Экзамен зачет учебный год 2023 / Dixon, Modern Land Law

Modern Land Law

Finally, it is a common misconception that rent has to be in monetary form. It can be in goods, services, or payable in kind. The only requirement is that the amount of rent must be capable of being rendered certain. Thus, in Bostock v. Bryant (1990), the obligation to pay fluctuating utility bills (gas, electricity, etc.) could not be regarded as rent, being an ever-changing sum. On the other hand, an annual rent of ‘a peppercorn’ or ‘five tons of flour’ is perfectly acceptable.

6.3 The creation of legal and equitable leases

The existence of a ‘term certain’, the granting of exclusive possession, and (subject to the reservations just discussed) the payment of rent, are the hallmarks of a tenancy. Of course, in most cases, the parties will have agreed a web of other rights and obligations extending beyond acceptance of this bare legal framework; for example, the lease may contain covenants to repair, options to renew the lease, obligations relating to the use of the premises and the like. Generally, the more complicated or extensive these other matters, the more likely it is that the ‘lease’ itself will be embodied in a formal document, such as a deed or written instrument. Moreover, while there are very few legal rules concerning the precise words or phrases which must be used to create a valid lease or the obligations therein (although certain ‘precedents’ or standard wordings have been developed and the Land Registry requires certain standard clauses for registered leases29), there are a number of legal formalities which must be observed before the arrangement agreed by the parties will be enforced as a lease by the courts. These ‘formality’ requirements generally are required by statute. They relate to the manner in which a lease may be created, rather than to what a lease must contain. In essence, they are the embodiment of a legislative policy that seeks certainty about dealings with land. So, these statutory rules determine whether an arrangement between owner and occupier that otherwise satisfies the inherent requirements of a lease can nevertheless be enforced as a lease and, if it can, whether the lease so created is legal or equitable.

6.3.1 Introductory points

A lease is a legally binding agreement between landlord and tenant. As such, the creation of a lease amounts to both a contract between them and the creation of a proprietary right that exists beyond the mere contract. It can give rise to

29The prescribed clauses relate to such matters as identification of the parties, commencement, and identification of the land and are mandatory for certain registrable leases. They are designed to aid the process of registration, particularly under e-conveyancing. See

Land Registry Practice Guide No. 64 (May 2006).

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contractual remedies (such as an action for damages), but it can affect ‘third parties’ to whom the reversion or lease is assigned.30 Furthermore, in many cases, the creation of a lease will occur in two stages: the conclusion of a ‘contract to grant a lease’ between prospective landlord and tenant, and the later execution of the contract by the ‘grant’ of the lease by deed. This is important in understanding how equitable leases are created. However, even where a lease is created without first concluding a separate contract to grant it (e.g. the parties simply execute a deed or agree to a written lease31), the lease itself will always amount to a contract between them. So, ‘the lease as a contract’ refers either to an aspect of the landlord and tenant relationship (its contractual aspect), or to the manner in which the lease was created originally.

6.3.2 Legal leases: creation

The creation of legal leases depends on rules laid down by statute and, as with all legal rights, there is a premium on formality.

1Leases for three years or less that give the tenant an immediate right to possession of the land without the payment of an initial capital sum (i.e. a premium) will be legal whether created orally, by written contract, or by deed (sections 52(2)(d) and 54(2) of the LPA 1925). Into this category will come many residential or domestic leases, and, significantly, most ‘periodic tenancies’ created in the way described in section 6.2.3. This is simply because the ‘period’ for which rent is paid and accepted will usually be three years or less (e.g. a week, month, quarter, etc.).

2Leases for more than three years, and those of three years or less that do not fall within point 1 above,32 are required to be made by deed to have any prospect of taking effect as a legal estate (section 52(1) of the LPA 1925). A ‘deed’ is, in essence, a more formal written document and, prior to the Law of Property (Miscellaneous Provisions) Act 1989, such a document had to be ‘signed, sealed and delivered’ before it could be regarded as ‘a deed’. Now, by virtue of section 1 of the 1989 Act, a document is a deed if it declares itself to be such (e.g. it says ‘this is a deed made between X and Y’), it is signed as a deed, and is witnessed as a deed by one other person. It can be seen, therefore, that the execution of a deed remains a

30With the exception of ‘Bruton tenancies’.

31The creation of leases without first concluding a contract is becoming much more common.

32For example, where a premium – an initial capital payment – is charged.

