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Modern Land Law

in which a person may enjoy a limited right to use or occupy land owned by another person and it is sometimes necessary to distinguish these relationships from the leasehold estate. For example, a person may be given a ‘licence’ to occupy the land of another which, in many ways, might resemble a lease.9 Yet a licence is a mere personal right, binding only the parties that created it – Lloyd v. Dugdale (2001). A lease, on the other hand, is properly regarded as a proprietary interest in the land itself and it may be assigned to, and become binding on, any subsequent owner of the reversion. Moreover, ‘leases’ (but not licences) fall within the statutory regulatory machinery of the Rent Act 1977 and the Housing Act 1988, so restricting the ability of landlords to remove tenants and set rent.10 There are other differences too. For example, a tenant may sue any person in trespass (including his landlord), but a licensee enjoys only a very narrow right;11 a tenant may sue in nuisance, a licensee may do so only in exceptional circumstances;12 and only a landlord may avail himself of the remedy of forfeiture (and hence only a tenant may claim ‘relief’). In fact, in years past, these differences, particularly the absence of statutory protection and rent control for licensees, prompted landowners to attempt to draw up agreements with potential occupiers of the land that gave mere licences and not leases. In most cases, this was attempted by seeking to deny the grant of ‘exclusive possession’ to the occupier, thereby removing a vital element in the creation of a lease. Consequently, a series of cases in the House of Lords and Court of Appeal sought to draw a legal and practical distinction between a ‘lease’ and a ‘licence’, and this battle was fought largely over the concept of ‘exclusive possession’. Indeed, although legislative changes have made the distinction between a lease and a licence less critical,13 these important cases still provide the basic tools for identifying whether a right to occupy amounts to a ‘lease’ or whether instead it amounts to some other arrangement between the parties.

As a basic proposition, a lease will exist when the occupier of land has been granted exclusive possession of the premises. This is a question of fact, to be decided in each case by reference to the surrounding circumstances, the course of any negotiations prior to the grant of the right of occupation, the nature of the property and the actual mode of occupation of the occupier. Further, the landowner cannot avoid granting a lease by merely calling the arrangement between the parties ‘a licence’, even if this is expressly stated.

9The occupier may pay a regular ‘licence fee’ and treat the land as their home (Ogwr Borough Council v. Dykes).

10Note, however, that the relaxation in the regulation of leases means that the majority of leases no longer fall within the protective ambit of these statutes.

11Manchester Airport v. Dutton (1999).

12Hunter v. Canary Wharf (1996).

13For example, because of the removal of rent control and security of tenure under various Housing Acts.

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Labels are not decisive. Generally, it is not the parties’ intentions (whether expressly stated or not) that are relevant, but the substance of the rights they have created by their agreement (Street v. Mountford (1985), overruling Somma v. Hazlehurst (1978)).

However, Lord Templeman in Street also accepted there are certain exceptional situations where the occupier of land may have exclusive possession of the property but, for special reasons, no lease will exist. These are cases where the grant of exclusive possession is referable to some other bona fide relationship between the parties. Examples given in Street include a mortgagee going into possession of the property under the terms of a mortgage, usually where the borrower cannot repay the loan,14 the occupancy of the purchaser under an enforceable contract for the sale of the land15 and where the occupation is based on charity16 or friendship, when there is no intention to create legal relations between the owner and the occupier.17 In fact, these special cases were explained at length by Denning LJ in Facchini v. Bryson (1952) and also include situations where the occupier is a ‘service occupier’, being a person who occupies property for the better performance of his duties under a contract of employment with the landowner.18 Although such an occupier may have exclusive possession of the property, that occupation feeds off his employment contract and does not exist because of a landlord and tenant relationship. Thus, they are a licensee, as in Carroll v. Manek (1999) where a hotel manager was held to have a licence of a hotel room (despite being in exclusive possession) because the possession was entirely referable to this employment relationship. The effect is, then, that as well as having only a personal right in the land, the exclusive possession of the employee must end when the employment ends.

