INTRODUCTION TO LAND LAW ( PART 14 )

By Law Teacher

THE LAW ESSAY PROFESSIONAL

9.1.1 Leases Lecture – Introduction

Welcome to the ninth topic in this module guide – Leases! A lease can be defined as a contract by which one party conveys land or property to another for a specified time, usually in return for a periodic payment. This specified period of time can be either fixed or may be periodically extended, and can be for any amount of years as per the Law of Property Act 1925, s 205(1)(xxvii). When the lease comes to an end, ownership of the property returns to the landlord (also known as the lessee).

A leasehold is defined in the Law of Property Act 1925 as an estate in the land for a term of ‘years absolute’ (Law of Property Act 1925, s.1(1)(b)). A lease (or as it is otherwise called, a leasehold) is conferred by a landlord (also called the lessor) on the tenant (the lessee). The lessor grants to the lessee a right of exclusive possession for a finite period of time. Any area can be designated as a leasehold so long as it grants, for a definite period, a right of ‘exclusive domain of a particular individual’. Aside from the restriction on the period of time for which a leaseholder may own land, there is no substantial distinction in the rights between leaseholders and freeholders. As the court has observed, the tenant leaseholder is equally able to exercise rights over land as would a freeholder.

Goals for this section:

• To be able to understand the difference between a freehold interest (also known as a fee simple absolute in possession) and a leasehold interest.
• To be able to identify the three key components of the ‘term of years’ aspect of leaseholds.

Objectives for this section:

• To understand the legal principles represented by the case law in this area, such as; Street v Mountford, Antonaides v Villiers, Bruton v London & Quadrant Housing Trust, and AG Securities v Vaughan.
• To appreciate the obligations which a landlord owes a tenant and vice versa.

9.1.2 Leases Lecture

INTRODUCTION

Many of the questions you will be dealing with in land law will relate to leaseholds rather than freeholds. By and large, the characterisation of an estate as a leasehold will not be the focus of a question. Typically, it is the other aspects of a problem question which are of more importance, whether it be easements, or a mortgage relationship, or covenants. However, on occasion the question will be about one of two questions:

1. Is the relationship of the parties actually a lease?
2. If it is (or if it is not), what does that mean for the obligations of the parties?

BACKGROUND

A leasehold is defined in the Law of Property Act 1925 as an estate in the land for a term of ‘years absolute’ (Law of Property Act 1925, s.1(1)(b)). A lease (leasehold) is conferred by a landlord (lessor) on the tenant (lessee). The lease grants to the lessee a right of exclusive possession for a finite period of time.

Aside from the restriction on the period of time for which a leaseholder may own land, there is no substantial distinction in the rights between leaseholders and freeholders (Street v Mountford [1985] 2 All ER 289).

Case in focus: Bruton v London & Quadrant Housing Trust [1999] UKHL 26

KEY CHARACTERISTICS OF LEASES

In the landmark case of Street v Mountford [1985]the court identified three key components of the ‘term of years’ aspect of leaseholds. They were identified as follows:

• Exclusive possession;
• For a fixed or periodic term certain; and
• In consideration of a premium – meaning a lump sum – and/or periodical payments.

Any given lease or tenancy must grant a right of exclusive possession

The right of exclusive possession over land is said to be the ‘proper touchstone’ of a lease or tenancy (Radaich v Smith [1959] HCA 45). A tenancy by definition must involve a granting by the landlord of exclusive possession, and so a tenancy without the right of exclusive possession is a contradiction in terms.

If a freeholder seeks to retain an unlimited right of access to the property over the leaseholder – as opposed to the right of access in limited and prescribed circumstances – then such an assertion by the freeholder would be unlawful (Aslan v Murphy (No. 1) [1989] EWCA Civ 2).

What should be borne in mind is that a right of occupation does not mean a right of possession (Mehta v Royal Bank of Scotland (2000) 32 HLR 45).