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relatively formal process and most leases by deed are drawn up by solicitors or licensed conveyancers. However, the execution of a deed is straightforward and now relatively inexpensive. Note also that in the future it may be possible – perhaps mandatory – to execute a ‘deed’ in relation to registered land in electronic form. This will be no less a deed than its paper counterpart and will necessarily satisfy the rules relating to the creation of legal leases (sections 91 and 93 of the Land Registration Act (LRA) 2002).

3Currently, if the lease is granted by deed out of registered land (i.e. where the freehold or superior leasehold is a registered title) and it is for a term over seven years, it must in addition be registered as a title at the Land Registry (section 27(2) of the LRA 2002). This means it must be entered for registration with its own title number at the appropriate district office of the Land Registry. It is substantively registered in its own right. Failure to so register means that the lease takes effect only as an equitable estate (section 27(1) of the LRA 2002).33 It should be remembered, however, that the very great majority of these long legal leases will have been negotiated and executed with professional advice and so there is every likelihood that they will be appropriately registered. Certain other special shorter-term leases also require such registration34 and it is anticipated that in due course, this ‘registration trigger’ will fall to encompass leases for over three years, thus ensuring that the need for a deed is synonymous with the need for registration.35 If the legal lease falls outside of the registration triggers, it takes effect as a legal estate without registration and, in fact, amounts to an unregistered interest which overrides under Schedule 3 paragraph 1 LRA 2002.

4Currently, if the lease is granted by deed out of unregistered land (i.e. where the freehold or superior leasehold is not a registered title) and it is for a term of over seven years, it must also be registered as a title at the Land Registry (section 4(1) of the LRA 2002). The grant of such a lease is a trigger for registration of title of the leasehold.36 Failure to so register means that the lease takes effect only as an equitable estate (section 7 of the LRA 2002). Certain other special

33For an example of how this worked under the LRA 1925, see Brown and Root v. Sun Alliance (1995).

34Section 27(2), including timeshare leases, special Housing Act leases and leases where possession is postponed for more than three months after the lease is granted.

35As yet, there is no indication of when this will be.

36But not necessarily of the superior unregistered freehold or leasehold out of which it is granted.

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shorter-term leases also require such registration37 and once again, it is anticipated that in due course, this ‘registration trigger’ will fall to encompass leases for over three years.

5If the lease is to take effect in land of unregistered title and the lease is outside the first registration trigger (currently usually seven years or less), the grant by deed (where required) is all that is needed to convey the legal leasehold estate to the tenant from the date specified in the deed. Moreover, following the general rule in unregistered land that ‘legal rights bind the whole world’, a legal lease will bind automatically any subsequent purchaser or transferee of the land out of which it is created (i.e. of the reversion) and when the purchaser of the reversion applies for compulsory first registration, the lease will override under Schedule 1 paragraph 1 of the LRA 2002.

6For the future, it is likely that the grant of certain leases will

be made subject to compulsory e-conveyancing. This aspect of the LRA 2002 is not yet active, but it will mean that the grant

of a qualifying lease (i.e. one specified in the Land Registration Rules) will be required to be made by an electronic entry on the register and in no other form (section 93 of the LRA 2002).

Failure to electronically create and register the lease (for these will be synonymous) will mean that the purported lease is without effect.

6.3.3 Legal leases and third parties

As far as the effect of legal leases on third parties in registered land is concerned (i.e. purchasers and other transferees of the reversion), the current position is as follows:

1Legal leases that are registered as titles in their own right under the LRA 200238 clearly will bind a transferee of the reversion.39 In the very unlikely event that a registrable lease has not actually been registered, it will take effect as an equitable lease only and its position in respect of third parties is governed by the principles applicable to equitable leases.

37See section 4 of the LRA 2002 – timeshare leases, special Housing Act leases and leases where possession is postponed for more than three months after the lease is granted.

38This includes leases registered as titles in their own right under the LRA 1925 where the registration trigger was for leases granted for more than 21 years, and also existing legal leases which are assigned when there was more than 21 years left to run.

39Sections 28, 29, 30 of the LRA 2002.

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2Legal leases for seven years or less40 are interests which override within paragraphs 1 of Schedules 1 and 3 of the LRA 2002.41 Consequently, they bind subsequent purchasers and transferees of the reversion automatically under sections 28, 29 and 30 of the LRA 2002.

