English County Court confirms pub management agreement model amounts to landlord occupation under the 1954 Act

Star Pubs Trading Limited v Gunmakers Arms (Essex) concerned a pub where the landlord's intended management model would give it sufficient control over the business to establish occupation under section 30(1)(g) of the Landlord and Tenant Act (LTA) 1954 (where a landlord can oppose a renewal of a lease on the basis that the landlord intends to occupy the premises for the purposes of its own business). It confirmed that the legal test of occupation is the same for both landlords and tenants.

Star Pubs Trading Limited is a major pub company. The tenant, Gunmakers Arms (Essex) LLP, held the lease of the Gunmakers Arms pub in Loughton, Essex, having taken an assignment of a 20-year lease in 2012. The tenancy continued under the security of tenure provisions in Part II of the 1954 Act.

Star served a section 25 notice in March 2024, opposing the grant of a new tenancy on the own occupation ground (g), and brought proceedings to terminate Gunmakers' tenancy. Star's case was that it intended to occupy the premises by entering into a management services agreement under its "Just Add Talent" (JAT) model with an operator company yet to be identified.

The management model

The central provision of the management services agreement appointed the operator to manage the business on Star's behalf and only granted the operator permission to access and use the pub insofar as necessary to perform its obligations. That permission would terminate immediately if the agreement ended.

The business was defined as "the business of Star operating as a public house from the Pub". The agreement made clear that Star, and not the operator, owned the pub, the fixtures and fittings, and the business itself. The operator's remuneration comprised a management fee of two elements: a base fee (a specified percentage of revenue, paid weekly) and a 20% profit share, paid quarterly.

Gunmakers disputed that this would amount to Star occupying the premises for the purposes of its own business under ground (g). It argued that the operator's staff would physically have to be present at the pub, as Star provided no staff and had no on-site presence, and that accordingly the business must in reality be the operator's.

Legal principles

The judge referred to three cases in which the true nature of businesses run under management agreements had been considered: Dellneed Ltd v Chin, Teesside Indoor Bowls Limited v Stockton-on-Tees Borough Council, and Brumwell v Powys County Council.

The key question in each case was whether the business that would be run from the premises would truly be the landlord's, or whether it would in fact be the operator's business. That assessment requires looking at a number of factors, including the degree of control retained by the landlord.

Control as the decisive factor

Applying that trio of cases, the judge reached the clear conclusion that Star's intention to run the premises on the JAT model did involve an intention to occupy the premises for the purposes of a business carried on by Star, through the operator company acting as its agent.

The terms of the agreement gave Star a striking level of control. Under the agreement, Star, rather than the operator, entered into all the contracts involved in running the business. This included the supply of all food and drink, with the exception of staff contracts. Star fixed all prices at which products were sold to customers, and the operator had no authority to negotiate them. Star's detailed operational manual governed virtually every aspect of how the pub was to be managed, from opening hours to food service times. All marketing activities were determined and paid for by Star, and the operator was not to provide its own promotional material without Star's prior approval.

The judge also noted the absence of clauses typically indicative of a tenancy: there was no covenant to pay a periodic sum for occupation, no real limitation on Star's right of access, and the repair and maintenance obligations rested with Star, not the operator. Other features pointing in the same direction included that the premises licence was held by Star and that the arrangements for gaming machines (a highly profitable revenue stream) were made directly between Star and the suppliers, entirely outside the operator's remit.

The judge rejected the argument that the operator's physical presence at the premises through its staff was fatal to Star's case. The question was not whether the operator occupied the premises, but whether it did so as agent for Star. On the facts, the answer was plainly yes.

The judge then addressed Gunmakers' submission that, because the Dellneed and Brumwell cases had not been decided in the context of section 30(1)(g), they could not apply here. That submission was rejected. The judge held that the question of occupation for business purposes also arises when considering whether there is a business tenancy at all (under section 23 LTA), citing Lord Nicholls in Graysim Holdings v P&O Property Holdings , who explained that "occupied" and "occupied for the purposes of a business carried on by him" are the expressions used throughout Part II of the 1954 Act to identify whether a tenancy is a business tenancy and whether the property qualifies for inclusion in a new tenancy.

The court ordered the termination of Gunmakers' tenancy without the grant of a new tenancy.

Osborne Clarke comment

This decision will be of significant interest to pub companies, leisure operators and others that use management agreement structures, particularly where they seek to recover possession on the own occupation ground.

The judgment provides important confirmation that the substantial body of case law developed in the context of section 23 of the 1954 Act applies with equal force when a landlord seeks to establish the section 30(1)(g) ground.

Landlords considering an own occupation claim under a management agreement model should ensure that the terms of their agreements are consistent with the business truly being theirs. Retaining control over pricing, contracts, marketing and access will be central to establishing that position.

For tenants, the case is a reminder that the absence of a landlord's physical presence on site will not, of itself, defeat an own occupation claim. The question is whether the operator is physically occupying the premises on behalf of the landlord. A management agreement that establishes a high degree of landlord control is likely to answer that question in the landlord's favour.