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Principles of Land Law

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.

6.2.3Periodic 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 presumed from the facts. Thus, if money is paid weekly in respect of a week’s occupation, a periodic tenancy of one week will be presumed. 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 (for example, 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. For example, the rent is unlikely to be calculated by reference to a period any longer than a quarter, and yearly periodic tenancies are in practice the longest ‘periods’ under this rule.

6.2.4Statutory provisions concerning certain terms

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

(a)a lease for the duration of the life of any person, or which is due to end withexpiryofanylife,oronthemarriageofthelessee,forarentorapremium (all uncertain terms) is converted into a lease for 90 years, subject to determination (that is, ending) if the death or marriage occurs before this (s 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 (rent), or for an initial capital sum

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of, say, £45,000 (a premium), will take effect as a lease for a certain period of 90 years, determinable when (if) I marry;

(b)a lease which is perpetually renewable is converted into a lease for 2,000 years (Sched 15, s 145 of the Law of Property Act (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;

(c)a lease which is intended to start more than 21 years after the instrument which creates it is void (s 149(3) of the LPA 1925). So, if Z, by contract with X dated 1 January 2000, attempts to grant a lease of land to start after 1 January 2021, the contract and all rights arising from it (including the intended lease) are void. The commencement of the lease is postponed for longer than the law allows.

6.2.5Rent

One of the main motives for the letting of property may well be 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. 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 leases (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’, that being a Rent Act case. Yet, as Ashburn Anstalt v Arnold (1989) makes clear, a lease may exist where there is no rent payable. 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 while still creating 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 (for example, 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

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describe the periodic payment as an ‘occupation fee’, a ‘licence fee’, or some such similar phrase, does not prevent it in law amounting to ‘rent’. Again, it is a matter of substance, not form.

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 clear 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.

6.3The 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 obligations therein (although certain ‘precedents’ or standard wordings have been developed), 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.

6.3.1Introductory 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 contractual remedies (such as an action for damages), but it can affect ‘third parties’ to whom the reversion or lease is assigned. Furthermore, in many cases, the creation of a lease will occur in two stages: the conclusion of a ‘contract

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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 (for example, the parties simply execute a deed or agree to a written lease), 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.

6.3.2Legal leases

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

(a)leases 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 (that is, a premium) will be legal whether created orally, by written contract, or by deed (ss 52(2)(d) and 54(2) of the LPA1925). Into this category will come many residential or domestic leases, and, significantly, most ‘periodic tenancies’ created in the way described above, 6.2.3. This is simply because the ‘period’ for which rent is paid and accepted will usually be three years or less (for example, a week, month, quarter, etc);

(b)leases for more than three years, and those of three years or less that do not fall within (a) above (for example, where a premium is charged), are legal only if created by deed (s 52(1) of the LPA1925).A‘deed’ is, in essence, a more formal written document and, prior to the Law of Property (Miscellaneous Provisions) Act (LP (Misc Prov) A) 1989, such a document had to be ‘signed, sealed and delivered’ before it could be regarded as ‘a deed’. Now, by virtue of s 1 of that Act, a document is a deed if it declares itself to be such (for example, 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. The execution of a deed remains a relatively formal process, although, given that most leases by deed are drawn up by solicitors or licensed conveyancers, the creation of a deed is straightforward and now relatively inexpensive. Note also that in due course it will be possible to execute a ‘deed’ in relation to registered land in electronic form. This will be no less a deed than its papercounterpartandwillnecessarilysatisfytherulesrelatingtothecreation of legal leases (s 91 of the Land Registration Act (LRA) 2002).

If the lease is to take effect in land of unregistered title, 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)—save where the execution of the lease triggers compulsory registration of title (see Chapter 2). Moreover, following

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the general rule 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 (that is, of the reversion).

Currently, a deed is required to create a legal lease of registered land in exactly the same circumstances as unregistered land. However, if the legal lease is over 21 years, etc, under s 19(2) of the LRA 1925 it must be entered for registration with its own title number at the appropriate district office of the Land Registry: that is, it must be substantively registered in its own right. Pending such registration, the lease operates to convey only an equitable estate to the tenant, because registration is required to perfect the legal title: Brown and Root v Sun Alliance (1995). It should be remembered, however, that as the very great majority of these long legal leases will have been negotiated and executed with professional advice, there is every likelihood that they will be appropriately registered. If they are not, they take effect as equitable leases, and this can have some unforeseen consequences: for example, where leasehold covenants are limited expressly to pass only with legal title, but the current tenant has only an equitable estate due to a failure to secure substantive registration (Brown and Root). We should also note that, whereas at present the requirement is that legal leases over 21 years should be registered with their own title in registered land, the LRA 2002 will lower this to leases of over seven years when it enters into force (s 4(c)(i) of the LRA 2002). In fact, the Act gives power to alter this period further and the ultimate aim is that all legal leases of over three years should become registrable estates. Similarly, the LRA 2002 will eventually make important changes to the circumstances in which legal leases can exist at all. Currently, legal leases are created by deed and then—if required—entered on the register of title. When the electronic conveyancing provisions of the LRA 2002 come into full effect, a registrable legal lease will not actually exist until it is electronically entered on the register, whether created by deed or not (s 93 of the LRA 2002).