In respect of legal leases granted out of unregistered land that do not trigger compulsory first registration of the lease (i.e. generally when the lease is for seven years or less), the situation is governed by the long-established rules of unregistered conveyancing.42 Thus, ‘legal rights bind the world’ and the lease is effective against any transferee of the reversion. Of course, on such transfer, the reversion will become subject to first registration and thereafter the legal lease will take effect as an interest which overrides under Schedule 1, paragraph 1 of the LRA 2002.

6.3.4 Equitable leases – creation

While it is true that the Law of Property (Miscellaneous Provisions) Act 1989 simplified the requirements for the execution of a deed, nevertheless many leases are created in the absence of a deed. The majority of these are for three years or less and qualify as legal interests under the ‘short lease exception’ discussed above. Moreover, in practice it is unusual for a lease of over three years’ duration to be created without the use of a deed – primarily because the parties routinely use lawyers who proceed to execute the lease by deed without first concluding a contract. However, there will be situations where the parties do not use a deed to create a lease longer than three years; for example, if a written contract is used, the parties may be content to rely on it rather than execute a deed, or the parties may not use property professionals and so not realise that a deed is required at all. In such cases – that is, where there is an intended lease of over three years not executed by deed – if there is a written contract (or a written record of an agreement that can be treated as if it were a contract), the parties may be taken to have created an equitable lease. In simple terms, an equitable lease arises from an enforceable contract between landlord and tenant to grant a lease, but where no grant of a lease by deed has in fact occurred. There are a number of distinct steps in this process.

1The contract between prospective landlord and tenant must be enforceable; that is, since 27 September 1989, the contract must be in

40Save those special short-term legal leases that must be registered as titles.

41For an example under the LRA 1925 see City Permanent Building Society v. Miller (1952). Such leases, if granted for more than three years may voluntarily be entered on the register by means of a Notice against the registered title out of which they are granted, but it is not critical to do so.

42Such situations will become increasingly uncommon. Even now, they are not prevalent.

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writing, containing all the terms and signed by both parties (section 2 of the LPA 1989), replacing section 40 of the LPA 1925.43 In this connection, ‘written contract’ means either a written document clearly expressed to be a contract, or a written record of agreement that the law is prepared to treat as a contract. A good example of the latter is where A and B set down in writing the terms on which A will let her house to B. A and B may not intend to take any further steps to create the lease, perhaps believing they have done all that is necessary, but their written agreement will be treated as a ‘written contract to grant a lease’, so as to give rise to an equitable lease.44

2The remedy of specific performance must be available, should either party to the contract actually wish to enforce the contract and compel the grant of a legal lease (Coatsworth v. Johnson (1886)). Specific performance will be available if the person seeking to enforce the contract has given valuable consideration; and damages would be an inadequate remedy (as they nearly always are with contracts for land); and the person seeking to enforce the contract comes to equity with ‘clean hands’.45 If all of these conditions are fulfilled – which will be true in most cases – a court of equity will treat the unenforced (but enforceable) contract to grant the legal lease as having created an equitable lease between the parties on the same terms as the potential (but ungranted) legal lease (Walsh v.

Lonsdale (1882)).

The contract/lease analysis discussed above is the usual way in which an equitable lease comes into existence: it arises out of a written, enforceable contract. However, it is also possible for an equitable lease to arise out of the operation of the doctrine of proprietary estoppel. Proprietary estoppel leases will arise where the ‘landlord’ has promised some right to the ‘tenant’ in writing or orally, and this is relied on by the prospective tenant to his detriment. The court may then ‘satisfy’ the estoppel by giving the promisee a tenancy, albeit an equitable one that has arisen out of the informal dealings between the parties.46 Such a situation will be rare, but cannot be discounted completely.47 It is discussed in more detail in Chapter 9. For now, the important point is that proprietary estoppel may result in the generation of an equitable

43Before September 27 1989, the contract was enforceable even if oral, so long as it could be supported by part performance (see the now repealed section 40 of the LPA 1925).

44The provisions on e-conveyancing, when they come into operation, will supersede this.

45Specific performance is an equitable remedy, and so may be denied if the claimant has behaved unconscionably or otherwise inequitably.

46See generally Taylor Fashions v. Liverpool Victoria Trustees (1982). Specifically for an estoppel lease see Lloyd v. Dugdale.

47Usually, if the court is minded to award the claimant a lease as a means of satisfying the estoppel, it will order the landowner to formally grant a lease by deed.