Case in focus: Westminster City Council v Clarke [1992] 2 AC 288

Distinction between lease and licence

As you will have seen, there is much discussion around whether a given arrangement is a lease or a licence, typically in the context of whether the occupant is claiming a right of exclusive possession and the person granting the right of occupation claims they had only granted a licence. Yet the importance of the distinction goes beyond the right of exclusive possession: a lease grants the leaseholder a transferable and enforceable right in the property, whereas a licence confers no rights of transfer or enforcement at all over the property (Ashburn Anstalt v Arnold [1988]). Certain legislative protections apply only to tenants and not to licensees (Rent Act 1977, s.1 for protected tenancies, Housing Act 1988, s.1 for assured tenancies, and the Landlord and Tenant Act 1954, s.23 for business tenancies). In the residential context, however, leases and licences can look very similar. Hence, in looking at ways to distinguish between the two categories, the courts have arrived at various principles:

1. Exclusive possession is necessary but not sufficient for tenancies: Although it is a given that leases will require exclusive possession, there are certain arrangements by which exclusive possession applies despite there being no relationship of landlord and tenant. In the case of licences, there may appear to be a degree of exclusive possession on the part of the licensee over a portion of a property, but the person who owns the property at large will retain exclusive possession over the remaining part of the property.

2. The status of the lodger: Typically, an occupant will be designated as a lodger and therefore a licensee, rather than a tenant, if the owner of the premises is contractually obliged to provide attendance or services ‘which require the landlord or his servants to exercise unrestricted access to and use of the premises’ (Street v Mountford [1985]). The lodger by definition is someone who cannot claim the right to ‘call the place [meaning the property] his own’.

3. The ‘tolerated trespasser’: In certain contexts, the parties are never taken to have intended a mutually binding legal relationship vis-à-vis the property. For example, where a local authority landlord obtains a possession order under the Housing Act 1985 against a council tenant after the tenant defaults on their rent payments, and yet the local authority allows the individual to remain in the property on condition of payment of rent arrears and future rent, the situation is described as being one of ‘limbo’, in which the individual ranks not as a leaseholder or licensee but as merely a ‘tolerated trespasser’ (Burrows v Brent LBC [1996] 4 All ER 577).

4. Labelling by the parties is irrelevant: When ascertaining the nexus of legal rights and obligations, the courts will not take the labels given by the parties to themselves as conclusive. Examples include:

• Clore v Theatrical Properties Ltd and Westby & Co Ltd [1936] 3 All ER 436; and
• Addiscombe Garden Estates v Crabbe [1958] 1 QB 517.

In short, the definition given by the parties to the agreement is only relevant insofar as it correctly and accurately reflects the nature of the terms of the agreement (Antonaides v Villiers [1990]).

A lease or tenancy must be for a fixed term of years absolute

We have seen that the leasehold can be stated to last for any duration but it is crucial that an ascertainable period is given. Therefore, particular phrases which fail to give a period of years as defined by a numerical value will fail for uncertainty. Examples of failed periods include:

1. A purported lease that was said to last for ‘the duration of the war’ ([1944] 1 All ER 305); and
2. A lease that would run ‘until Britain wins the Davis Cup’ (Prudential Assurance Co Ltd v London Residuary Body [1991] UKHL 10).

The courts have occasionally questioned the rationale of needing a certainty in the stated period. It has been said to have no ‘satisfactory rationale’ (Prudential Assurance Co Ltd v London Residuary Body [1991]), and the court has considered relaxing the requirement of the term of years absolute requirement (Ashburn Anstalt v Arnold [1988] EWCA Civ 14).

Case in focus: Prudential Assurance Co Ltd v London Residuary Body [1991]

Statute does provide for a number of exceptional leases that will automatically be converted into time-bound leases. A lease for life, or a lease until marriage, will be converted into a 90 year lease, dependent on the death or marriage of the original lessee (Law of Property Act 1925, s.149(6)). Likewise, a perpetually renewable lease shall be converted automatically into a 2,000 year term to be determinable exclusively by the lessee (Law of Property Act 1922, s.145, Schedule 15).

Periodic tenancies

There is also the exceptional scenario of the periodic tenancy. In this instance, after a fixed-term period has come to an end, the tenant continues to retain rights of exclusive possession over the property indefinitely.

The courts have provided various means of explaining (or explaining away) the discrepancy. For example, the court has suggested that:

1. Periodic tenancies are an isolated exception and that the ‘certainty of years’ requirement simply does not pertain to them (Re Midland Railway Co’s Agreement [1971] Ch 725).