According to Lord Templeman in Street, the practical effect of the principle that an occupation agreement is to be assessed according to its substance, not its label, is that a genuine licence can exist in only very limited circumstances. In fact, apart from the Facchini exceptions, Lord Templeman’s view is that an occupier of premises must be either a ‘tenant’ or a ‘lodger’. This is another way of saying that the only genuine occupation licence that can exist is that held by a lodger. In law, a lodger is someone who receives services and attendance from the landlord, such as room cleaning or meals. Moreover, as Markou v. Da Silvaesa (1986) illustrates, a mere promise by the landowner to provide such services is not sufficient to generate a lodging agreement

14See Chapter 10.

15Bretherton v. Paton (1986).

16For example, Gray v. Taylor (1998).

17Marcroft Wagons v. Smith (1951).

18Norris v. Checksfield (1991).

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(i.e. a licence); they must actually be provided. What this means, then, is that it should be a relatively straightforward task to distinguish between a lease and a licence: if the occupier receives ‘board and lodging’, he holds a mere personal licence. Otherwise, he must be a tenant, unless one of the exceptional Facchini situations exists. Unfortunately, however, things are never this simple, for if it is true that an occupier is either a lodger or a tenant, this implies that no other kind of ‘occupation licence’ can exist. There can be no intermediate category of licensee who, while not a lodger, is still not a tenant. Obviously, this has far-reaching consequences for it restricts the options open to a landowner when seeking to make use of his property. It is the triumph of property law over freedom of contract, and it is precisely this legal straitjacket that cases subsequent to Street found difficult to accept. Indeed, many of the apparently inconsistent decisions of the Court of Appeal that followed Street have resulted from attempts to identify some middle way, some form of occupation that can still give rise to a licence, but where the occupier is not a lodger. For example, Hadjiloucas v. Crean (1988) and Brooker Estates v. Ayers

(1987), both decisions of the Court of Appeal quite soon after Street, are of this type. In fact, although the primacy of the lease/licence distinction based on exclusive possession has been preserved by the House of Lords in cases such as Antoniades v. Villiers (1990) and Bruton v. London & Quadrant (1999), and by the Court of Appeal in Aslan v. Murphy (1989) and Mikeover v. Brady, there has been an acceptance that property rights, or rights to use property, are not as black and white as the tenant/lodger distinction suggests. Necessarily, this has resulted in a certain refinement of the principles, and some other guidelines have emerged.

First, it is now clear that a licence (as opposed to a lease) may exist in cases where two or more persons occupy the same property, as in shared houses. It is not that the persons occupying the property under a ‘multiple occupancy agreement’ cannot be leaseholders, rather it is that to be leaseholders of the entire property the ‘four unities’ must be present so as to support a joint tenancy of the leasehold estate.19 Therefore, the issue turns on the nature of the multiple occupancy agreement. For example, if four people occupy a four-bedroomed house, but each sign a different agreement, on different days and for different rents, there can be no ‘exclusive possession’ of the entire premises, because there is no unity of interest, title or time. The house, as a whole, cannot be held on a leasehold, because the necessary conditions for a joint tenancy of this estate do not exist. Of course, each occupier may have a lease of his individual room, with a licence over the common parts, but this is very different from a single, jointly owned leasehold estate of the whole premises. Note, however, that while it is perfectly understandable and

19 AG Securities v. Vaughan (1988).

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indeed practical that no joint leasehold should exist in respect of a property occupied by a shifting population of previously unrelated persons (e.g. house sharing in London), the same considerations do not apply where the ‘multiple’ occupancy is that of a romantically linked couple who, for all intents and purposes, are living in the property together, not as separate individuals. In such cases, as explained below, the court might well regard the existence of an alleged multiple occupancy licence as a deliberate and artificial (and hence disallowed) attempt to avoid the grant of a joint leasehold interest.

