Mayer and Teja v Martin (Civil Appeal No. 19 of 1948) [1948] EACA 56 (1 January 1948)

## APPELLATE CIVIL

## Before BOURKE, J.

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÷.

## S. MAYER AND H. P. TEJA, Appellants (Original Plaintiffs)

## J. B. MARTIN, Respondent (Original Defendant) Civil Appeal No. 19 of 1948

$\mathbf{1} \cdot \mathbf{1} \cdot \mathbf{1} \cdot \mathbf{1} \cdot \mathbf{1} \cdot \mathbf{1}$ Landlord land. Tenant—Agreement for exclusive use of hotels—Whether a "licence" or a "lease"—Construction of Agreement—Proper Test—Increase of Rent and Mortgage Interest (Restrictions) Ordinance, 1940 (Consolidated Edition), section $4$ .

The appellants and respondent entered into an agreement (Exh. 1) on 1st February, 1946, in pursuance of which the latter entered into occupation of the Central Hotel, Nairobi, for 12 months.

In August, 1947, the appellants sued the respondent in the Resident Magistrates' Court for the balance of rent due in respect of his occupancy of the hotel, and for certain damage done during the "tenancy".

The respondent averred in his defence that the relationship of landlord and tenant had been created between the parties and that the consent of the Rent Control Board to institute proceedings, as required by section 4 Rent Restrictions Ordinance, had not been obtained. On behalf of the Appellants it was argued that the written agreement (Exh. 1) was merely a licence to occupy, and did not create a tenancy, so that the consent of the Board was unnecessary. The Magistrate held that the contract was a tenancy agreement.

The terms of the agreement (Exh. 1) are sufficiently set out in the judgment below.

Held $(8-12-48)$ .—(1) That whether an instrument operates as a lease or as a licence is not a matter of words but of substance. Smith $v$ . St. Michael Cambridge Overseers (1860)<br>3 E. & E. 383 followed.

(2) That the effect of the agreement (Exh. 1) clearly was to give the respondent an exclusive right of occupation of the premises, though subject to certain reservations, in order that he might carry on business.

(3) That looking at the substance of the agreement it provided all the essentials of a lease as set forth by Mulla in his commentary on section 105, Indian Transfer of<br>Property Act, 1882, and that the characteristics of a licence under section 52, Indian Easement Act, 1882, were absent.

(4) That the proper test in such cases is set out in The Secretary of State for India $v$ . Bhupalchandra Ray Chaudhuri 57 I. L. R. Cal. (1930) 655, namely: to find out whether a landlord has granted sufficient control over the premises so as to make the instrument a demise and not a mere licence.

Appeal dismissed with costs.

Clore v. Theatrical Properties, Ltd. and Westby & Co., Ltd. 3 A. E. R. (1936) cited; Edwards v. Barrington (1901) 85 L. T. 650 cited; Daly v. Edwardes (1900) 83 L. T. 584 and Frank Warr & Co., Ltd. v. London County Council (1904) 1 K. B. 713 referred to.

Madan for the Appellants.

R. N. Khanna for the Respondent.

JUDGMENT.—On 1st February, 1946, the respondent entered into an agreement (exhibit 1) with the appellants in pursuance of which he entered into occupation of the premises described as the "Hotel Central" for the period of a year. In August, 1947, the appellants instituted an action before the Court of the Resident Magistrate, Nairobi, claiming the sum of Sh. 1,300 "being balance of rent in respect of the Central Hotel occupied by the defendant of the plaintiffs from 1st February, 1946, to 31st January, 1947," and a further sum of Sh. 200 "being in respect of glass plate broken by the defendant during the tenancy". It will be noted that there is the express allegation of rent due and of the existence of a tenancy. The respondent averred in his defence that there was the relationship created between the parties of landlord and tenant and that since no consent of the Rent Control Board had been obtained under section 4 of the Increase of Rent and of Mortgage Interest (Restrictions) Ordinance, 1940, to the institution of the proceedings, as in fact it had not, the claim was bad. It is not now in dispute that the premises in question fall within the provisions of the Rent Restrictions Ordinance. It was argued below on behalf of the appellants that the agreement of 1st February, 1946, did not create a tenancy but was merely a licence to occupy and so section 4 of the Ordinance did not apply. That submission was rejected by the learned Magistrate, who held that the contract was a tenancy agreement and the consent of the Board was necessary. The main question that arises on the appeal is whether the lower Court was correct in so holding. Does the Agreement of 1st February, 1946, amount to a licence or a lease ? Whether an instrument operates as a lease or as a licence is a matter not of words but of substance (Smith v. St. Michael Cambridge Overseers (1860) 3 E. and E. 383, 390). The document, exhibit 1, purports on its face to be an "instrument of licence" and throughout reference is made to "this licence" and the licensors and the licensee. It is, however, provided at the outset that the expression "Licensors" .... "shall include the reversioner for the time being immediately expectant on the term hereby created" and the expression "Licensee" .... "shall include his successors in title". Clause 1 may be quoted in full:

