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Leases

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Introduction to leases

A lease in land law can be most commonly characterised by the situation where a tenant (the lessee) rents property from a landlord (the lessor), in which the lessee will live, usually for a termly fee (the rent). Section 205(1)(xxvii) of the Law of Property Act 1925 provides a complex definition of a lease, which can be summarised to a commercial transaction in which temporary and conditional use and occupation of land is granted. Leases encompass a much broader range of transactions that the above characterisation suggests. They can be much longer in term than 1 month, such that a 99-year lease can be said to be the equivalent of a fee simple. A lease, or more properly a ‘term of years absolute’, according to s 1(1)(b) LPA 1925, can be a type of legal estate which is ‘carved out’ of its parent fee simple estate.

Types of leases

There are several types of lease, the most common of which are fixed term leases, and periodic tenancies.

Fixed term leases

Fixed term leases are usually purchased for a lump sum with a nominal rent. They are much closer to a fee simple legal estate and as such, are often used as securities for loans. They can, however, be very short, as illustrated by Krell v Henry [1903].

Periodic tenancies

A periodic tenancy is for a set period, but automatically rolls on: it grows from period to period, on the assumption of an (often fictional) agreement not to end the lease at the end of a particular period. If the period of the lease is not set, it is calculated by the period of calculation for payments, and not by how often rent is paid. For example, a lease for 6 months with rent payable monthly will constitute a 6-month periodic tenancy.

Periodic tenancies can be implied where there is an agreement to pay rent, but according to Javad v Aqil [1991], where a lease is being negotiated and possession is allowed in an interim period, a periodic tenancy will not be implied. Similarly, after a lease expired in Barclays Wealth Trustees v Erimus Housing [2014], but possession was retained by the lessee, negotiations for a new lease did not give rise to an implied periodic tenancy; instead, there became a tenancy at will.

Tenancy at will

A tenancy at will may be created where exclusive possession is granted in return for rent, but where determination is allowed at any time – there are no statutory protections. A tenancy at will is usually implied during periods of renegotiation where possession is retained, or where a fixed term or periodic lease expires, and a tenant ‘holds over’ (doesn’t leave).

Tenancy at sufferance

A tenancy at sufferance arises where a lease expires and a tenant holds over without the dissent of the lessor. As soon as the lessor either consents or objects to the holding over, the tenant will become either a tenant at will or a trespasser.

Tenancy by estoppel

Where a person who is not the lessor grants a lessee a lease, it may be inequitable for a landlord (lessor) to deny that grant. The lessor may then be estopped from denying the existence of the tenancy. This almost occurred in Bruton v London & Quadrant Housing Trust [2000], where a housing trust granted Bruton a lease under a licence with Lambeth London Borough Council, who planned to develop the property at some point in the future. The House of Lords found that there was a contractual tenancy, so a tenancy by estoppel had not been created.

Contractual tenancy

In Bruton v London & Quadrant Housing Trust [2000], Lord Hoffman found that Bruton had been granted a contractual tenancy, and therefore a proprietary interest in Lambeth LBC’s land. This is contrary to the orthodox view that a lease can only be granted out of a proprietary interest, the the Housing Trust did not have. The orthodox view was preferred in Kay v Lambeth LBC [2006]. The Supreme Court, in Berrisford v Mexfield Housing Co-operative Ltd [2011] also seems to prefer this view, saying that Bruton would only have had rights against the Housing Association, and not Lambeth LBC.

Requirements of leases

The often recited requirements of lease come from Lord Templeman’s judgment in Street v Mountford [1985]: exclusive possession for a term at a rent. As the requirement of rent is not present in the official definition of a lease in s 205(1)(xxvii) LPA 1925, it is not a requirement of a lease, so can be usually disregarded. Although not specifically a requirement, a lease must also be validly created (discussed below).

Exclusive possession

This requirement is consistent with the elevation of a lease to a proprietary right; giving the tenant all of the rights of an owner. A tenant must have territorial control and exclusive possession. It is a requirement inconsistent with the odd decision in Bruton v London & Quadrant Housing Trust [2000], where the lessee had no rights against the fee simple estate owner.