Second, some cases also suggest that there are certain types of public sector landlords who may be able to grant licences in circumstances where a private landlord could only grant leases. Examples are Westminster CC v. Basson (1991), Ogwr BC v. Dykes (1989), and the decision in Westminster CC v. Clarke (1992). In these situations, the landowner may be able to deny exclusive possession to the occupier (and hence deny a lease) because to do otherwise would be to hinder it in the exercise of its statutory housing duties. In other words, the denial of exclusive possession with all that this entails, is necessary if local authorities and the like are to be able to carry out their duty to accommodate the homeless and provide temporary accommodation to the needy. Such landlords should be able to grant personal licences in order to be able to manage their housing stock more effectively without being ‘caught’ by the greater obligations owed by landlords to their tenants. Seen in this light, the privileged position of public sector landlords is justified by policy rather than principle, but, of course, that does not make it any less sensible. A similar view was taken in Gray v. Taylor (1998), where one ground for denying that the occupier of a charity almshouse was a tenant was that it would be inconsistent with the duty of the particular trustees of the charity to have granted a tenancy and with it, a measure of residential security. Importantly, however, this view of the Westminster cases (i.e. that the identity of the landlord can be a decisive factor in drawing the lease/licence distinction) has been challenged. In

Bruton v. London and Quadrant Housing Trust (1999), the House of Lords were considering the status of Mr Bruton who held a property on an express ‘licence’ from the Trust. The Trust itself held a licence from the freeholder, Lambeth London Borough Council, and was acting in support of Lambeth’s housing functions. In deciding that Mr Bruton held a lease (on which see immediately below), Lord Hoffmann noted (obiter) that the law does not accept that the identity or type of landlord is relevant in determining the existence of a lease or licence. This does seem to shut down this line of argument but it is not immediately apparent why, as the earlier Court of Appeal cases demonstrate, the identity of the landlord cannot help to establish whether the giving of a licence to an occupier was a genuine response to the unique circumstances of a case rather than an attempt to avoid the grant of a lease per se. So, the fact that Westminster Council had statutory housing functions must impact on the genuineness of its attempt to give some of its occupiers ‘mere’ licences, just as in Mehta v. Royal Bank of Scotland (1999) where the Court of

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Appeal decided that a hotel occupier had ‘only’ a licence as against the hotel owners (as made clear in his agreement) because this was the only sensible interpretation of the relationship between the particular parties. In fact, as discussed below, Bruton is a case that raises other concerns when considering the distinction between a lease and a licence and it is not certain that it is the most reliable authority in this area.

Third, in Bruton v. London & Quadrant Housing Trust, Mr Bruton contended that he held a lease from London & Quadrant on the basis that he enjoyed exclusive possession. However, the Trust itself held only a licence from the freeholder, not because of some clever draughtsmanship by the freeholder, but because any grant of a lease by Lambeth LBC (the freeholder) would have been ultra vires its powers under section 32 of the Housing Act 1985. Naturally (one might think) the Trust resisted the claim that Bruton held a lease on the simple ground that it (the Trust) held no estate in the land and so could not grant such an estate in the land to Mr Bruton: nemo dat quod non habet.20 This was accepted by a majority of the Court of Appeal but, somewhat surprisingly, was rejected by the House of Lords. According to Lord Hoffmann, giving the leading judgment and deciding in favour of the existence of a lease for Mr Bruton, the test of whether an occupier held a lease was simply that of ‘exclusive possession’ as laid down in Street. Bruton had exclusive possession, so he had a lease and it did not matter that London & Quadrant held no estate because it was the agreement between the parties that created ‘a lease’, not the prior existence of an estate in the ‘landlord’. Unfortunately, this deceptively simple (and, with respect, simplistic) reasoning has far-reaching consequences. It means, as acknowledged by Lord Hoffmann, that a lease is not always a proprietary right in the land. Apparently, it is a contractual state of affairs between ‘landlord’ and ‘tenant’ and whether it is also proprietary in the sense of being capable of binding third parties depends on the circumstances in which the ‘lease’ arises. To put it another way, apparently there is in English law the ‘normal’ proprietary lease that has been with us for centuries and also the ‘non-proprietary lease’ or ‘contractual tenancy’ being a ‘lease’ between the parties, but not ‘a lease’ in a proprietary sense. It is an understatement to say that this muddies the waters. The decision in Street itself is premised on the assumption that a lease is proprietary and that is why it must be distinguished from a licence! To take the ratio of Street and apply it to Bruton in the manner suggested by Lord Hoffmann does great violence not only to established principles of property law but goes against the very purpose of Lord Templeman’s judgment in the earlier case. Exclusive possession signifies exclusive control in virtue of an estate in land granted by the landlord; exclusive occupation signifies exclusive

20In this context, meaning that a person cannot grant what they do not own. The Trust had no lease, so it could not carve one for Mr Bruton.