"In consideration of the payment of the sum hereinafter named in manner hereinafter mentioned and licensee's covenants hereinafter reserved and contained the licensors hereby irrevocably grant unto the licensee the exclusive use of ALL THAT messuage or residential Hotel and Restaurant known as the 'Hotel Central' (excluding the general retail liquor trade and bar premises and the office adjoining the bar and room Number 22 on the top floor) as a going concern with common use of the "bar Lounge", situated in Victoria Street in the town of Nairobi aforesaid with the yard and outbuildings TOGETHER with the trade and other fixtures and fittings including furniture, linen, crockery, utensils and other chattels now therein and specified in an inventory prepared in duplicate and signed by the parties hereto and retained one copy thereof by each of the parties with full liberty to run the business to his sole advantage and utmost benefit TO HOLD the premises and the business aforesaid (hereinafter called the demised business) to the use of the licensee for the space of twelve months from the First day of February One thousand nine hundred and forty-six paying therefor the consideration of Shillings Twenty-nine thousand and six hundred by nine equal monthly payments the first payment to be made on the First day of March One thousand nine hundred and forty-six in each case without any deduction."

Clause 2 reads: $-$

"The licensee for himself and his assigns hereby covenants with the licensors that he and they will throughout the said term perform and observe the provisions and stipulations hereinafter contained."

By clause 3 it is covenanted that the "Licensee paying the price of the licence hereby granted and observing and performing his obligations hereinafter specified shall peaceably hold and enjoy the demised business during the said term without any interruption by the licensors or any person rightfully claiming under or in trust for them". Under clause 4 the Appellants covenant to obtain all licences necessary for the running of the "demised business" as a "fully licensed residential hotel and restaurant" and irrevocably appoint the respondent their attorney for the purpose of running "the demised business nominally in the name of the proprietors of the 'Hotel Central' but solely for his own benefit". Clause 5 (a) provides for a

right of re-entry "upon the demised business" by "the landlords": and clause 5 (b) settles the circumstances in which the "licensee or any occupier of the demised property" may upon notice "determine the said term"; under clause 5 (e) it is provided that "the licensee shall use the premises in an ordinary tenant-like manner, and upon the expiration of the licence hereby granted or its sooner determination, shall yield up possession of the premises and the trade and other fixtures and fittings, and of all the linen, crockery, furniture, utensils and other chattels let therewith $\ldots$ '

It will be observed that there are words used appropriate to the granting of a licence and to the granting of a lease. Throughout there is reference to "licence" and "Licensee and licensor", but express use of such words does not obviate inquiry as to whether in reality it is a grant of leasehold interest masquerading as a grant of licence. The matter is really one of construction as to what was the true intention of the parties. The Court below approached the question as is indicated from the following passage from the judgment:-

"Mr. Khanna maintains that the agreement is a tenancy agreement. He says that it is immaterial what the agreement is called on the face of it and what words are used. With this I agree. It is the substance of the agreement which must be looked at. To do otherwise might often defeat the effect of the Increase of Rent Ordinance. The main test to decide whether an instrument is a lease or a licence is laid down by Lord Davey in Glenwood Lumber Co. v. Philips 1904 A. C. p. 409, where he says: 'If the effect of the instrument is to give the holder an exclusive right of occupation of the land, though subject to certain reservations or to a restriction of the purposes for which it may be used, it is in law a demise of the land itself'. Again, in Roads v. Trumpington Overseers 1870 L. R. 6 O. B., it was held that to give exclusive possession there need not be express words to that effect: it is sufficient if the nature of the acts to be done by the grantee require that he should have exclusive possession.

Applying that test to the present case I am in no doubt that the instrument Exhibit 1 is a lease and not a licence. Exclusive possession is implicit. in all its clauses. In Clause 3 it is specifically stated that the licensee shall 'enjoy the demised business during the said term without any interruption by the licensors'."

It is accordingly a little curious to find the learned Magistrate saying at the conclusion of his judgment—"I must find that this action must be dismissed with costs. I come to this conclusion with some regret as it is clear to me that at the time of entering into the agreement, which is now attacked by its author, both parties wanted to give and receive a licence and not a lease and I am sure that they thought they had effected a licence and not a lease". If that was the intention of the parties is there anything in the language they have used which prevents that intention from being carried out? To afford an answer to that question requires the closest consideration of the whole of an instrument that is a masterpiece of confusion of language and thought.