Certain duration

A lease must have a date of commencement (even if in the past) and a fixed maximum duration. According to s 149(3) LPA 1925, a commencement date may not be more than 21 years in the future.

Fixed term leases

In Lace v Chantler [1944], a lease’s duration was set to ‘the duration of the war’ (World War II). There was no valid lease as the duration of the war was uncertain, and no criteria was set for judging when the war could be deemed to have ended. Ashburn Anstalt v Arnold [1989] attempted to rectify this certainty issue, providing that retrospective certainty would be sufficient. However, this was struck down in Prudential Assurance v London Residuary Body [1992], which instead proposed that whilst prospective certainty would be required, the maximum duration need only be theoretical, and a lease could be shortened as required. Berrisford v Mexfield Housing Co-operative [2011] found that where a lease’s duration was set at ‘life’, a 90-year maximum term would be implied under s 149(6) LPA 1925. It was Lord Browne-Wilkinson’s view in Prudential that there is no good reason to have a fixed maximum duration rule capable of defeating parties’ contractual intentions.

Periodic tenancies

Maximum durations are not an issue in periodic tenancies, as the period will be set by the rental payment period. However, certainty of duration includes certainty in either party’s ability to give notice to end such a lease. In Re Midland Railway Agreement [1971], it was agreed that the maximum duration of a periodic tenancy will always be uncertain, but that the giving of notice could be conditional (a requirement that the landlord show that he needed the land for his own business purposes). This latter finding was struck down in Centaploy v Matlodge [1974], which said that the right to give notice mist always be unconditional, irrespective of what the parties intended. The Supreme Court agreed with this in Berrisford v Mexfield Housing Co-operative [2011].

Leases vs licences

The significant practical difference between leases and licences is that leases command statutory protection for tenants. Leases also secure tenant protection against new landlords (when the lessor sells the fee simple out of which the lease is granted) and can be assigned. Tenant protection law will not be considered here as it regularly changes in accordance with changes in politics. It is often important for a ‘tenant’ to show that they have a lease and not a licence over property to prevent their eviction. According to Lynes v Snaith [1899], leases are distinguished from licences on the basis of exclusive possession (as long as there is also proper creation and certainty of duration). If a lease is not intended by parties, such as in a family arrangement, a lease will not be created, according to Facchini v Bryson [1952].

Naturally, it would be beneficial to a landlord to avoid the statutory protection of a lease by granting licences instead, therefore the latter part of the 20th century saw sham licences being issued by landlords, with no intent to, but with the possibility of, preventing tenants from having exclusive possession. The height of these shams came in Somma v Hazelhurst [1978], where a couple jointly occupied a small part of land (a room) under separate agreements with the same landlord which allowed the landlord to require the couple to share with others at the discretion of the landlord, despite no intent to do so. The couple were said to hold licences only. Street v Mountford [1985] sought to end the sham licences, finding that a court could look behind declarations of licences and labels to find parties’ true intentions.

Following Street v Mountford [1985], it was obvious to the court in Aslan v Murphy [1990] that a requirement that a licensee vacate property between 10:30 and 12:00 each day was fictional and served only to evade statutory protection, and in Antoniades v Villiers [1990], it was clear that licences for a couple to occupy an attic room should have been classed a single lease. However, genuine licences such as in AG Securities v Vaughan [1990], with shifting populations, will not be struck down as shams. The exception to this solution can be found in Mikeover v Brady [1989], where the Court of Appeal decided that independent obligations to pay rent gave rise to licences. However, it is submitted that, given the Court of Appeals track record in incorrectly applying Street v Mountford [1985], this case can be safely ignored.

Creation of leases

According to s 52 LPA 1925, leases, being a type of legal estate, can only be conveyed by deed. This required is however displaced if not required to be made in writing. A lease will not need to be created in writing, according to s 54(2) LPA, if the initial term of the lease (be it fixed term or period of calculation) does not exceed 3 years; (exclusive) possession is granted buy alprazolam south america immediately and there is no lump sum for the tenant to pay up front.

