Wilson, London SW3 1HA) appeared on behalf of the Appellant

MR P ROLFE (Instructed by Messrs Radcliffes Crossman Block, London SW1P 3SJ) appeared on behalf of the Respondent

- - - - - -

J U D G M E N T

(As approved by the Court )

- - - - - -

©Crown Copyright

IN THE SUPREME COURT OF JUDICATURE CCRTF 97/0901/H

(HIS HONOUR JUDGE WHITE )

Royal Courts of Justice

Strand

London WC2

Wednesday, 30 July 1997

B e f o r e:

LORD JUSTICE LEGGATT

LORD JUSTICE MORRITT

LORD JUSTICE BROOKE

- - - - - -

EBIED & ANR

PLAINTIFFS/RESPONDENTS

- v -

HOPKINS & ANR

FIRST DEFENDANT/APPELLANT

- - - - - -

(Transcript of the handed down judgment of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 831 3183

Official Shorthand Writers to the Court)

- - - - - -

MR P MORGAN QC with MR A SHORT (Instructed by Messrs Alan Edwards & Co, London W8 7TH) appeared on behalf of the Appellant

MR D BROUNGER [MR M COLE 30-7-97 ] (Instructed by Messrs Ronald Fletcher & Co, London W9 1NJ) appeared on behalf of the Respondent

- - - - - -

J U D G M E N T

(As approved by the Court )

- - - - - -

©Crown Copyright

IN THE SUPREME COURT OF JUDICATURE CCRTF 97/0902/H

(HIS HONOUR JUDGE WAKEFIELD )

Royal Courts of Justice

Strand

London WC2

Wednesday, 30 July 1997

B e f o r e:

LORD JUSTICE LEGGATT

LORD JUSTICE MORRITT

LORD JUSTICE BROOKE

- - - - - -

WELLCOME TRUST LIMITED

PLAINTIFF/RESPONDENT

- v -

HAMMAD

DEFENDANT/APPELLANT

- - - - - -

(Transcript of the handed down judgment of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 831 3183

Official Shorthand Writers to the Court)

- - - - - -

MR P MORGAN QC with MR S COTTLE (Instructed by Messrs Bindman & Partners, London WC1X 8QS) appeared on behalf of the Appellant

MR T C DUTTON (Instructed by Messrs Cameron Markby McKenna, London EC3N 4BB) appeared on behalf of the Respondent

- - - - - -

J U D G M E N T

(As approved by the Court )

- - - - - -

©Crown Copyright

Wednesday, 30 July 1997

J U D G M E N T

LORD JUSTICE LEGGATT: This is the judgment of the Court. The three appeals now before the Court have been heard together. The resolution of each depends upon the true construction of section 137(3) of the Rent Act l977 (‘the 1977 Act’). It is convenient first to summarise the facts of each appeal.

The ground floor shop and parlour of 8 Elgin Crescent, London W11 and the first and second floors 6 and 8 Elgin Crescent were demised in l968 by the later Alfred Standish to a Mr Collins for a term of 21 years from 24th June l968. At that time the whole of the premises was vacant. It is not in dispute that the lease created came within the provisions of Part II of the Landlord and Tenant Act l954 (‘the 1954 Act’). The lease contained a covenant that the lessee would not without the previous consent of the lessor carry on or suffer to be carried on in or upon the demised shop premises or any part thereof any trade or business other than that of a betting shop and as a club in the first floor room over 8 Elgin Crescent with the remainder of the demised premises as a residence. The shop part of the premises was indeed used as a betting shop, and for a time a social club was operated on the first floor of 8 Elgin Crescent. Mr Hopkins probably took up occupation of part of the first and second floors in about l970. At the latest from l980 Mr Hopkins was in occupation of the front and rear rooms of the second floor of 6 Elgin Crescent.

By a deed of assignment dated March l980 the term created by the lease was assigned to Shieldian Ltd ('Shieldian'). That company continued to use the shop part of the premises as a betting shop. But in or about May l980 Mr Hopkins with the consent of the landlords' agents took on a sub-tenancy of additional rooms consisting of one second floor room and one first floor room in 8 Elgin Crescent, and the rear room on the first floor of 6 Elgin Crescent. In l987 the appellant with the consent of the landlords' agents took on a tenancy of the front and rear rooms of the first floor of 8 Elgin Crescent. Shieldian ceased to operate a betting shop at the property in l987 or l988. The headlease expired on 24th June l989. Throughout the lease the upstairs rooms were occupied by a number of different sub-tenants.

On 27th February l997 Judge White sitting in the Central London County Court made an order for possession of Mr Hopkins’ premises in favour of Mr Standish's trustees.