Mr. Madan for the appellants contends that this case is on all fours with Edwardes v. Barrington (1901) 85 L. T. 650 H. L. affg. S. C., Daly v. Edwardes (1900) 83 L. T. 584, Frank Warr and Co. Ltd. v. London County Council (1904) 1 K. B. 713 and Clore v. Theatrical Properties Ltd. and Westby and Co. Ltd. 3 A. E. R. 1936. Those cases turned upon documents which dealt with the same subject matter, namely, the supply of refreshments in certain parts of a theatre. Despite the use of words in the instruments that would be more appropriate to the creation of a lease of land it was held in each case that such words were not sufficient to save the document from being construed as a licence and not a lease: rights were created between parties that were purely contractual and did not operate to transfer an interest in land. In Clore v. Theatrical Properties Ltd. and

*Westby and Co. Ltd.* Lord Wright, M. R. said (*sup.* at p. 489) "Now, it is perfectly true that the construction of one contract is not necessarily a guide to the construction of another contract, and that is true certainly when there are differences of language in the documents to be construed. But where there is no such difference in language as would justify a court of law refusing to apply to the documents the construction which the Court applied to the other cases, then the Court should apply that construction". In *Edwardes v. Barrington* Halsbury L. C. (sup. at p. 652) said—"Those who drew up the documents have used words inappropriate to the particular thing with which they were dealing. But they are not words of art, and it is frankly and most properly conceded that we must, if we can, find out from the language of the instrument, having regard to the relations between the parties and the object which was on the face of the instrument apparent, what were the real intentions of the parties. And really but for the extremely confused and inaccurate use of technical words from time to time in the course of these instruments the object is clear enough. The lessee of a theatre is making a bargain with a refreshment contractor, and he wants proper accommodation for those whom he invites to his theatre to be provided by some person who shall preside over and have the command and the profits of the refreshment department of the theatre. The mode in which the parties have contracted is that which really makes the difficulty. But when one looks at the whole thing there is not one word which necessarily, as a matter of art, decides that question. They did not say that they demise, for instance, but they say that the person with whom the contract is made is to have the use of certain parts of the premises .... and if you look through the whole thing you see what is the object of it". In Clore v. Theatrical Properties Ltd. and Westby and Co. Ltd. there were both words of demise: "doth hereby demise and grant unto the lessee", and the grant was of "the free and exclusive use" of certain parts of the theatre; nevertheless, it was held that the instrument gave rise merely to a personal contract in the nature of a licence and did not constitute a lease.

But in this case it is not a matter of a person merely having the use of a few rooms for the purpose of supplying refreshments and so on and taking the profits arising. The object of the parties surely was that the Respondent should take over and occupy the whole hotel and restaurant premises with the yard and outbuildings together with fixtures, furniture, etc., reserving the "common use" of the bar lounge situated in Victoria Street and excluding only the "general retail liquor trade and bar premises and the office adjoining the bar and room number 22 on the top floor". The respondent was taking over also the business run upon the premises as a "going concern" and was continuing to carry on such business for the term fixed for his own profit. It seems to me that the effect of the instrument clearly is to give the respondent an exclusive right of occupation of the premises, though subject to certain reservations, in order that he might carry on the business. There is reference to the "reversioner" and "the term hereby created" and the "successors in title" to the respondent; it was apparently contemplated that the respondent might assign, for he covenants for "his assigns". There is provision for re-entry upon the premises for breach of covenant such as failure to pay any instalment of the consideration fixed, and the respondent is empowered in certain circumstances to "determine the said term" in respect of the "demised property" upon giving "notice to determine" as provided. The appellants also covenanted that the respondent should occupy the premises in quiet enjoyment for the term without any interruption by the appellants or any person obtaining title through them. In my opinion the property was not to remain in the possession and control of the owners and there was both a power and intention to hold the property to the exclusion of the grantor. Looking at the substance of the instrument I consider that it provides all the essentials of a lease as set forth by Mulla in his commentary on section 105 of the Transfer of Property Act, 1882 (2nd edition p. 564) and that the characteristics of a licence under section 52 of the Indian Easements

Act, 1882, as given by Mulla in the same work at p. 581 are absent. I hold that the lower Court applied the correct test (see Secretary of State for India v. Bhupalchandra Ray Chaudhuri, 57 I. L. R. (Cal.) (1930) 655 at 663) and came to a right conclusion that the instrument, exhibit 1, is a lease and not a licence.

I can find no substance whatsoever in the further contention that section 4 of the Rent Restrictions Ordinance does not apply because the respondent had ceased to be a tenant in occupation at the time of action brought, and I am content to say that I agree with what has been said upon that aspect by the lower Court.

The appeal is dismissed with costs.

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