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control in virtue of other arrangements and it might be thought that the occupier in Bruton had the latter, but not the former. No doubt, the decision in Bruton was convenient in that it enabled Mr Bruton to compel the Trust to perform the repairing obligations that are implied into a ‘lease’ under section 11 of the Landlord and Tenant Act 1985. On the other hand, the ‘non-propri- etary lease’ is a strange creature in English property law and, we might suggest, it already has a name; that is, it is a licence! Subsequent to Bruton, the reasoning has been applied in two cases, Kay v. London Borough of Lambeth and London Borough of Islington v. Green, both of which involved ‘Bruton tenants’ seeking a remedy against the freeholders of the land. However, while in both cases the Court of Appeal adopts the reasoning of the House of Lords (as they must) that the absence of an estate in the intermediate ‘landlord’ is not destructive of the occupier’s ‘non-proprietary lease’, in both cases the court decides that the occupier’s ‘lease’ is purely a contractual arrangement between the intermediate licensor and the occupier that is without proprietary effect against the freeholder or any other third party. Indeed, when Kay v. Lambeth (2006) was appealed to the House of Lords (partly on other grounds21), Lord Scott (with whom all six other Lords agreed), made it clear that the ‘Bruton tenancies’ had no proprietary character at all and were not governed by any of the principles relevant to leasehold estates.22 So it is then, that the ‘Bruton tenancy’ is ‘a lease’ without meaning as an estate in the land. In such circumstances, we might ask legitimately why this is a ‘lease’ at all, as opposed to perhaps a contractual licence.23 It remains to be seen whether the ‘Bruton tenancy’ gains any further credibility, but it seems likely that the case will come to be regarded as decided ‘by reference to its own special facts’, as seems inherent in Lord Scott’s unsympathetic analysis of it in Kay. It would be a mistake to regard Bruton as an authority for the destruction of one of the most fundamental distinctions in property law; that is, the distinction between proprietary leases and personal licences.

Fourth, continuing this analysis of cases after Street, Lord Oliver in Antoniades v. Villiers (1990) suggests that there may be circumstances where a landowner can genuinely reserve to himself a right to make use of the premises that they have given over to an occupier and, if such use is made, no exclusive possession will be given and a lease will not exist. An example

21Questions arose as to the occupiers’ right to a home under Article 8 of the European Convention on Human Rights.

22For example, the agreements were not governed by the leasehold estate principles concerning surrender of the estate by a tenant to his landlord.

23One reason might be that a ‘Bruton tenancy’ as between the parties to it, but only those parties, partakes of the normal obligations of ‘landlord and tenant’, such as repairing obligations and the like. In this sense, although the ‘Bruton lease’ has no proprietary effect, it would be different from a pure contractual licence. To the present author this appears as a sleight of hand, not justifiable as a matter of property law, but to be seen as a device to give certain contractual licensees rights as if they were tenants.

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might be where a landowner grants occupation of her house to a student for £50 per week, but reserves a right (subsequently used) to enter at any time and make use of the study. In effect, this is no more than a restatement of the distinction between exclusive possession and exclusive occupation; the former establishing the legal relationship of landlord and tenant, the latter describing a factual situation, devoid of proprietary effect. However, the ability of a landowner to reserve a right to himself which effectively destroys the grant of exclusive possession is controversial because it appears to offer landowners a way out of the rigours of Street v. Mountford (1985). For that reason, it must constitute a rare exception to the Street ratio, and the ‘pretence’ rule (discussed below) may invalidate most attempts by landowners to achieve such an outcome. In any event, this ‘exception’ would not be applicable if the right reserved by the landowner was consistent with the grant of a lease. For example, a landowner may reserve the right to enter the premises, in order to inspect and carry out repairs, but such a right actually confirms the grant of a tenancy rather than denies it, for this is just the sort of right a landlord would expect to have under a lease.

