A lease is an agreement that creates an estate in land. The freehold estate of a fee simple absolute in possession and a leasehold estate of a term of years absolute are by virtue of S.1 (1) LPA 1925 the only two estates that may exist in law. As estates (you might find it useful to refer to lesson 2), they have a further similarity in that they are both interests in land as opposed to interests over land.

By virtue of S.1 (5) LPA 1925, a legal leasehold may exist at the same time as a legal freehold (i.e. a fee simple absolute in possession) and another legal leasehold (i.e. a sub-tenancy). In fact, there is always somebody who holds the largest legal estate of a fee simple absolute in possession of every area of land in the UK. Such holder of the fee simple absolute in possession of some areas of land may have granted a leasehold legal estate of the land for a term of years absolute to another. In addition, the holder of such leasehold interest may in turn grant a further leasehold legal estate for a term of years absolute to a further person. This further leasehold estate must be for a lesser period than the first, because a person cannot give a better title than what he or she has.

Section 205 (1)(xxvii) LPA 1925 defines a lease. It is an estate in the land for a fixed maximum term, which may be of any duration from one week (or even less) to 3,000 years (or even more). Typically, a long lease will be granted by a landlord (lessor) to a tenant (lessee) who will pay a lump sum (or premium) and a small amount of periodic rent (e.g. it may be as little as a peppercorn annually). Short leases may not involve the payment of a premium, but will usually involve the payment of rent periodically.

After completing this lesson, you should be able to:
identify the characteristics of a lease
compare licences with leases
explain the different covenants that may be expressly or impliedly included in a lease describe how the law protects a landlord against the breach of covenant by a tenant describe the enforceability of covenants against third parties on assignment explain how a lease might come to an end.

Let us now explore the lesson in detail.

The essential characteristics of a lease

In Street v Mountford [1985] AC 809, the House of Lords held that a lease must have three characteristics:

Exclusive possession – Exclusive possession is the right of the tenant to exclude everyone from the premises including the landlord.

For a fixed or periodic term – the term of the lease must be certain. In Lace v Chantler [1944] KB 368, a lease for the duration of the war was for an uncertain period.

At a rent.

In this case, under what was described as a licence agreement, Mrs Mountford was given exclusive possession of furnished rooms at a rent. She had signed a statement at the end of the agreement that this was not intended to give rise to a tenancy under the Rent Acts. It was held that, in fact, she did have a tenancy.

The fact that the agreement is described as a licence does not prevent it being a lease, if the above characteristics are present. The only intention of the parties which is relevant is the intention to grant exclusive possession.

In Antoniades v Villiers [1990] 1 AC 417, a couple entered into two separate but identical agreements called “licences”, under which they were given the right to occupy rooms, and each had separate responsibility for payment of half the rent. The agreement provided that they were to use the rooms either in common with the owner, or with other licensees permitted by him. Despite the attempt to make this look like two separate licence agreements it was in fact a lease. The courts considered that the couple had a joint tenancy with the right to be able to exclude anyone not in the joint tenancy. This gave them the exclusive possession necessary for a lease.

In AG Securities v Vaughan [1988] 3 WLR 1205, four men signed separate agreements, described as licences. They were signed on different days and the payments were different. There was no joint tenancy here as the agreements had been signed on different days, so the unities of time and title which are both required for a joint tenancy to exist were missing. As there was no joint tenancy, they could not collectively exclude anyone else and so did not have exclusive possession of the flat. Although the parties had exclusive occupation of the property, the agreements said that the occupants did not have exclusive possession, as the landlord could introduce new occupiers of his choice if any occupant left, which clarified the stance that they did not have exclusive possession. It was held that where it is clear on the facts, as here, that there is no intention that the occupants should have exclusive possession, then there is not a lease. Unlike in Antoniades (above) there was no connection between the different occupants.

In Bruton v London and Quadrant Housing Trust [2000] 1 AC 406, [1999] 3 WLR 150 the House of Lords indicated that a lease could create purely personal rights between the parties and this ‘personal’ tenancy is binding on the immediate landlord but not on anyone with a superior title.

To expand your knowledge on Bruton v London and Quadrant Housing Trust, listen to the podcast below and record your findings using the note function on the module homepage.

Podcast

Transcript

The rule that a lease must be certain is illustrated by Prudential Assurance v London Residuary Body [1992] 2 AC 386.

Leases are classified by the length of time they last for and the main types are: leases for a fixed term
periodic tenancies.

Using WestLaw, find about the decision on Mexfield Housing Co-operative
v Berrisford [2011] UKSC 52. Although the term was not certain, what did the court decide?