By a lease dated 17th April l978 the landlord let to the tenant for the term of 15 years from 24th June l976 the ground floor shop and basement known as 209 Brompton Road, London SW3, and the three residential flats situated on the first, second and third floors above the shop, which were together known as 1 Egerton Mansions, London SW3. By clause 3(12)(c) of the lease the tenant was permitted to underlet the residential upper part as 3 self-contained residential flats, and those flats were let to residential tenants at that date. Clause 3(14) of the lease permitted the ground floor and basement of the premises to be used as a shop with ancillary uses and permitted the residential upper part of the premises to be used as three-self contained residential flats, each in single occupation.

Mr Hammad began to reside in the third floor flat in about l980. On 5th August l985 the tenant under the headlease granted an underlease to Mr Hammad of the third floor flat for a term of 3 years from 1st January l984. On expiry of that term Mr Hammad continued to occupy the third floor flat as a statutory tenant under the l977 Act. The term of the headlease was assigned to a Mr Kanji who occupied the ground floor and basement of the premises for business purposes. As a result, Mr Kanji's tenancy of the whole of the property continued under Part II of the l954 Act after the term expired on 24th June l99l.

On 7th December l993 Mr Kanji surrendered the tenancy of the whole of the property which had been continuing under the l954 Act. On the same day the freeholder granted a new headlease to Mr Kanji, limited to the ground floor and basement at 209 Brompton Road. On 22nd August l995 the freehold in the property was transferred to the respondents Wellcome Trust Ltd. Despite negotiations no new tenancy was granted to Mr Hammad.

On 23rd April l997 Judge Wakefield sitting in the West London County Court granted to the respondents an order for possession of Mr Hammad's flat.

The first lease of these premises was granted for a term of 11¾ years from 25th March l971 by the freeholders to the tenants of the whole of the premises. The user clause of the lease permitted the ground floor of the premises to be used by the lessee for business purposes. At all material times the ground floor has been occupied by the leaseholder for the time being for business purposes. The initial term came to an end on 24th December l992 but was continued under the Act of l954. On 31st January l984 a further term of 7½ years was granted retrospectively from 25th December l982. The user clause was substantially the same, although the upper floors could be used for either residential or office accommodation. In l983, before the new term was granted, refurbishing works were carried out, and the third floor was from that time used as an office or store room by the tenant. The first and second floors were used for residential purposes. On 25th June l990 the second leasehold term expired. The tenancy continued by virtue of the l954 Act until it was surrendered on 4th June l993.

Ms Baines became a tenant in November l973 or l974 when the second floor was let to her by the leaseholder Mr Cheetham. As against him she enjoyed a protected tenancy under the 1977 Act. It is agreed that as a result of various statutory increases of rent, Ms Baines was a statutory tenant of the leaseholder at the time of surrender.

On 25th November l996 Judge Cowell sitting in the West London County Court granted to the respondents, Church Commissioners for England, a declaration that Ms Baines holds under an assured tenancy.

By section 24(3) of the 1977 Act -

‘A tenancy shall not be a regulated tenancy if it is a tenancy to which Part II of the Landlord and Tenant Act 1954 applies (but this provision is without prejudice to the application of any other provision of this Act to a sub-tenancy of any part of the premises comprised in such a tenancy).’

So far as material, it is provided by section 137(3) of the l977 Act that -

"Where a dwelling house -

(a) forms part of premises which have been let as a whole on a superior tenancy but do not constitute a dwelling-house let on a statutorily protected tenancy; and

(b) is itself subject to a protected or statutory tenancy,

then, from the coming to an end of the superior tenancy, this Act shall apply in relation to the dwelling-house as if, in lieu of the superior tenancy, there had been separate tenancies of the dwelling-house and of the remainder of the premises, for the like purposes as under the superior tenancy, and that rents equal to the just proportion of the rent under the superior tenancy."

The judges decided these cases against the tenants, holding that they were bound by the decision of this Court in Pittalis v Grant [l989] QB 605. In that case there was a lease of business premises comprising a shop and a flat. The lessee created a sub-tenancy of the residential flat giving rise to a statutory tenancy. The lease was thereafter surrendered, and the question for decision was whether the sub-tenancy was secured on surrender of the lease. This Court held that the premises let under the lease were not a dwelling-house let on a statutorily protected tenancy because the tenancy was within Part II of the 1954 Act, and consequently, under section 24(3) of the 1977 Act, it was not a regulated tenancy. Accordingly, the premises could not be treated as a dwelling-house for the purposes of the Act of l977, and did not constitute "premises" within the meaning of section 137(3) of that Act. The Court also held that the purposes under the superior tenancy were partly business and partly residential and it was for those dual purposes that the notional separate tenancies of each part of the property would be deemed to be granted if it constituted premises within the contemplation of section 137(3).

The conclusions of this Court in Pittalis v Grant were reached in the light of Maunsell v Olins [l975] AC 373. The House of Lords was there concerned with a sub-tenancy of a cottage on a farm let under an agricultural tenancy. Section 18(5) of the Rent Act l968 (‘the 1968 Act’) was, so far as material, in the same terms as section 137(3). Lord Wilberforce, who with Lord Reid and Viscount Dilhorne constituted a majority, held that 'premises' in section 18(5) include any premises which, as a matter of fact, applying accepted principles, would be held to be a dwelling-house for the purposes of the Act.

