Irish Shell & BP Ltd v John Costello Ltd

The facts in brief

Irish Shell & BP Ltd v John Costello Ltd [1981] ILRM 66; [1984] IR 511 IE · Supreme Court concerned a petrol station at Rathfarnham. After the original lease expired the parties entered into a further arrangement while a new one was negotiated. The occupier paid a hire charge for the petrol pumps, tanks and garage equipment, no express sum was charged for the site itself, and the document described itself as a licence.

There were successive agreements. The first formally reserved possession to the oil company, but that provision was dropped from later versions. On the ground the occupier held the keys and controlled the pumps, and the company had no more than a right of inspection on notice.

What the court decided

The Supreme Court held by a majority that the arrangement was a lease and not a licence. The changes across the successive documents were significant: once the express reservation of possession disappeared, what the occupier in fact had was possession of the site.

Griffin J explained the majority's approach. A document described as a licence does not become one in law merely because of that description. The court asks whether what was given was a personal privilege, which is a licence, or an interest in land, which is a tenancy.

Griffin J held that the court must therefore look to the substance of what the parties had actually done.

On the rent point the court divided. Kenny J, in the minority, thought the absence of any provision for the payment of rent significant, because no sum was charged for the site as such. The majority held that the equipment rental payments answered that requirement.

The ratio

Where an agreement, whatever name the parties give it, in substance confers on the occupier possession and practical control of the premises, and provides for payments referable to that occupation, the relationship is one of landlord and tenant. The description adopted by the parties is evidence of their intention, not a conclusion about the legal character of what they created.

Griffin J reached that position by adopting Lord Denning MR's statement in Shell-Mex and B.P. Ltd v Manchester Garages Ltd [1971] 1 WLR 612 Persuasive · England that the question turns on the nature of the transaction rather than the label, and that exclusive possession is not by itself decisive.

Statutory basis

The case is decided against the statutory definition of the landlord and tenant relationship. Section 3 of the Landlord and Tenant Law Amendment Act, Ireland, 1860, Deasy's Act, provides that the relation is founded on the express or implied contract of the parties, that no reversion is necessary, and that it subsists wherever one party agrees to hold land from another in consideration of any rent.

That is why the division over the equipment payments mattered. Section 1 defines rent as including any sum or return in the nature of rent given by way of compensation for the holding of any lands, wide enough to reach a charge not called rent.

In Hayes v The Minister for the Environment, Community and Local Government [2020] IECA 54 IE · Court of Appeal Baker J confirmed that actual payment of rent is not necessary; what creates the relationship is the agreement to permit occupation in consideration of rent.

The stakes are statutory. A business tenant may claim a new tenancy under Part II of the Landlord and Tenant (Amendment) Act 1980, and residential tenants have the protections of the Residential Tenancies Act 2004. A licensee has neither.

What it is authority for

• The label is not determinative. A self-described licence may be a lease, and the court decides the category objectively, by reference to the rights the document creates.
• The transaction is read as a whole, including successive agreements between the same parties, and a change between versions can be decisive.
• The rent element can be satisfied by payments not described as rent, where in substance they are the return for the occupation.
• Practical control counts: who holds the keys, who runs the equipment, and whether the grantor can enter at will or on notice.

It is not authority that exclusive possession always produces a tenancy, nor that a professionally drafted licence will routinely be set aside. Irish law has not adopted the English presumption that exclusive possession for a term at a rent creates a tenancy regardless of expressed intention, the approach of Street v Mountford [1985] AC 809; [1985] 2 All ER 289 Persuasive · England and is persuasive only in this jurisdiction.

Where it sits against later cases

The limit on the case is set by Gatien Motor Co Ltd v Continental Oil Co of Ireland Ltd [1979] IR 406 IE · Supreme Court, where a former tenant of a garage stayed on for a week as a caretaker, with exclusive possession but no rent obligation. Kenny J held that exclusive possession was not determinative in itself, and the court treated the caretaker week as a break in term.

Governors of the National Maternity Hospital Dublin v Ann McGouran [1994] 1 ILRM 521 IE · High Court is the standard contrast. The agreement for shop units within the hospital carried covenants usually found in a lease and the occupier was the sole key holder, but Morris J held the hospital had not parted with dominion and regulated how the units were used. Without exclusive possession, the arrangement was a licence.