Non-compliance with formalities at common law

If section 52 LPA 1925 is complied with, at common law, a legal lease will be created. If no deed is executed for a lease of term greater than 3 years, a ‘tenancy at will’ will result, with the possibility of it becoming a periodic tenancy under Javad v Aqil [1991].

Non-compliance with formalities in equity

Where a legal lease is not created due to lack of formalities, there will still be a contract for a lease, according to Browne v Warner (1808). As equity could offer specific performance to enforce this contract, the doctrine of Walsh v Lonsdale (1882) was developed, providing that where specific performance would be offered by a court, a formally-defective contract for a lease will be turned into an equitable equivalent (with the same terms). The contract itself must be enforceable for the doctrine to operate. It must, therefore, comply with the Law of Property (Miscellaneous Provisions) Act 1989: it must be in writing; it must contain all of the express terms of the lease; it must be signed by or on behalf of all parties; there must be consideration and specific performance must not be deniable. The doctrine was held not to apply where: obligations under a lease had been breached, in Coatsworth v Johnson (1886); a sub-lease was contrary to a head lease, in Warmington v Miller [1973] and where rent was not paid, in Rouf v Tragus Holdings & Cafe Rouge [2009]. As only an equitable estate can be created in equity (through the doctrine), to bind purchasers, the equitable lease should be recorded as a notice on the charges register of the fee simple estate (if the lessor’s estate is registered) or as a class C(iv) land charge (if the lessor’s estate is unregistered).

Common law vs equity

Wherever there is a conflict between equity and common law where the doctrine of Walsh v Lonsdale is operating, equity shall prevail. As such, in Walsh v Lonsdale (1882) itself, a term allowing a landlord to demand 1 year of rent in advance was enforceable.

The doctrine of Walsh v Lonsdale (1882) also applies to the sale of a fee simple estate, such that in Industrial Properties v AEI [1977], where a covenant under a lease was broken after being granted following a defective sale of the fee simple estate, the doctrine was applied twice: once to the sale of the fee simple, then again to the lease, to allow the term breached to be enforced. It should be remembered, however, that the doctrine will only apply to correct formalities within the lease, as confirmed in Berrisford v Mexfield Housing Co-operative [2011].

The substantial disadvantage with relying of the doctrine of Walsh v Lonsdale (1882) is that the benefits of land leased, under s 62 LPA 1925, will not pass to lessee. Of course, there will also be the requirement of registration and the dependence on the availability of specific performance too.

Termination of leases

There are a variety of ways in which leases can be bought to an end; each will be discussed in turn.

Expiry

Fixed term leases may expire without notice if a break clause was agreed upon. If the period of the lease was greater than 21 years, a lease may be converted into a fee simple estate.

Notice to quit

Normally, periodic tenancies ‘roll on’ if not ended. Giving notice to quit prevents the growth of a periodic tenancy at the end of its current period. The lease must expire at the one of a period and a landlord must give at least 4 weeks’ notice. According to the Supreme Court in Sims v Dacorum BC [2014], one joint tenant may unilaterally give effective notice, without ECHR ramifications.

Surrender

A tenant may surrender a lease when no longer required, which can be to the benefit of a landlord.

Merger

Merger is the ending of a lease when a lessee acquires either the fee simple estate or a head lease, rendering the lease redundant.

Frustration

A lease can be frustrated, just as in contract law. Allowing access due to building works for only 1 of 10 years under a lease has in the past still not frustrated a lease.

Repudiation

Leases can be repudiated if a lessee successfully makes a claim against their lessor/landlord for a breach of covenant or condition.

Forfeiture

Forfeiture was described as giving a lessee 1 last chance before a lease is terminated in Expert Clothing v Hillgate [1986]. Forfeiture brings a lease to an end. Leases may contain both conditions and covenants. If a condition is breached, a lessor may bring forfeiture proceedings immediately. It is common practice, however, to express conditions as covenants in leases instead. The contract for a lease must provide for forfeiture proceedings upon breach of covenant for a lessor to bring them.

A lessee may be required to forfeit their lease either through a lessor’s court proceedings, or through their forcible re-entry, the latter of which is legal, but was frowned upon in Billson v Residential Apartments [1992]. The court proceedings approach differs depending on whether the breach of covenant or condition is for the non-payment or rent or not.

