028-SLLR-SLLR-1991-V2-SUMANASENA-v.-L.-M.-HERFT.pdf
342
Sri Lanka Law Reports
[1991] 2 Sri L.R.
SUMANASENA
V.
L. M. HERFT
SUPREME COURT.
FERNANDO, J., KULATUNGA, J. and DHEERARATNE, J.,
S. C. NO. 11/89-
A. NO. 473/81 (7).
C. COLOMBO 3380 RE.
OCTOBER 25, 1991.
Lease – Is it lease of business or of premises?
The Plaintiff instituted an action against the defendant for recovery ofthe business of a motor repair garage together with its machinery, equipmentand material and for ejectment from the place where the business was beingcarried on.
The plaintiff averred that by a written non-notarial agreement the saidbusiness was leased out to the defendant for a term of five years on amonthly rental. The defendant pleaded that the Agreement was executedwith a view to circumventing the rent laws and that he, as the lawful tenantof the premises, was protected by the provisions of the Rent Act.
Held:
If the occupation of the premises is subordinate to the rights conveyedin respect of the business, then the occupier is a lessee or assignee of thebusiness, and a licensee but not a tenant of the premises. The non-notarialagreement was a lease of the business not of the premises.
Cases referred to:
Andiris Appuhamy v. Kuruppu (1963) 65 NLR 21
Abdul Latiff v. Seyed Mohammed (1967) 72 NLR 20
Nicholas Hamy v. Janes Appuhamy (1950) 52 NLR 137
Charles Appuhamy v. Abcysckera (1954) 56 NLR 243
Picris v. Jafferjee (1959) 57 CLW 30
■6. Pathirana v. De Silva (1978) 79(2) NLR 265
Jayasinghe v. Goolam Hussain (1955) 56 NLR 243
Devairakkan v. Samarasinghe (1962) 65 NLR 18
Sediris Singho v. Wijesinghe (1965) 70 NLR 185
Nizam v. Mustaffa [1981] 1 Sri. L. R. 58
Abeypala v. Abeyakirthi [1981] 1 Sri, L. R. 87
sc
Sumanasena . {.. M. Herfl (Dheeraratne, J.)
343
Gunaratnc v. Gaffoor [1982J 2 Sri. L. R. 719#
Graham v, Local and Overseas Investments (Pvt.) Ltd. 1942 A. D. 95
at 108
APPEAL from a judgment of the Court of Appeal.
H. L. de Silva, P.C. with R. Mannikkavasagam for Defendant – Appellant.
A. K. Prcmadasa, P.C. with P. A. D. Samarasekera, P.C. for substitutedPlaintiff – Respondent.
Cur.adv.vult.
December 18, 1991.
DHEERARATNE, J.:
The plaintiff (respondent) as executor of the estate of oneS. U. Herft, instituted this action against the defendant (appel-lant) for recovery of the business of a motor repair garagetogether with its machinery, equipment and material and forejectment of the defendant from premises No. 275, NawalaRoad, Rajagiriya, being the place where the said business wasbeing carried on. The plaintiff averred that by a written non-notarial agreement dated 15.01.1970, (produced at the trialmarked PU) S. U. Herft leased out the said business to thedefendant for a term of 5 years on a monthly rental; that S. U.Herft died in April 1974; and that the defendant was unlaw-fully over-holding the said lease after its expiry. The defendantpleaded that the agreement was executed with a view to avoidthe provisions of the Rent Restriction Ordinance in force atthat time and that he being the lawful tenant of the premisesNo. 275 was now duly protected by the provisions of the RentAct, No. 7 of 1972. The trial judge as well as the Court ofAppeal held with the plaintiff on the footing that what was letto the defendant was a business and as such the defendant'soccupation of the premises was ancillary to the letting of thebusiness thereby making him only a licensee and not a tenantof the premises.