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lease out of a purely oral agreement. Similarly, if a party to an agreement seeks to use section 2 of the 1989 Act as a vehicle for unconscionable conduct – for example, by pleading that the contract is not in writing and so not valid when that very person had assured the other party that the contract need not be written – the agreed lease might be enforceable under a constructive trust or property (Yaxley v. Gotts (1999)).48

It will be appreciated from the above that the circumstances in which an equitable tenancy can arise can be distinguished from those concerning the creation of a legal lease by the relative informality of the former. However, in one set of circumstances this is not true; that is, the creation of a legal periodic tenancy where the ‘period’ is three years or less, as these may be ‘legal’ whether created by deed, in writing or orally. Consequently, it can happen that the same set of facts can presumptively give rise to either an equitable tenancy or a shorter, legal periodic tenancy. For example, in those cases where the equitable tenancy has sprung from a written contract (or a document taken to be a written contract), the tenant may well have entered the premises and be paying rent to the landlord. It is easy to see that this could be taken to have given rise to the creation of a periodic tenancy in favour of the occupier because of the payment and acceptance of rent. This periodic tenancy will usually be legal, as the period for which rent is paid and accepted will be three years or less. Potentially, then, there is a conflict between the equitable lease arising from the enforceable written contract (which will be of the same duration as the original intended lease), and the implied short-term, legal periodic tenancy. According to Walsh v. Lonsdale (1882), the equitable lease will prevail (despite the problems encountered by equitable leases; see below), not least because it will contain all the terms originally found in the contract between the parties and be of longer certain duration. Of course, if the equitable lease does not arise (e.g. because of a failure to conclude an enforceable contract, or where the contract is not specifically enforceable), the implied legal periodic tenancy can take effect to provide some comfort for the tenant.

6.3.5 Equitable leases and third parties

The above principles concerning the creation of equitable leases apply whether the land is registered or unregistered. However, bearing in mind that one of the main purposes of the 1925 and 2002 reforms was to bring clarity to dealings with equitable interests in land, it is not surprising that the effect of an equitable lease on a third party (i.e. a transferee or purchaser of

48The extent to which this is different from a claim in estoppel is a matter of debate. See Chapter 9.

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the reversion from the current landlord) differs according to whether title has been registered or remains unregistered.

6.3.5.1 In registered land

Equitable leases are capable of being entered on the register of title of the land over which they take effect. This would be through a Notice.49 If registered, they are protected by such registration and are effective against later transferees of the reversion who are not purchasers (section 28 of the LRA 2002), and those who are purchasers (section 29 of the LRA 2002).

However, even if not registered in this way (and many will not be) most equitable leases will take effect as an interest which overrides a transferee and thus be binding on the new landlord. This is because the equitable tenant will almost certainly be a person ‘in actual occupation’ of a discoverable kind within the meaning of Schedule 3, paragraph 2 of the LRA 2002. Here, then, is virtually automatic protection for the equitable tenant in registered land, for the tenant need do nothing – except remain in occupation – to be secure. Such leases may, of course, be brought on to the title through disclosure and registration, but that is not necessary even under the LRA 2002 to secure their protection.50

6.3.5.2 In unregistered land

Equitable leases that arise from enforceable contracts are registrable as class C(iv) land charges (‘estate contracts’). Consequently, they must be registered against the appropriate name of the estate owner (i.e. the freeholder or superior leaseholder) in order to bind a purchaser of a legal estate in the land. Failure to register means that the equitable lease is void against such a purchaser.51 This can mean the ejection of the equitable tenant if the superior interest is sold (Hollington Bros v. Rhodes (1951)). Of course, even an unregistered equitable lease is binding against a non-purchaser (e.g. an adverse possessor, devisee under a will, donee of a gift), or against someone who purchases only an equitable interest. Importantly, these rules mean that there is no protection for an equitable tenant in unregistered land merely because they occupy the land. This should be contrasted with the position in registered land.

Equitable leases arising from proprietary estoppel may not be registrable as land charges at all, and would bind a subsequent transferee of the reversion through the equitable doctrine of notice (Ives v. High (1967)).

49Usually an Agreed Notice because, after all, the landlord has granted the lease!

50The position was the same under the LRA 1925, save that the actual occupation need not have been discoverable: section 70(1)(g) of the LRA 1925.

51Land Charges Act 1972, sections 2 and 4.