At page 389A Lord Wilberforce considered a meaning of premises less narrow than merely "dwelling-houses", saying that 'premises' includes -

".... not only dwelling-houses in the normal popular sense, but premises, which, for the purposes of the Rent Act, are treated as dwelling-houses. Everybody knows, and the draftsman must be taken to have known, that protection under the Rent Acts is given not merely to single, identifiable, pure dwelling-houses or dwelling units, but also to units of a mixed character - houses let with a garden or a yard or a garage or a paddock, houses part (even a substantial part) of which is used for business purposes. This is, of course, an untidy situation and it means that no clear definition of a dwelling-house entitled to protection can be given. (We note that a distinction is made between a house let together with land and land let with a house.) But it reflects the reality of life, and the County Courts are used, and skilful, at solving what are inevitably questions of degree. We should recognise this and, as between the narrow and the less narrow meaning, I would apply to premises the latter which would include any premises which, as a matter of fact, applying accepted principles, would be held to be a dwelling-house for the purposes of the Act."

It is to be noted that Lord Wilberforce refers to 'premises treated as dwelling-houses'. Obviously this could not mean "protected dwelling-houses", since section 18(5) applied to a superior letting other than on a protected tenancy. Lord Wilberforce is therefore referring to the nature of the building rather than the status of the letting. He then refers to the draftsman being taken to have known that protection under the Rent Acts is given not merely to pure dwelling-houses but also to units of a mixed character such as any "houses part (even a substantial part) of which is used for business purposes." Having made the distinction between a house let with land and land let with a house, he treats the County Court judge's task as involving matters of fact and degree in the process of applying "accepted principles."

It is to be noted that the phrases ‘a substantial part’ [used for business purposes] and ‘a garden, or a yard, or a garage, or a paddock’ were probably culled from the judgment of Denning L.J. in Feyereisel v Turnidge [1952] 2 QB 29 at page 39, cited in Whiteley v Wilson [1953] 1 QB 77 at page 82, thus affording a clue as to cases that Lord Wilberforce may have had in mind when he spoke of ‘accepted principles’.

In Pittalis v Grant Nourse LJ, giving the judgment of the Court, held at page 610E that, because the tenancy of the premises was one to which Part II of the l954 Act applied, it followed that "the property, whatever its actual state may have been, was not to be treated as a dwelling-house for the purposes of the Act of l977 and for that reason was not 'premises' within the contemplation of section 137(3)."

The essential argument for the defendants is that Pittalis v Grant was decided per incuriam because no consideration appears to have been given in argument or in the judgment to the authorities enshrining Lord Wilberforce's "accepted principles" or to the effect of the latter part of section 24(3). Had it been, the opposite conclusion would have been reached. To identify the accepted principles some consideration is necessary of the effect of the Rent Acts from a historical perspective.

Any such consideration can conveniently be divided into three parts. The first lasted between 1915 and 1959 (when the decontrol provisions of the Rent Act 1957 (‘the 1957 Act’) took effect). The regime then in force subjected most private unfurnished residential tenancies to a system of statutory regulation known as rent control. The second period lasted between 1957 and 1965, when control was lifted from all such tenancies of premises above certain fairly low rateable values. The third, in which a system of rent regulation for residential tenancies replaced the former system of rent control has lasted from 1965 until the present day, although no new tenancies will now come within it. The last remaining controlled tenancies were abolished in 1980. The law is now consolidated and is to be found in the 1977 Act.

During the first of these periods lettings of dwelling-houses which also contained a substantial business element were protected by the Rent Acts. Although it has been suggested in argument that this protection stemmed from the wording of an express statutory proviso which was first introduced in 1920, this was not in fact the case. The first part of the present analysis will be concentrated on the treatment of these "mixed tenancies" between 1919 and 1959. We will then consider the effect of the enactment, in fairly rapid succession, of Part II of the 1954 Act, which introduced the modern system of statutory protection of business tenancies, and of the 1957 Act, to which we have already referred, before turning to the statutory regime which was put into effect in 1965.

Rent control was introduced as a temporary measure during the First World War. The long title of the Increase of Rent and Mortgage Interest (War Restrictions) Act 1915 (‘the 1915 Act’) was "An Act to restrict, in connection with the present War, the Increase of the Rent of Small Dwelling-houses and the Increase of the Rate of Interest on, and the Calling in of, Securities on such Dwelling-houses." The 1915 Act was extended and amended, and its duration prolonged, by the Increase of Rent and Mortgage Interest (Restrictions) Act 1919. Both these Acts were then repealed and replaced by the Increase of Rent and Mortgage Interest (Restrictions) Act 1920 (‘the 1920 Act’), being an "Act to consolidate and amend the law ...". This history is important because it was not until 1920 that an express statutory proviso was introduced to the effect that "the application of this Act to any house or part of a house shall not be excluded by reason only that part of the premises is used as a shop or office or for business, trade or professional purposes" (1920 Act, section 12(2)(ii)). [By section 13 of the 1920 Act Rent Act control was applied, until June 24th, 1921, to premises used for business, trade or professional purposes which had no residential element]. Although the other provisos listed in section 12(2) owe their origin to earlier express statutory enactment, proviso (ii) codifies the effect of the 1915 Act, as interpreted by the courts.

