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Business owners that fail to take legal advice and occupy premises on an uncertain basis are always at risk. In a High Court case exactly on point, a business college found itself locked out of its office block and embroiled in a costly dispute with the property's freeholder.
The college had for some years occupied the block under a series of what were expressed to be licence agreements. In the midst of a row over alleged arrears of rent and service charges, the freeholder changed the locks and the college was excluded for three days. The college was only able to regain possession of the block after obtaining an emergency injunction.
The college sued the freeholder, seeking substantial damages in respect of the loss of profits and harm to goodwill alleged to have been caused by the exclusion. Given the lack of clarity regarding the basis on which the college occupied the block, an issue arose as to whether it did so as a tenant or as a licensee.
The plain wording of the college's agreement with the freeholder indicated that it was a licence, rather than a lease. However, the Court found that it nevertheless took effect as a business tenancy under the Landlord and Tenant Act 1954. The purpose of the agreement was to provide the college with premises from which it could conduct its business and it had fitted out parts of the block at its own expense.
The college and the freeholder had not been in an equal bargaining position when the agreement was signed, in that the college was suffering financial difficulties. As a matter of substance, the agreement conferred upon the college exclusive possession of the block and it had clearly been intended that it would enjoy a greater level of security than that which would be afforded by a licence.
The freeholder had not given the required 14 days' notice in writing before re-entering the block and changing the locks, and the college had thus been unlawfully excluded from the premises. The college was awarded £25,104 in damages. However, after taking an account, the Court also found that, as at 26 July 2017, the college had owed the freeholder £30,545 in service charges and rent arrears.