Forfeiture for the non-payment of rent

The process to follow for the non-payment of rent is set out in the Common Law Procedure Act 1852, sections 210-212. A landlord must make a formal demand for rent before attempting to forfeit the lease by taking possession. The lessee may stop proceedings act any time by paying any arrears, as occurred in Forcelux v Binnie [2009]. A lessee may claim relief from forfeiture (discussed below) up to 6 months after forfeiture has taken place.

Forfeiture for other breaches

Where the lessee has committed some other breach of condition or covenant, the process is set out in s 146 LPA 1925. The landlord must firstly serve a notice to the lessee, and the lessee must then fail, within a reasonable time to remedy the breach and compensate the lessor. The notice must:

  • Specify the breach, and be specific in doing so – in Akici v LR Butlin [2006], the alleged breach was not specific enough to constitute a valid notice
  • Require a remedy if one is available – no remedy was available in Glass v Kencakes [1966]
  • Require compensation in money – but only if the landlord wishes to be compensated. In Rugby School v Tannahill [1935], school governors did not want to be compensated with money sourced from immoral activities

Remediability will depend on the type of breach of condition or covenant. Breaches can be classified into positive or negative, and one-off or continuous breaches. Most breaches are remediable, such as a failure to refrain from erecting signs in Savva v Hussein [1996] and a failure to refrain from sharing possession in Akici v LR Butlin [2006]. However, neither a failure to convert premises into a gym in Expert Clothing v Hillgate House [1986], nor a failure to refrain from assigning a lease in Scala House v Forbes [1974] was remediable. It seems that breaches requiring insurance claims to be made will not be remediable, nor will the correction of a stigma, according to Telchadder v Wickland Holdings [2014] and Expert Clothing v Hillgate House [1986] respectively.

Relief from forfeiture

When a lessor applies for possession of land through forfeiture proceedings, or forcibly takes possession, a lessee may apply for relief from forfeiture – the 1 last chance. Relief will not usually be granted where land has been used for an immoral purpose, with the exception being Ropemaker Properties v Noonhaven [1989]. Relief from the forfeiture of a sub-lease will be granted over the leased part of land only, according to GMS Syndicate Ltd v Gary Elliott Ltd [1982].

As, according to s 146(4) LPA 1925, forfeiture destroys sub-leases, sub-lessees may also apply for relief. The successful grant of their relief will lead to their sub-lease being converted into a main lease, according to Escalus Properties v Dennis [1996]. As mortgagees are often referred to as lessees of a property over which they have a mortgage, they may also apply to relief as a sub-lessee; but such a claim for relief will be dependent on knowledge that forfeiture proceedings are ongoing.

If a landlord takes possession forcibly, relief will not be available as against his (non-existent) forfeiture proceedings, but may be available within a reasonable time, according to Billson v Residential Apartments [1992].

Reform of leases

The Law Commission has attempted to have the law of leases reformed. Their focus has been mainly on the reform of forfeiture, as forfeiture gives rise to a significant number of disputes. In 1985, they recommended the removal of the distinction between forfeiture for the non-payment of rent and forfeiture for other breaches. In 1998, forcible re-entry was abolished in another proposal. 2004 saw a proposal for a reformed self-help scheme for forfeiture following outrage against the abolition of the forcible taking of possession. More recently, in 2006, the Law Commission provided us with another proposal, with recommendations as follows:

  • Replace ‘forfeiture’ with a new scheme of ‘termination by tenant default’ for breaches of covenant with 2 possible methods of taking possession (though termination actions)
  • Termination action 1 – allow a landlord to commence a termination action having given notice by application for an order for possession and protection for parties such as sub-tenants and mortgagees (anyone with a qualifying interest in the leased land)
  • Termination action 2 – summary termination – following no response within 1 month to a notice, allow a landlord to take possession (re-enter) his land. The 1 month period will allow the lessee, or another person with a qualifying interest to apply to discharge the termination claim.
  • Courts will be able to make termination orders, remedial orders, orders for sale (to prevent landlord windfalls) and transfer/new tenancy orders
  • Allow a landlord to continue termination proceedings even after a tenant has remedied their breach

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