The decision was expressly distinguished in Kenny Homes & Co Ltd v Leonard IE · Supreme Court, an unreported decision of 18 June 1998, where Lynch J found that agreements for a petrol station and car park specifying licence fees in lieu of rent and excluding exclusivity of possession created no more than a personal licence.

Lynch J held that those agreements were clear in their terms and stood in marked contrast with the agreement the Supreme Court had considered.

The High Court authorities pull in both directions. In Smith v Córas Iompair Éireann [2002] IEHC 103 IE · High Court Peart J looked behind a document that called itself a licence and denied exclusivity, and held on the lived facts, the company never entering or holding a key, that the occupier was a tenant. In Esso Ireland Ltd v Nine One One Retail Ltd [2013] IEHC 514 IE · High Court McGovern J went the other way on food service units in filling stations, holding that a court should be slow to look behind clear terms negotiated at arm's length between legally represented parties.

The framing used today comes from Board of Management of St Patrick's School v Eoghan O'Neachtain Ltd [2018] IEHC 128 IE · High Court, where Hunt J put the distinction in terms of the degree of control that lets the occupier call the place his own, and the extent to which he could restrain a trespass.

Key authorities

• Irish Shell & BP Ltd v John Costello Ltd [1981] ILRM 66; [1984] IR 511 IE · Supreme Court — a self-described licence of a petrol station, structured as equipment hire, was in substance a lease. Payments need not be called rent.
• Gatien Motor Co Ltd v Continental Oil Co of Ireland Ltd [1979] IR 406 IE · Supreme Court — exclusive possession under a one-week caretaker arrangement with no rent did not create a tenancy.
• Whipp v Mackey [1927] IR 372 IE — the vocabulary of a lease did not create one absent exclusive possession.
• Governors of the National Maternity Hospital Dublin v Ann McGouran [1994] 1 ILRM 521 IE · High Court — control retained over the units negated exclusive possession and left a licence.
• Kenny Homes & Co Ltd v Leonard IE · Supreme Court — unreported, 18 June 1998. Licence fees in lieu of rent and no exclusivity of possession created a personal licence only, distinguished from the petrol station case.
• Smith v Córas Iompair Éireann [2002] IEHC 103 IE · High Court — a ten year document labelled a licence, for a retail unit, was a lease on the lived reality of the occupation.
• Esso Ireland Ltd v Nine One One Retail Ltd [2013] IEHC 514 IE · High Court — clear terms negotiated at arm's length between represented parties were respected, and no new tenancy arose.
• Street v Mountford [1985] AC 809; [1985] 2 All ER 289 Persuasive · England — exclusive possession for a term at a rent creates a tenancy, and expressions of intention are then irrelevant. Persuasive only in Ireland.

How it is examined

The case appears in two shapes. The case note format is regularly set on Irish land law papers, and this is a natural candidate. In a problem question it is the authority to reach for whenever a commercial occupier of a filling station, a unit inside a larger premises, or a concession holds under a document calling itself a licence.

The issue-spotting cue

Look for a document headed as a licence, a payment described as a fee or hire charge rather than rent, a clause reserving the grantor's right to enter, and facts showing the right is never used. The occupier then claims a new tenancy.

Structuring a twelve to thirteen mark case note

1. Two or three sentences of facts: the station, the equipment hire, the label, the dropped reservation of possession.
2. The court and outcome: a majority of the Supreme Court, lease not licence, Kenny J dissenting on rent.
3. The ratio in one sentence, with the substance point and Griffin J's line.
4. What it is authority for and what it is not, using Gatien to keep exclusive possession in place.
5. Later treatment: distinguished in Kenny Homes and Esso, applied in substance in Smith, contrasted with McGouran.
6. One line of evaluation on whether the Irish approach is consistent.

Order of attack in a problem question

Take intention first, judged objectively from the rights the document creates. Then exclusive possession, tested by who can exclude whom in fact. Then the payment, and whether it answers the rent element under Deasy's Act. Then weigh the control retained, as Hunt J framed it.

Related Land Law notes: licences and the family home · leases and forfeiture · ground rents and tenants’ statutory rights · all free Land Law notes.