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6.3.6 The differences between legal and equitable leases

As noted above, legal and equitable leases are created in different ways, with legal leases generally requiring more legal formality and many also requiring substantive registration as titles. In a similar vein, the existence of an equitable lease depends on the availability of the remedy of specific performance of the enforceable contract out of which it arises.52 The following further points of difference should also be noted.

First, equitable leases appear vulnerable to a sale of the freehold or leasehold estate out of which they are created. So, it is possible that a purchaser of the land may not be bound by an existing equitable lease according to the rules of registered and unregistered conveyancing. However, as noted, the problem is likely to be more acute in unregistered land where there is no protection per se for the rights of occupiers. Equitable tenants in registered land need hardly fear this in practice because of the provisions on interests which override.53 Currently, legal leases do not suffer from this problem and are fully protected in registered and in unregistered land. Significantly, however, the entry into force in full of the electronic conveyancing provisions of the LRA 2002 may produce a curious effect for land of registered title. If it becomes the case that certain legal leases and equitable leases must be ‘completed’ by electronic entry on the register (section 93 of the LRA 2002), they will not exist at all as proprietary rights until such registration even if ‘created’ by deed or written contract. Of course, neither will they be capable of binding a purchaser if they are not so registered. This illustrates very clearly that the brave new world of electronic conveyancing under the LRA 2002 is going to affect fundamentally the way we think about legal and equitable proprietary rights in registered land.

Second, as we shall see below, the ability of covenants in leases granted before 1 January 1996 to ‘run’ to (i.e. bind) purchasers of the tenant’s interest (the lease) depends on the existence of ‘privity of estate’ between the claimant and defendant. As a general principle, ‘privity of estate’ exists between the current landlord and the current tenant of a legal lease only. Thus, the lack of privity of estate in equitable leases makes it difficult for all leasehold covenants to bind purchasers of the lease. Fortunately, however, the position is different for equitable leases granted on or after 1 January 1996 because of the Landlord and Tenant (Covenants) Act 1995.

Third, as demonstrated in Chapter 7, easements may be created by the operation of section 62 of the LPA 1925 on the occasion of a conveyance by

52With the exception of the rare estoppel lease.

53It is of course possible that an equitable tenant might not be in discoverable actual occupation under the LRA 2002 and so be denied an overriding interest, but such a situation will be unusual and rare.

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deed of an estate in the land, either freehold or leasehold. In other words, this section applies only to legal leases, so a tenant under an equitable lease cannot claim the benefit of any potential section 62 easements.

Finally, when the tenant under an equitable lease first enters into the lease, he is ‘only’ a purchaser for value of an equitable estate in the land. Consequently, the tenant is not a purchaser of a legal estate for the purposes of unregistered land nor is he treated as having made a registrable disposition for the purposes of the LRA 2002 and registered land. This means that the equitable tenant cannot avoid being bound by pre-existing property rights even if those rights do not comply with the relevant protective mechanisms of the Land Charges Act (unregistered land) and the LRA 2002 (registered land) respectively.54

6.4 Leasehold covenants

Nearly all leases contain ‘covenants’ whereby the landlord and tenant promise each other to do, or not to do, certain things in relation to the land and its environment. For example, the landlord may promise to keep the premises in repair and the tenant may promise not to use the premises for any trade or business. Necessarily, these covenants are binding between the original landlord and the original tenant – being contained in a deed or binding contract to which they are party – and they can be enforced by either of them using a normal contractual or proprietary remedy.55 However, one of the great advantages of the leasehold estate is that these covenants are capable of running to both purchasers of the original landlord’s reversion and to purchasers of the original tenant’s lease. In other words, both the right to sue on the leasehold covenants, and the obligation to perform them, can be passed on to successors in title of the original parties.

6.4.1The separate nature of the ‘benefit’ of a covenant and the ‘burden’ of a covenant

In order to understand the law of leasehold covenants, it is first necessary to appreciate that the right to sue on a covenant (the benefit) and the obligation to perform or observe a covenant (the burden) must be treated separately. For example, it may well be true for pre-1996 leases (see below for the relevance of the date) that the current tenant under a lease (not being the original tenant)

54In unregistered land, the equitable tenant is not a purchaser of the legal estate for the purposes of the doctrine of notice and the enforcement of class C(iv) and class D land charges. In registered land, they cannot rely on section 29 of the LRA 2002 and so are bound by all pre-existing property rights under section 28 of the LRA 2002.

55For example, an action on the contract for damages, or an action on the lease for forfeiture.

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