That this is the case is obvious from two decisions of this court in 1919 and 1928 respectively. In Epsom Grand Stand Association Ltd v Clarke (1919) 35 TLR 525 landlords had obtained an order for possession of the Downs Hotel, Epsom which they had most recently let to their tenant on a six-month lease which expired in March 1919. The tenant had claimed the protection of the 1915 Act, as amended and extended, and one of the questions the court had to decide was whether these licensed premises were a dwelling-house to which the Act applied. The landlords argued that the hotel was not "a house or a part of a house let as a separate dwelling" because it was let for business purposes. The court rejected this argument. Bankes LJ said at page 526:

"The premises in the present case were let for occupation under an agreement. The defendant and his family and servants had continually lived on the premises, and their residence was in accordance with the terms of the agreement. Was this a dwelling-house? The house was dwelt in, and it was let to the defendant for that purpose. In the fullest sense it was a dwelling-house, and none the less so because it was also a public house. He could not accept [counsel’s] contention that because it was let for business purposes it could not be a dwelling-house within the Act. If that contention were accepted it would exclude a great many premises which the Legislature did not intend to be excluded. The object of the Legislature was to include all houses which were occupied as dwelling-houses provided that they were within the class named, irrespective of whether the premises were also used for some other purpose. They came within the statute, although part of the premises might be used for other purposes."

The other two members of the court, Atkin and Scrutton LJJ, agreed.

In Colls v Parnham [1922] 1 KB 325 Shearman J said that the effect of this decision was that where premises in one letting were partly let for trading purposes, but there was a substantial letting and use of them for residential purposes, they constituted a dwelling-house within the 1915 Act, and it is clear from the judgment of Scrutton LJ in Hicks v Snook (1928) 27 LGR 175 that between 1919 and 1928 in "innumerable cases ... subordinate courts ... put embroideries" on the Epsom Grand Stand decision. In Hicks v Snook , however, this court re-affirmed the authority of that decision. Scrutton LJ said that it was decided in 1919 and had stood unobjected to by superior authority ever since. He said that in 1920 Parliament, revising and codifying the whole of the Rent Restriction Acts, had inserted proviso (ii) in section 12(2) of the 1920 Act, and after reading its terms he added:

"That proviso appears to me to affirm what the Court of Appeal had decided. If that is the law, on the admitted facts of this case the premises in question are clearly within the Act. The tenant had been living in the house for 25 years, and obviously that makes it a dwelling house. He had the right to live there. It is not suggested he was breaking his contract of tenancy by living there. Part of the premises is used as a shop. But does that stop the premises in which he lives from being a dwelling-house? It appears to me that on the admitted facts and the answer of the Court of Appeal in the Epsom Grand Stand case, and by reason of what Parliament said in section 12(2) of the proviso to the Act of 1920, only one answer to the question put to us is possible. I think that the decision of the learned county court judge was wrong because on the admitted facts the decision could only be one way, having regard to the law and the case decided by the Court of Appeal."

It is clear that argument had been addressed to the court to the effect that premises were not let as a dwelling-house within the meaning of the Rent Restriction Acts if the part occupied as a residence formed only a tiny part of the whole, but the court expressly declined to give guidance on the facts of cases which were not before them.

We are aware that in Gee v Hazleton [1932] 1 KB 179, Scrutton LJ, who was described by Harman LJ in Parkin v Scott (1965) 196 EG 989 as the "chief architect of the new [rent restriction] system" said that he was a member of the court which decided the Epsom Grand Stand case and that he doubted whether that court in the early stages of the Rent Restrictions Acts appreciated fully what it was doing. We are also aware that in Wagle v Trustees of Henry Smith’s Charity Kensington Estate [1990] 1 QB 42, a case in which Hicks v Snook was not cited, Dillon LJ said that it seemed to him that the briefly reported Epsom Grand Stand Association case could not really carry much authority, despite the eminence of the members of the court, in view of the very much fuller decisions which had since been reached in the steady flow of decision under the Rent Acts. Despite these dicta, it appears to us that this court in Hicks v Snook fully confirmed the authority of its earlier decision in the 1919 case, and that that decision set the scene, so far as the meaning of the word "dwelling-house" is concerned, from then onwards.