As far as the effect of legal leases on third parties in registered land is concerned (that is, purchasers, etc, of the reversion), then the current position is that:

(a)legal leases for 21 years or less are overriding interests (s 70(1)(k) of the LRA 1925) (City Permanent Building Society v Miller (1952)). Consequently, they bind subsequent purchasers and transferees of the reversion automatically. Necessarily, when the LRA 2002 reduces the length of leases which must be substantively registered in their own right to those above seven years, there will be a corresponding change in the length of leases that can amount to overriding interests. This category will then encompass legal leases of seven years or less (Scheds 1 and 3 to the LRA 2002);

(b)as noted above, legal leases created for more than 21 years, and existing legal leases which are assigned when there is more than 21 years left to run, currently are registrable as titles in their own right and clearly will bind a purchaser or transferee of the reversion for their duration if so

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registered. If they are not so registered, they will take effect as equitable leases only. Even then, they may still enjoy protection against third parties in the manner appropriate to equitable leases. Once again, there will be corresponding changes when the relevant provisions of the LRA 2002 come into force. Thus, legal leases above seven years which are not registered in their own right (when they should be) will take effect as equitable leases and might obtain protection in the manner suitable to equitable leases. More importantly, however, when electronic conveyancing comes into full effect it may not be possible to create a registrable legal lease without an electronic entry on the register and so it will not be possible for such leases (that is, of over seven years) to take effect as ‘equitable’ leases or anything else proprietary (s 93 of the LRA 2002).

6.3.3Equitable leases

While it is true that the LP (Misc Prov) A 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 however created. 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—but it does occur. There are a number of reasons for this: if a contract is used, the parties may be content to rely on it rather than execute a deed, or the parties may not use professionals and so not realise that a deed is required at all. In such cases—that is, a 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 has in fact occurred. There are a number of distinct steps in this process:

(a)the contract between prospective landlord and tenant must be enforceable, viz, the contract must in writing, containing all the terms and signed by both parties (s 2 of the LP (Misc Prov) A 1989, replacing s 40 of the LPA 1925(whichallowedoralcontractsifsupportedbyactsofpartperformance)). 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

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an equitable lease. Note also, as in the case of deeds, it will become possible in due course to create an enforceable contract electronically (the intended s 2Aof the LP (Misc Prov)A1989. This will have the same effect as its paper counterpart;

(b)the remedy of specific performance must be available, should either party to the contract actually wish to enforce it 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’, that is, there is no reason why the remedy should be denied.

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 is the usual way in which an equitable lease comes into existence. 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 (for example, that they may have a lease), 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 created orally (see generally Taylor Fashions v Liverpool Victoria Trustees (1982)). Such a situation will be rare, but cannot be discounted completely. 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 lease out of a purely oral agreement. Similarly, if a party to an agreement seeks to use s 2 of the LP (Misc Prov) A 1989 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 estoppel: see Yaxley v Gotts (1999).

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 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 (that is, a purchaser of the reversion from the current landlord) differs according to whether title has been registered.

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In unregistered land

(a)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 (that is, the freeholder or superior leaseholder) in order to bind a purchaser of a legal estate in the land. Failure to register voids the interest against such a purchaser. 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 (for example, 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.

(b)Equitable leases arising from proprietary estoppel may not be registrable aslandchargesatall,andwouldbindasubsequenttransfereeofthereversion through the doctrine of notice (Ives v High (1967)).

In registered land

(a)Equitable leases can be minor interests protected by notice or caution. If so registered, they will bind subsequent purchasers of the reversionary interest (assuming the caution is upgraded to a notice). Under the LRA 2002, equitable leases will become protectable by the entry of the new form of notice, usually the ‘consensual’ form, having been created deliberately between registered proprietor and tenant.

(b)However,mostequitableleaseswillbeoverridinginterestsandautomatically binding against a subsequent purchaser. This is because the equitable tenant will almost certainly be a person ‘in actual occupation’ of the land within s 70(1)(g) of the LRA1925. Here, then, is virtually automatic protection for the equitable tenant in registered land, for the tenant need do nothing— exceptremaininoccupation—tobesecure.Inthisregard,thepositioninitially will remain the same under the LRA 2002, save that the equitable tenant will have to be in ‘actual occupation’ within the refined definition of Scheds 1 and 3 to the LRA 2002. Eventually, however, as with many other rights in registered land, it may not be possible to create an equitable lease at all until an electronic entry is made on the register of title by notice (s 93 of the LRA 2002). As with the position of legal leases described above, leases that are currently equitable and protected by ‘actual occupation’ will not exist at all if they are required to be completed by electronic registration.

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

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one set of circumstances this is not true: viz, 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/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, 6.3.4), 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 (for example, 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.

6.3.4The differences between legal and equitable leases

As noted above, legal and equitable leases are created in different ways, with legal leases generally requiring more formality. 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. (Note: estoppel leases are rare.) The following further points of difference should also be noted.

Currently, equitable leases are potentially very vulnerable to a sale of the freehold or leasehold estate out of which they are created. So, 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. 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 (s 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

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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.

As we shall see below, 6.5, the ability of covenants in leases granted before 1 January 1996 to ‘run’ to (that is, 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, the position is different for equitable leases granted on or after 1 January 1996 because of the Landlord and Tenant (Covenants) Act (LTCA) 1995.

As demonstrated in Chapter 7, easements may be created by s 62 of the LPA 1925 on the occasion of a conveyance by 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 s 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 so as to avoid being bound by those equitable rights in unregistered land that still depend on the doctrine of notice for their validity against purchasers. Neither could such a tenant avoid being bound by an unregistered Class C(iv) or Class D land charge, both of which are void only against a purchaser of a legal estate (see Chapter 3).

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