Finally, the cases also establish that these glosses on the strictness of the Street v. Mountford analysis are applicable only if genuinely employed for legitimate reasons. Consequently, attempts by the landlord (or tenant24) to deny the grant of exclusive possession are subject to the court’s powers to ignore ‘pretences’ (or ‘sham devices’). According to Antoniades v. Villiers (1990), a ‘pretence’ exists where a clause in an agreement for the occupation of land is inserted into that agreement deliberately in order to avoid the creation of the lease that would otherwise arise and where either party does not intend to rely in practice on the clause. A pretence may be established from an examination of the surrounding circumstances of the case and may be confirmed by the parties’ subsequent practice. For example, in Antoniades, an unmarried couple each signed a separate agreement for the occupation of a single bedroom flat that was clearly going to be their joint home. These agreements gave the landowner certain rights over the property that were unlikely to be enjoyed in practice – for example, the right to nominate another occupier. This was an attempt by the landowner to avoid the grant of a tenancy by artificially destroying the ‘four unities’ necessary to give the couple a joint tenancy of the leasehold estate and by reserving to himself some power over the property that might be thought to destroy exclusive possession. This was held to be a pretence, created only to deny artificially the grant of a lease. The objectionable clauses had no merit or purpose other than to prevent the occupiers from obtaining a lease. Hence, the clauses were struck out and the agreements given effect without the offending clause – the couple held a joint lease.

24 For example, where there is a dispute over the rent of property.

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6.2.2 For a term certain

Another essential ingredient in a lease is that the exclusive possession granted to the tenant must be for a defined and certain period of time; for example, one year, one month, seven years, 99 years, and so on. This means not only that the lease must start at a clearly defined moment, but also that the length of the term granted must be certain. At the commencement of the lease, it must be possible to define exactly the maximum duration of the lease, even if it is possible to end the lease at some time before this. So, a lease for 3,000 years is perfectly valid, even if the lease contains ‘break clauses’ entitling the landlord and tenant to terminate the lease by notice on, say, every tenth anniversary. Any lease, or rather any intended lease, that fails to satisfy this condition is necessarily void, because it does not amount to a ‘term certain’. Of course, in the great majority of cases this condition is easily satisfied, as in the above example, because the landlord and tenant will state clearly the duration of the lease. However, problems can arise where the term of the lease is set by reference to some other criteria, such as the happening of an uncertain event. For example, in Lace v. Chandler (1944), an alleged lease for the duration of the Second World War was held void as being of uncertain maximum duration. In recent years, the principle of term certain has been under attack, and there was an attempt to accept as leases arrangements which, on a proper construction, could not be said to create a certain term. So in Ashburn Anstalt v. Arnold (1989), an arrangement whereby a tenant occupied property indefinitely until the landlord gave three months’ notice was held to be a lease on the ground that the term could be rendered certain by action of one of the parties. In reality, of course, this does not comply with the spirit of the rule that a lease must be certain at the date of its commencement and it came as no surprise when the House of Lords in Prudential Assurance v. London Residuary Body (1992) reaffirmed the rule that a leasehold term must be certain from the outset and overruled this aspect of the Ashburn Anstalt decision. Consequently, it is not enough that an uncertain term can, in fact, be rendered certain by action of either the landlord or the tenant after the lease has commenced. This is a significant and welcome return to the orthodox position. Both landlord and tenant will know the maximum duration of their obligations and it will be easier to place a monetary value on both lease and reversion should either wish to assign their rights to a purchaser.

6.2.3 Periodic tenancies

In a great many cases concerning residential property, a tenant may occupy premises and pay a regular sum in rent to the landlord, but there may not be an express agreement (written or oral) regulating the occupation. In these circumstances, a tenancy of a certain duration will be implied from the facts. Thus, if money is paid weekly in respect of a week’s occupation, a periodic tenancy

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of one week will be implied. Likewise, if rent is paid with reference to a monthly or quarterly period, a monthly or quarterly periodic tenancy will result. Obviously, if a further weekly, monthly or quarterly payment is made, the lease will continue for a further period. In this sense, the lease can continue indefinitely and the total period of the tenancy will not be known in advance. However, although this appears to give rise to a lease of uncertain duration, in fact there is a succession of periodic tenancies, all of which are of a certain term; that is, one week after one week, or one month after one month, and so on. The validity of periodic tenancies was confirmed by Prudential, with the court explaining that there is a clear conceptual distinction between a succession of certain periods with simple uncertainty about how many more periods there will be (a periodic tenancy), and a ‘term’ that, from its outset, is defined by reference to uncertainty (e.g. a tenancy ‘until the good weather ends’). As discussed below, because the great majority of periodic tenancies are for a period of three years or less they will be legal interests.25

6.2.4 Statutory provisions concerning certain terms

There are a number of statutory provisions which are related to the principle of ‘term certain’ and whose general effect is to convert uncertain periods into certain terms or to invalidate certain types of arrangement.