It is understandable that when the courts considered cases of mixed tenancies between 1920 and 1959 attention was paid to the wording of the proviso which was introduced in section 12(2) of the 1920 Act and repeated in virtually identical terms (save for the exclusion of licensed premises from the Rent Acts) in section 3(3) of the Rent and Mortgage Interest Restrictions Act 1939. But it was the meaning which this Court in 1919 attributed to the words "let as a dwelling-house" which Lord Wilberforce would have had in mind in Maunsell v Olins [1975] AC 373 when he referred in the passage at page 389A which we have already cited to protection under the Rent Acts being given to "houses part (even a substantial part) of which is used for business purposes." A good example of this is Vickery v Martin [1944] 1 KB 679 where Rent Act protection was afforded to the tenancy of a guesthouse in which the tenant reserved for her own use at least a living-room and two bedrooms. Lord Greene MR, with whom the two other members of the court agreed, applied the Epsom Grand Stand case and Hicks v Snook and disapproved Shearman J’s use of the qualification "substantial" in Colls v Parnham . He said that the premises were undoubtedly a dwelling-house and that nothing was put forward as taking them out of the Acts except that part of the premises were used for business purposes.

Wolfe v Hogan [1949] 2 KB 195 was a case in which an issue arose as to the purpose of the original letting. The defendant was the sub-tenant of a large divided room on the ground floor of a house in Chelsea which she used for business purposes. She eventually decided to live there as well. This court upheld the decision of the judge that she was not entitled to Rent Act protection. Denning LJ said at page 204:

"In determining whether a house of part of a house is ‘let as a dwelling’ within the meaning of the Rent Restrictions Acts, it is necessary to look at the purpose of the letting. If the lease contains an express provision as to the purpose of the letting, it is not necessary to look further. But, if there is no express provision, it is open to the court to look at the circumstances of the letting. If the house is constructed for use as a dwelling-house, it is reasonable to infer the purpose was to let it as a dwelling. But if, on the other hand, it is constructed for the purpose of being used as a lock-up shop, the reasonable inference is that it was let for business purposes. If the position were neutral, then it would be proper to look at the actual user. It is not a question of implied terms. It is a question of the purpose for which the premises were let."

In Feyereisel v Turnidge [1952] 2 QB 29, a case concerned with a very different legal and factual problem, this court showed how its approach to the Rent Acts had developed a generation after the Epsom Grand Stand case was decided. At page 37 Denning LJ said:

"The guiding light through the darkness of the Rent Acts is to remember that they confer personal security on a tenant in respect of his home. The Acts apply to dwelling-houses, not to business premises. This is shown by the opening words of section 12(2) of the Act of 1920 which applied the Acts to houses ‘let as a separate dwelling’ and section 3 of the Act of 1939 which applies the Acts to ‘dwelling-houses’. Those are the governing words. The remaining words of those sections are concerned with marginal cases, such as a house where the front rooms are used as a shop; and a house let with a field, and so on."

Romer LJ agreed, and Somervell LJ reflected the same approach when he said at page 33:

"There was a time when business premises were included, but it is common ground that it is now dealing with dwelling-houses."

In the passage which follows Somervell LJ seems to have been unaware of what Scrutton LJ said in Hicks v Snook , but there can be no doubt that these judgments reflected the approach of this court in the early 1950s to the interpretation of the Rent Acts. This new approach was taken a stage forward the following year in Whiteley v Wilson [1953] 1 QB 77, where this court developed a test, in relation to mixed shop and residential tenancies, of whether the building, the subject of the tenancy, should in a broad sense be regarded as a dwelling-house which was partly or even substantially used as a shop, or on the other hand as a shop which was used in part for residential purposes (see Romer LJ at page 85).

This was the state of the law when Part II of the 1954 Act (and, indeed, section 41 of the Housing Repairs and Rents Act 1954, for which see below) was enacted. If the tenancy fell into the former category, the tenant retained the protection of the Rent Acts notwithstanding the passing of the 1954 Act (see 1954 Act, section 43(1)(c)).

Section 11(1) of the Rent Act 1957 (‘the 1957 Act’) removed from Rent Act control dwelling-houses the rateable value of which exceeded £40 in London and Scotland and £30 in England or Wales outside London, and section 11(3) gave the Minister power, which was never exercised and was repealed in 1965, to extend the ambit of decontrol by statutory instrument. Where such decontrolled dwelling-houses would otherwise have enjoyed the protection of Part II of the 1954 Act, section 11(7) and paragraph 11 of the Fourth Schedule of the 1957 Act provided that:

"A statutory tenancy which immediately before the time of decontrol, was one to which, but for section 43(1)(c) of the Landlord and Tenant Act 1954, Part II of that Act would have applied if it had been a tenancy within the meaning of that Act, shall after the time of decontrol be deemed for the purposes of that Act to be a tenancy to which Part II thereof applies, being a tenancy continuing by virtue of s 24 of that Act after the expiry of a term of years certain."