344
Sri I ;mku l aw Reports
[IWIf : Sri I..K
Time and again courts have been called upon to decide onthe true nature of transactions embodied in documents similarto Pll with a view to finding out whether the relationship oflandlord and tenant was created thereby or not. It is right tosay that on examination of the reported judgments the Appel-late Courts have reached three broad conclusions having con-sidered the relevant written agreements and the circumstancessurrounding the transactions. They are:—
That the agreement was a sham or a blind to circumventthe rent laws and the effect of the agreement was thecreation of a tenancy in respect of the premises. AndirisAppuhamy v. Kuruppu (l), (lease of a business) andAbdul Latiff v. Seyed Mohammed (2) (partnership agree-ment).
That the effect of the agreement was the creation of atenancy in respect of premises let along with equipmentand was not the letting of a business as a going concern-Nicholas Hamv v. James Appuhamy (3).
That the effect of the agreement was not the creation of atenancy in respect of the premises, but, (a) an assignmentof rights in a business – Charles Appuhamy v. Abcysck-era (4), Peiris v. Jafferjee (5), and Pathirana v. Dc Silva
or (b) a lease of a business Jayasinghe v. CoolamHussain (7) Devairakkan v. Samarasinghe (8) ScdirisSingho v. Wijesinghe (9) Nizam v. Mustaffa (10) Abev-pa I a v. Abeyakirthi (I I) and Guneratne v. Gaffoor (12).
In passing I may observe that in Charles Appuhamy v.Abeysekera (supra) Nagalingam S.P.J. was of the view that thetransaction in that case, although so called, was not a lease inthe true sense of the term, for, he said “a lease relates to theletting and hiring of immovable property”. Perhaps in makingthat observation Nagalingam S.P.J. was influenced by the dis-tinction drawn in the English Language between the words“lease” and "let” the former being used in relation to
sc
Sumanasctta v. I.. M. Her/l {Dheeraiatnc. J.)
MS
immovable property only. (20th Centufy Chambers Diction-ary),.But according to the common law it would appear thatthe letting and hiring of things Locatio Conductio Rerum iscalled a lease (Wille Principles of South African Law, 5th edi-tion, page 396). Voet Book xix; title 2; section 3; (Gane’s Edi-tion) says “all things can be let out which are the subject mat-ter of commercial transactions whether Corporeal orIncorporeal”. (See observations of Watermeyer J.A. in Gra-ham v. Local and Overseas Investments (Pvt.) Ltd. (13). Thelong line of cases which followed Charles Appuhamy v. Abey-sekera (supra) has proceeded on the basis that a business couldlawfully form the subject matter of a lease.
Be that as it may, whether a transaction is a lease of a bus-iness or an assignment of rights in a business, the commonprinciple which has emerged from the last category of casesappears to be that if the occupation of the premises is subor-dinate to the rights conveyed in respect of the business, thenthe occupier is a lessee or assignee of the business, and a licen-see, but not a tenant of the premises. This principle waslucidly expressed by Nagalingam S.P.J. in Charles Appuhamyv. Abeysekera (supra) at page 246 as follows:—
“On a proper reading of the document PI it is impossible to resist theconclusion that the transaction entered into between the parties wasone not of letting any immovable property for the purpose of enablingone party to carry on a business, nor the letting of the building to thatparty with the option to him to carry on or not the business previouslycarried on there, but of placing the “lessee" in-charge of a businessthat had been carried on for the sole purpose of its being continued asa going concern and with a view to its being delivered back as suchgoing concern together with the advantages gained or accrued theretoin the meantime, and as ancillary to the object which the parties hadin contemplation it was that possession of the premises was delivered.The defendant’s position was.no more than that of a licensee and is farremoved from that of a tenant”
346
Sri Lanka La a- Reports
[1991] 2 Sri L.R
It is seeh that an essential feature of a lease of a businessor an assignment of rights in a business is the existence of anon going business which is the subject matter of such lease orthe assignment. Mr. H. L. de Silva P.C. for the appellant sub-mits that neither the terms of the lease PI I nor the attendantcircumstances to the transaction demonstrate the existence ofan on going business at the commencement of the lease'. It ispointed out that the absence of the word “business” in theagreement Pll is conspicuous, and suggests that the subjectmatter of letting is premises called a garage with equipment asin the case of Nicholas Hamy v. Janies Appuhamy (supra).But one cannot easily overlook the words “all that licensedmotor garage now being run at premises No. 275, NawalaRoad” in the agreement, although the word business is notused. It is also pointed out that unlike in the cases of Java-singhe v. Goolam Hussain (supra) and Pathirana v. De Silva(supra) that the agreement Pll does not inhibit the lessee fromcarrying out any other business in the premises. However,according ton’ll on termination of the agreement the lesseehad covenanted to handover in good condition the “said gar-age” together with machinery and equipment. According tothe definitive clause in the recital of the agreement Pll it isseen that the reference to the ‘said garage’ means the licensedmotor garage “now being run at premises 275” together withmachinery and equipment. It is significant that the only des-cription of the immovable property in the lease Pll is confinedto its assessment number like in the case of Charles Appuhamyv. Abcysekera (supra) showing its relative insignificance in thetransaction.