2. In an alternative explanation, the court has recognised periodic tenancies as a continuing and subsisting active agreement between the parties that they wish to remain in a leasehold relationship (Hammersmith and Fulham LBC v Monk [1992] 1 AC 478).

3. The life of the periodic tenancy is contingent entirely on the parties’ mutual agreement, and thus the tenancy has ‘no greater life than the period up to the time when the next notice can be given and would terminate’ (Crawley BC v Ure [1996] 1 QB 13).

4. Upon either party serving a notice to quit, the periodic tenancy is said to have reached ‘the end of its natural life’ and thereby reaches its ‘predetermined end in accordance with the terms of the tenancy agreement’ (Barrett v Morgan [2000] 2 AC 264).

The parties cannot contract away their legal status

The parties cannot reduce or erode the status of their relationship where the status on a construction of the terms is already defined and set by the common law or statute.

Case in focus: Street v Mountford [1985]

Identifying sham or pretence terms

Given the above, certain landlords will want to avoid the effects of a tenancy. After all, the rights accorded to an occupant under a tenancy are far more onerous for a landlord than are those accorded to an occupant under a licence. Therefore, some landlords have sought to include certain terms that erode the legal status of the tenant.

In response, the courts are vigilant for such ‘sham’ or ‘pretence’ terms. Where the court finds such a term, it can render the term unenforceable, null and void.

Case in focus: Antonaides v Villiers [1990]

That all being said, a label will not necessarily be irrelevant. Although the courts are certainly concerned with preventing the exploitation by dishonest landlords of vulnerable tenants by the use of such language as ‘licence agreement’ (Bankway Properties Ltd v Pensfold-Dunsford [2001] 1 WLR 1369), sometimes the label can actually be a useful ‘pointer.’ (National Car Parks Ltd v Trinity Development Co (Banbury) Ltd [2001] EWCA Civ 1686).

OBLIGATIONS

Aside from the requirement that a lease entitles the leaseholder to exclusive possession of the property in a term of years, a lease also entails other obligations which ‘remain outstanding on both sides throughout its currency’ (National Carriers Ltd v Panalpina (Northern) Ltd [1981] A.C. 675). There are various express obligations that a landlord will owe to their tenant. Here we shall discuss some of the implied obligations owed by a landlord to a tenant.

1. Covenant for quiet enjoyment: Upon granting a lease to a party, the landlord thereby also agrees, both on his part and on the part of others, to refrain from doing anything which ‘substantially interferes with the tenant’s title to or possession of the demised premises or with his ordinary and lawful enjoyment of the demised premises’ (Southwark LBC v Mills [1999] 3 WLR 939).

Case in focus: Southwark LBC v Mills [1999]

2. Covenant against derogation from grant: The landlord is prevented from leasing out the property to another on terms which effectively negative the usefulness of the grant.

3. Obligations in respect of repair, maintenance and general amenity: Classically, the common law has seen fit to impose only the bare minimum on landlords as to what they may let out. If the tenant ‘wants more he should bargain for it and be prepared to pay the extra rent’ (Southwark LBC v Mills [1999]).

However, there are exceptions to this Victorian view. Under the common law, the landlord is required to provide for the following:

1. Implied condition of fitness for human habitation: The premises must be reasonably fit for habitation at the commencement of the lease (Smith v Marrable(1843) 11 M&W 5) provided that the premises is residential and furnished.

2. Implied duty of care: The landlord must take reasonable care to keep in repair certain facilities used by the tenant(s).

3. Liability in negligence: Whereupon a defect in the premises arises after the commencement of the lease, the landlord may be liable for defects which arise after its commencement depending on their negligence in the causative effect of those defects (Sharpe v Manchester CC(1977) 5 HLR 71, CA).

4. Liability in nuisance: In certain instances, certain acts or omissions of the landlord may be taken to unduly interfere with the tenant’s comfortable and convenient enjoyment of the premises (Sharpe v Manchester CC (1977)).

9.1.3 Leases Lecture – Hands on Example

As you will recall from the foregoing discussion, questions on leases can be divided into two categories:

1. Is the agreement in question a lease or a licence? Or,
2. Does the landlord owe a specific duty to the leaseholder in the present case?