It follows that between 1959 and 1965 there were three types of tenancies of mixed shop and residential premises:

(1) tenancies of shops which could not even in a broad sense be regarded as a dwelling-house although they were used in part for residential purposes. These had always attracted Part II, and not Rent Act, protection since 1954;

(2) tenancies of dwelling-houses partly or even substantially used as shops which were decontrolled in 1959. These then passed from Rent Act to Part II protection;

(3) tenancies of dwelling-houses as under (2), if any, which were not decontrolled in 1957. These retained Rent Act protection.

When Parliament repealed most of the 1957 Act in 1965 it did not reintroduce the former regime for mixed tenancies. Part II of the 1954 Act had, subject to exceptions such as the one we have noted, applied "to any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes" (1954 Act, section 23(1)). This system of protection was working well, and Parliament left it alone when it introduced its new system of statutory protection for residential tenancies of dwelling-houses whose rateable value was less than £400 in Greater London or £200 elsewhere in Great Britain. It used two legislative techniques to achieve this end. First, it provided that section 1 of the Rent Act 1965, which created the new concept of a "regulated tenancy", was not to affect the application to any tenancy of Part II of the Landlord and Tenant Act 1954 (1965 Act, section 1(3)). Second, it deleted the relevant provisos in section 12(2) of the 1920 Act and section 3(3) of the 1939 Act, whose as yet unrepealed provisions otherwise remained in force until the 1968 consolidation. It follows that from 1965 onwards it was Part II protection, and not Rent Act protection, which was available for all mixed tenancies while they were occupied by the tenant for the purpose of a business carried on by him, even if he also lived there, apart from the small residue of mixed tenancies which were not decontrolled by the 1957 Act. These continued to enjoy Rent Act protection until their controlled status was abolished by section 64 (1) of the Housing Act 1980, when they, too acquired Part II protection (see section 64(2)).

Most of this history, with different emphasis, is to be found in the judgment of Lord Denning MR in Cheryl Investments Ltd v Soldenha [1978] 1 WLR 1327 at pages 1331H-1332G.

One issue which Parliament had to address in 1920 was the plight of the residential sub-tenant whose own landlord’s holding expired with the expiry of a superior letting. At common law the sub-tenancy expired, too, but Parliament extended statutory protection to this class of sub-tenant by section 15(3) of the 1920 Act:

"Where the interest of a tenant of a dwelling-house to which this Act applies is determined ... any sub-tenant to whom the premises or any part thereof have been lawfully sub-let shall, subject to the provisions of this Act, be deemed to become the tenant of the landlord on the same terms as he would have held from the tenant if the tenancy had continued."

In Cow v Casey [1949] 1 KB 475 this court held that section 15(3) of the 1920 Act did not apply in a case where the superior tenancy was not a tenancy of a dwelling-house to which the Act applied because the value of the house as a whole was well outside the Rent Restriction Acts, even though the value of the flat occupied by the sub-tenant in question was not. Following this decision Parliament enacted section 41 of the Housing Repairs and Rent Act 1954, which was in rather more complicated terms than its predecessor:

"Where a dwelling-house to which the Act of 1920 applies (hereinafter referred to as ‘the sub-let part’) forms part of premises, not being such a dwelling-house, which have been let as a whole on a superior letting, then from the coming to an end of the superior letting the operation of the Rent Acts in relation to the sub-let part shall be the same as if in lieu of the superior letting there had been separate lettings of the sub-let part and the remainder of the premises, for the like purposes as under the superior letting, and at rents equal to the just proportions of the rent under the superior letting."

The effect of this provision was expressly preserved in section 1(3) of the 1965 Act, and in section 18(5) of the 1968 Act it appeared in this form:

"Where a dwelling-house -

(a) forms part of premises which have been let as a whole on a superior letting but do not constitute a dwelling-house let on a protected tenancy; and

(b) is itself let on a protected tenancy, or subject to a statutory tenancy,

then, from the coming to an end of the superior letting, this Act shall apply in relation to the dwelling-house as if, in lieu of the superior letting, there had been separate lettings of the dwelling-house and of the remainder of the premises, for the like purposes as under the superior letting, and at rents equal to the just proportion of the rent under the superior letting."

In Maunsell v Olins [1975] AC 373, the tenants of a cottage on a 106-acre agricultural holding successfully asserted their right to Rent Act protection in the local county court. They said that their dwelling-house qualified under (a) and was itself let on a protected tenancy (see (b)) such as to entitle them to the protection afforded by the section. The House of Lords, by a majority of 3-2, upheld the Court of Appeal in reversing the judge’s decision. The debate turned on the meaning of the word "premises" in the phrase "part of premises which have been let as a whole".

Lord Simon of Glaisdale, in a speech prepared in collaboration with Lord Diplock, said that the word "premises" meant the subject matter of the letting referred to. They said the meaning of the word was plain and no other canon of construction was needed to interpret it. The other three members of the House found the word ambiguous. Lord Wilberforce delivered the leading speech, and Lord Reid and Viscount Dilhorne added short speeches of their own.