Documentary evidence produced in the case disclosed thatS.U. Herft obtained a certificate of conformity from the localauthority in 1967 to run a welding shop in the premises; hepurchased a fair amount of machinery and equipment fromseveral sources in 1967 which was reasonably required to run awell equipped workshop; for the years 1968, 1969 and 1970 heobtained licences from the local authority to run a motor vehi-
Suni.ifi.ist.-na i. I.. M. llcrlt fUhecraradje, J.)
SC
.1J7
cle repair shop; and from 1967-1975 he had a running accountwith the Ceylon Oxygen Company on a deposit made for thepurpose of obtaining oxygen which was undoubtedly necessaryto run a workshop. Evidence also disclosed the fact that S.U.Herft fell ill and was paraliscd somewhere in 1969 which in allprobability impelled him to lease out the business. He leasedthe business initially to 2 persons jointly for a period of twoyears on a written agreement similar to PI1 which was pro-duced at the trial. That lease was prematurely terminated andon its termination S.U. Herft leased out the ongoing businessactivity of the garage on PM. The defendant carried on thegarage for the year 1970 on the licence obtained by S.U. Herftfrom the local authority to run a motor repair garage and hemade use of Hcrft’s deposit with the Ceylon Oxygen Companyfor several years for his regular purchases of oxygen.
Much emphasis was placed on behalf of the appellant thatalmost immediately after the lease was executed, the defendantgot the business registered with the Registrar of BusinessNames under the new title “new Piyascna Garage" and anopening ceremony was held for which printed cards were sentto the invitees. It was suggested that the commencement of abusiness under a new name was inconsistent with the existenceof a lease of a business which had been carried on in the pre-mises earlier. 1 am unable to agree with this suggession. InPathirana v. De Silva (supra) the fact that the terms of theagreement expresscdly prohibited the assignee from using theoriginal name in which the business was carried on did notpersuade Samarakoon CJ. to hold that there was no letting ofan ongoing business. On the other hand in Devairakkan v.Samaranayake (supra) the fact that no alteration was soughtto be made in the Business Names Register by the lesseeweighed in the mind of Hcrath J. among other factors, aspointing to the existence of an ongoing business which wasleased out. Reliance was also placed on behalf of the appellanton the receipts issued by S.U. Herft to the defendant inrespect of the rent paid which read “house rent in respect of
348
Sri Lanka Law Reports
11991] 2 Sri L.R.
premises No. 275, N^wala Road” as demonstrating that therewas a tenancy in respect of the premises. It seems to rr:e thatwhatever appeared in printed receipts they were referable tothe covenant in P11 regarding the payment of rent in respectof the business. Further as the Court of Appeal rightlyobserved, using those printed receipts taken from a house rentreceipt book was something particularly a sick man might wellhave done without much concern as to what the printed wordswould have signified.
A close consideration of the agreement PI 1 makes it clearthat its object was the leasing out of the existing business of agarage; a consideration of the surrounding circumstances asrevealed by evidence fails to convince me that an object differ-ent from that which was envisaged in the agreement wasachieved, (vide Pathirana v. Dc Silva (supraX)
For the above reasons the judgment of the Court of Appealis affirmed and the appeal is dismissed with costs.
Fernando, J. — I agree.
Knlatunga, J. — I agree.
Appeal dismissed.