1A lease for the duration of the life of any person, or which is due to end with expiry of any life, or on the marriage of the lessee, for a rent or a premium (all uncertain terms) is converted into a lease for 90 years, subject to determination (i.e. ending) if the death or marriage occurs before this (section 149(6) of the LPA 1925). So, a lease of a cottage granted to me by my parents ‘until I marry’, for £60 per week, or for an initial capital sum of, say, £45,000 (a premium), will take effect as a lease for a certain period of 90 years, determinable when (if) I marry.

2A lease which is perpetually renewable is converted into a lease for 2,000 years (Schedule 15, section 145 of the LPA 1922). So, a lease for 40 years, containing a clause whereby the tenant has the right to renew the lease for a further 40 years at the expiry of every period, is perpetually renewable and will take effect as a lease for 2,000 years. This, of course, is tantamount to the grant of a freehold. Note, however, that a lease for 40 years that is renewable only for one further period of 40 years is not perpetually renewable and takes effect in the normal way.

25For example, as a matter of practice, rent is not usually calculated by reference to a period any longer than a quarter, and yearly periodic tenancies are in reality the longest periodic tenancies under this principle.

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3A lease which is intended to start more than 21 years after the instrument that creates it is void (section 149(3) of the LPA 1925). So, if Z, by contract with X dated 1 January 2006, attempts to grant a lease of land to start after 1 January 2030, the intended lease is void. The commencement of the lease is postponed for longer than the law allows.

6.2.5 Rent

One of the main motives for the letting of property is the desire to generate income through the payment of rent. Even where the tenant pays a large premium or fine (a capital sum) at the start of the lease, there is usually provision for a ‘ground rent’ payable annually.26 Indeed, as noted above, Lord Templeman, in Street v. Mountford (1985), included ‘rent’ as part of the definition of a tenancy. However, strictly speaking, the existence of a lease does not depend on a provision for the payment of rent. Section 205(1)(xxvii) of the LPA 1925 provides that a term of years means a ‘term of years … whether or not at a rent’. As it happens, certain types of lease (such as those within the Rent Acts and early Housing Acts) must be supported by rent in order to qualify for statutory protection and this is why Lord Templeman in Street refers so explicitly to ‘rent’ as part of the definition of a tenancy.27 However, it is clear that, as a matter of law, a lease may exist where there is no rent payable.28 Of course, in reality, the existence of an obligation to pay rent as an adjunct to a lease is so likely that, in the absence of an express promise by the tenant or an express exclusion of rent, a covenant by the tenant to pay rent will be readily implied from the words of a deed. Moreover, although the landlord and tenant can deliberately exclude the rent obligation and still create a lease, an explicit exclusion of rent (or other clear evidence that rent is not to be paid) may suggest that the parties did not intend to create a lease at all. Necessarily, this will depend on the peculiar facts of each case, but the absence of a rent obligation, if not counteracted by the existence of any of the other hallmarks of a lease (e.g. a repairing obligation), can indicate that no landlord and tenant relationship was intended. In such cases, the occupier may have a mere licence. Note, however, that, as discussed above, the fact that the parties choose to describe the periodic payment as an ‘occupation fee’, a ‘licence fee’, or some such similar phrase, does not prevent it amounting to ‘rent’ in law. Again, it is a matter of substance, not form.

26There is likely also to be an annual service charge to meet the cost of running and maintaining any common parts of the building, such as lifts, stairways, and shared paths.

27It was a Rent Act case.

28See the discussion in Ashburn Anstalt v. Arnold (1989), overturned on other grounds. Note also, that if rent is payable, its non-payment does not mean there is no tenancy. It means, simply, that the tenant is in arrears of rent and may be subject to remedies by the landlord for non-payment.

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