Lord Wilberforce said that because the 1968 Act was a consolidation Act it was legitimate to look to the origin of the subsection in question, which he found in section 41 of the Housing Repairs and Rents Act 1954. A comparison between the language of that section with the headnote in the official report in Cow v Casey conveyed to his mind "a strong impression that section 41 is a section of limited effect, dealing primarily with sub-leases of dwelling-houses or, at the most, with sub-leases of property in the same field". He then set the new section 18(5) of the 1968 Act side by side with section 18(2) (which contained the pre- Cow v Casey law in relation to sub-tenants whose superior landlords were themselves statutory or protected tenants) and concluded:

"There seems to be a relation between those two subsections. They cover similar ground - broadly that of tenancies of dwelling-houses. There is no indication that they extend any wider.

So what should ‘premises’ be taken to mean? One view, the narrowest view, would be that it simply means ‘dwelling-house’. A less narrow view would be to say that ‘premises’ includes not only dwelling-houses in the normal popular sense, but premises, which, for the purposes of the Rent Act, are treated as dwelling-houses..."

After explaining in the passage we have cited earlier, how protection under the Rent Acts was also given to units of a mixed character, such that it was not possible to give a clear definition of a dwelling-house entitled to protection, he concluded that this untidy situation reflected the reality of life and that:

".... as between the narrow and the less narrow meaning, I would apply to premises the latter which would include any premises which as a matter of fact, applying accepted principles, would be held to be a dwelling-house for the purposes of the Act."

Lord Reid expressly agreed with Lord Wilberforce’s speech. He found section 18 ambiguous, and said that in those circumstances it was permissible to go back to the original Act, in this case section 41 of the Housing Repairs and Rents Act 1954. He was persuaded - although he did not regard the point as necessarily a conclusive one - that the word ‘premises’ in the 1954 Act was intended to be limited to premises of a residential character by the argument that when the sub-tenant was installed as a direct tenant under a letting "for the like purposes as under the superior letting" no difficulty was encountered if the purposes for the letting under the superior letting were residential purposes, but there would be some difficulty if those purposes were agricultural, as a letting of a 106-acre farm estate would normally be regarded.

Viscount Dilhorne did not expressly agree with Lord Wilberforce’s speech, although he agreed in the result. He said at page 384B:

"Lord Wilberforce goes on to consider what the word ‘premises’ in these section should be taken to mean. In my opinion, it means ‘dwelling-houses’. They are what the Act of 1954 and the Act of 1968 were concerned with and, in my view, the dwelling-houses which are covered by the word ‘premises’ are those which for the purposes of those Acts are treated as such."

Parliament reversed the effect of Maunsell v Olins in the context of agricultural holdings when it enacted section 40 and Schedule 8, paragraph 20 of the Rent (Agriculture) Act 1976. The effect of these provisions was to substitute a new section 18 into the 1968 Act, and the new section 18(3), which replaced the former section 18(5) in more or less the same terms, contained an express provision that in an appropriate case ‘premises’ included an agricultural holding within the meaning of the Agricultural Holdings Act 1948. This section was then re-enacted as section 137(3) of the new consolidation Act, the Rent Act 1977, which is the provision with which we are now concerned. Since that amendment was made it has been impossible to argue that the reference to ‘for the like purposes’ should not be construed distributively, because premises may consist of an agricultural holding, part of which is a sub-tenancy that is a protected or statutory tenancy.

It was at this stage in the chronology that Pittalis v Grant was decided in 1989. That decision has been followed in this court in Bromley Park Garden Estates Ltd v George (1991) 23 HLR 441 and London Regional Transport v Brandt (1996) 29 HLR 193: in the second of these cases counsel for the tenant conceded that Pittalis v Grant was binding authority at this level, and we have been told that the House of Lords refused leave to appeal.

For this purpose it is necessary to go back not only to section 41 of the Housing Repairs and Rents Act 1954, but also to section 15(3) of the 1920 Act. In 1920 Parliament was clearly concerned to protect the sub-tenant’s home after a superior lease fell in. Provided that the superior tenancy was a tenancy of a dwelling-house to which the Act applied, the sub-tenant would then hold direct from the landlord on the same terms as he formerly held from the mesne tenant. If the sub-tenancy was a sub-tenancy of part of the premises, then clearly the sub-let part must have constituted a "dwelling-house to which the Act applied" in order to qualify for protection: a sub-tenancy of business premises, pure and simple, would not qualify.

The House of Lords held in Maunsell v Olins that in 1954 Parliament was only concerned to correct the effect of Cow v Casey , so that if the superior tenancy was a tenancy of a dwelling-house which did not qualify for Rent Act protection (because it was above the rateable value limits, for example) the residential sub-tenant would nevertheless be entitled to such protection when the superior lease fell in. Lord Wilberforce was therefore concentrating attention on the type of premises Parliament would have had in mind as constituting dwelling-houses when it passed the 1954 Act.