When answering either of the two questions, you can break them down into the following formulae:

Lease or licence

1. Does the agreement explicitly confer a right of possession over the land?
2. Does the agreement use such language as ‘licence agreement’?
3. Is there a term indicating a waiving of tenancy rights?
4. Does the agreement require that the owner of the premises provide certain services to the occupant, in the course of which they are required to enter the area occupied by the occupant on a regular basis?
5. Are there terms relied on by the owner to claim the agreement is a licence yet are never exercised?

You can essentially divide the potential answers in this manner. If the answer to question 1 is yes, it is almost certainly a tenancy. A right of possession (meaning the right to exclude others, including the owner in most circumstances) is a hallmark of tenancies. If the answer is no (meaning there is no explicit guarantee of exclusive possession), it might still be a tenancy depending on the other questions.

If you answer “yes” to any combination of 2, 3 and 5 and “no” to 4, it is likely a tenancy that is disguised by the landlord as a licence. If however you answer “yes” to 4 then it is probably a licence.

Obligations

Questions on whether a landlord does owe a duty (and if so whether they have breached that duty) are a balancing exercise based on the facts. In essence:

1. Is the interference caused by an act or omission of the landlord or someone acting or omitting to act with the landlord’s permission?
2. If so, then is that interference reasonable?

If you answer “no” to 1, there is no liability (see Southwark LBC v Mills). If you answer “yes” to 1, then it comes down to whether the interference is reasonable or not. Given your understanding of tort law, you’ll know that unreasonable or negligent behaviour in this area will generally result in liability.

Q1. Aaron is homeless and looking for shelter. He is offered shelter by Borough Council in one of their hostels. Aaron resides at the shelter for several years, and he is able to reside in the same room in that time. Following a change in management, staff at the hostel tell Aaron he needs to move room and that they will be inspecting his room on a regular basis. Aaron protests, saying he has a right to live in that specific room.

Advise Aaron.

Q2. Delia and Eric enter into an agreement with Francis for occupation of a house owned by him. They would occupy the basement. Delia and Eric are asked to sign a document called a licence agreement, in which they are named the licensees and are asked to pay a license fee for occupation. Francis says he will need to go into the basement for his band practice, but offers to serve breakfast each day. After Delia and Eric sign the agreement, they later realise that Francis actually practices with his band elsewhere. Now, Francis has told them they have a week to leave. Francis never served them breakfast.

Advise Delia and Eric.

Q3. GoHomes Ltd are looking to sell a lease over Blackacre. They find an interested party, Ivan. He is somewhat eccentric, and wants to impose a special condition on the lease: he asks that the term of the lease should last “until such time as England win the World Cup.” GoHomes are keen to sell the lease but are unsure of this clause.

Advise GoHomes.

Q4. Juliet lives near the top of a high-rise block of flats. Her landlord is Kent County Council. She has recently discovered that the lift has stopped working. Kent say it is not their problem: they took ownership of the building some time ago and the fault with the lift is owing to the structure of the building. An expert report shows this to be the case.

Advise Juliet.

A1. Following the case of Westminster City Council v Clarke this situation appears to be a licence rather than that of a tenancy. Given the nature of the accommodation (i.e. hostel) the owners are entitled to allocate Aaron an area of occupation as they see fit and to intrude upon his occupied space as is necessary. The “totality, immediacy and objectives” of the agreement are paramount.

A2. This points to the ‘sham’ agreement practices and labelling issues surrounding leases and licences. We are given a clue that this is a sham agreement: Francis never exercises the right to use the space for band practice, nor does he uphold his supposed obligation to provide breakfast. Therefore, the occupants will be deemed to be tenants following payment of the so-called “licence fee.”

A3. Applying Prudential v London Residuary Body, this kind of clause is lacking in the kind of time-bound certainty which is the requirement for all leases. It does not state the term in a numerical value, and as such would fail to be regarded as a lease for lack of certainty following the term of years requirement.

A4. Following Southwark LBC v Mills there are certain interferences with the quiet enjoyment of one’s property that will not result in liability. This is what Kent are saying in relation to the structure of the building. However, following Irwin, the failure of a lift in a high-rise effectively renders the agreement inefficacious and absurd because Juliet relies on the lift as an essential part of the property. It is therefore Kent’s responsibility to fix the faulty lift.