Each of the superior lettings with which we are concerned in this case constituted a tenancy to which Part II of the 1954 Act applied. In the Hammad case it was a letting of a house which contained a basement and ground floor let for commercial purposes and three self-contained residential flats, reached by way of a separate entrance, on the three upper floors. In the Hopkins case it was a letting of a house and the two upper floors of the house next door, which contained a ground floor room and one upper room used for business purposes, and rooms in residential occupation on the remainder of the upper floors that made up the letting. In the Baines case it was a letting of a house whose ground floor was used for business purposes and whose upper floors were used for residential purposes (save for an office/storeroom used by the tenant on the third floor).

Approaching the construction of section 137(3) a priori , it appears to contemplate that where there is a flat over a shop, and they are let together as a whole, and the flat is then lawfully sublet for residential use, so as to afford the sub-tenant protection under the Rent Act as against the tenant, the sub-tenant should continue to enjoy the same protection against the head landlord when the superior letting comes to an end.

As we have seen, section 24(3) of the l977 Act provided that:

"A tenancy shall not be a regulated tenancy if it is a tenancy to which Part II of the Landlord and Tenant Act l954 applies...."

After referring to this provision Nourse LJ in Pittalis v Grant said at page 610E -

"It necessarily follows that the property, whatever its actual state may have been, was not to be treated as a dwelling-house for the purposes of the Act of l977 and for that reason was not 'premises' within the contemplation of section 137(3)."

But it does not "necessarily follow", because a tenancy of property may not be regulated for reasons other than that the property was not a dwelling-house. Section 24(3) continues -

".... (but this provision is without prejudice to the application of any other provision of this Act to a sub-tenancy of any part of the premises comprised in such a tenancy)."

The fact that a tenancy is subject to the l954 Act does not prevent any other provision of the Rent Act from applying to a sub-tenancy of part of the tenancy. In an article in 'The Conveyancer' (1990) Mr Chris Rodgers, to whom we are indebted, has suggested that this provision "is arguably aimed at ensuring the continuing application of section 137(3)." It is obviously capable of applying where part of business premises is sublet. There is, however, nothing in Pittalis v Grant to show that the Court gave any consideration to the words of qualification in section 24(3) or their effect. It is difficult to escape the conclusion that the decision was reached without the attention of the Court having been drawn to the significance of these words.

The argument upon which this Court relied in Pittalis v Grant was fallacious. It amounted to saying that, "If a tenancy is not regulated, the premises to which it relates cannot be, or be treated as, a dwelling-house." Premises may amount to a dwelling-house without being let on a regulated tenancy. More importantly, in reaching this conclusion the Court appears to have overlooked all of the authorities in which Lord Wilberforce’s ‘accepted principles’ are contained. That they are the source of the accepted principles is agreed by counsel for all the parties now before the Court. Unless, therefore, the Court’s decision in Pittalis v Grant can be sustained by other means, it must have been reached per incuriam and should not be followed.

For the Church Commissioners Mr Rolfe relied on the proviso to section 12(2) of the l920 Act as explaining why courts were ready to describe as dwelling-houses premises where there was mixed user. As we have said, proviso (ii) read as follows:

"the application of this Act to any house or part of a house shall not be excluded by reason only that part of the premises is used as a shop or office or for business, trade, or professional purposes;"

That proviso is repeated in section 3(3) of the l939 Act. But the proviso was excised from both Acts by Schedule 1, paragraphs 1 and 3 of the l965 Act, which did not reproduce it. It does not follow that by omitting the proviso Parliament produced the opposite result. The effect of the omission is to bring premises, part of which are used for business purposes, within the scope of the l954 Act. But such premises may still essentially remain a dwelling-house. Nothing is solved by separate entrances; and indeed, as was pointed out by Mr Paul Morgan QC for two of the tenants, section 137(3) recognises that there must be separate entrances in such a case. It is tempting to suppose that, had this point been argued before their Lordships in Maunsell v Olins , the view of the minority that the meaning of 'premises' is uncoloured by its context might have prevailed. Since it did not, we must test the question whether property demised by a superior tenancy constitutes 'premises' by asking whether it is a dwelling-house within the extended meaning indicated by this Court in the Epsom Grand Stand case, and thereafter perpetuated in the cases to which we have referred, albeit reinforced by statute from time to time in the form of the provisos. Before 1954 the most recent authority about the meaning of dwelling-house was Whiteley v Wilson [1953] 1 QB 77, in which after Evershed MR at page 82 had referred to the passage we have cited from Denning LJ in Feyereisel, Romer LJ used at page 85 the test:

".... whether the building should in a broad sense be regarded on the one hand as a dwelling-house which is partly or even substantially used as a shop, or on the other hand as a shop which is used in part for residential purposes."

Applying any such test, it is plain that the premises with which each of the three appeals now before the Court was concerned constituted a dwelling-house. It follows that each of the County Court judges was led into error by Pittalis v Grant . Each of the appeals must therefore be allowed, and the orders made in each set aside.

ORDER: Minute of order to be submitted.