In this case, Berrisford was granted the right by contract to live in Mexfield Housing Association’s property “From month to month until determined”. Here, the duration of the lease was uncertain. Berrisford was given notice to leave within four weeks, but Berrisford refused to leave. The issue before the court was whether Berrisford needed to leave? The decision was that she did not. In the absence of any contrary intention, an agreement to create a month-to-month tenancy did create a monthly periodical tenancy. On the facts, the term was uncertain. The Supreme Court applied S.149 (6) Law of Property Act 1925 and turned the agreement into a 90-year fixed-term lease determinable under express provisions.

Using WestLaw, locate and read Southward Housing Co-operative Ltd v Walker [2015] EWHC 1615(Ch) then, in the lesson discussion forum found on the module homepage, discuss why, in this case, a lease with an uncertain term was not granted as a 90-year lease.

In this case, the tenants attempted to raise the 90-year lease argument by adopting the Mexfield case above. The High Court distinguished Mexfield. (In its judgment, the High Court stated that what needs to be looked at are the intentions of the parties. The term in this case though was uncertain and the courts found a contractual licence instead.)

Other types of leases

There are different types of leases as follows:

Tenancy at will – The tenant, with the owner’s consent, occupies land at the will of the owner who may therefore terminate it at any time. The tenant has no security of tenure and is really in no better position than a licensee except that as a tenant there is a right to exclusive possession.

Tenant at sufferance – The tenant, after the expiry of the lease, continues in possession without the consent of the landlord (remember that a tenant at will does have consent). A tenant at sufferance has no real tenancy and cannot even sue another for trespass.

Creation of leases

A legal lease must be created by deed (S.52 (1) LPA 1925) unless it is for not less than three years, in which case it can be created without formalities provided that it complies with the requirements of S.54 (1) LPA 1925.

Equitable leases can be created by agreement. The leading case on equitable leases is Walsh v Lonsdale [1882] 2 De G &J 559 where an agreement for a lease was held enforceable. Here, an oral agreement for a seven-year lease was held binding on the grantor on the principle that ‘equity looks on that as done which ought to be done’. Since then, S.2 of Law of Property (Miscellaneous Provisions) Act 1989 has required all agreements for the sale or other disposition of an interest in land to be in writing, contain all terms agreed and be signed by the parties. The oral agreement in Walsh v Lonsdale would now create, at most, a periodic tenancy. The effect is that the formal distinction between legal leases exceeding three years and equitable leases is reduced to the distinction between a deed and a written agreement.

Thus, an equitable lease can, in principle, take effect as a lease against the landlord and be enforced against him whether it is made in law or in equity. However, an equitable lease is enforceable by equitable remedies which are at the discretion of the court. So, the court may, for example, refuse the grant of specific performance to enforce an equitable lease.

However, if an equitable lease is capable of being enforced by specific performance then, as Jessel MR said in Walsh v Lonsdale: ‘(the tenant) holds, therefore, under the same terms in equity as if a lease had been granted.’ Thus, the rights and duties of the parties under the lease will be the same. Another point of similarity is that by S.146 (5) (a) LPA 1925 the provisions allowing a tenant to apply for relief from forfeiture apply to equitable leases and legal ones.

However, an equitable lease is not as effective against all persons as a legal lease. An equitable lease only creates an equitable interest in land.

When title to the land is unregistered, then a legal lease is always binding on a purchaser of the freehold, but an equitable lease is only binding on a purchaser for money or money’s worth from the landlord if registered as a Class (iv) land charge. (S 4 (6) Land Charges Act 1972). Where title is registered then a legal lease for up to seven years is an overriding interest (schedule 3 para. 1 of the LRA 2002) and is binding on a purchaser without the need for registration. The fact that equitable leases are less effective than legal leases is shown by the situation where the holder of an equitable lease goes into possession and pays rent on a regular basis, such as monthly or yearly.

Legal leases for longer than seven years require substantive registration (S.27 (2)(b) LRA 2002).

Equitable leases should be protected by a notice on the register as estate contracts, but if the tenant is in actual occupation then they may be protected by schedule 3 para. 2 LRA 2002 as being a person who has an equitable interest in the land and who is in actual occupation. The overall picture is that it is far more likely that a tenant under an equitable lease will find that their lease is not binding on a purchaser of the freehold than the tenant under a legal lease.

The fact that a lease is only equitable can affect the relationship between the landlord and tenant when the lease is assigned.

Termination of a lease

Consider the following ways in which a lease may be terminated. Click on each tab below to find out more about the different methods of termination:

Expiry

A lease or tenancy for a fixed term automatically determines when the fixed period expires. In some cases, the tenant may be entitled to be granted a new lease or to remain in possession as a statutory tenant.

Notice to quit

A periodic tenancy (rolling contract) may only be determined by notice at common law. The tenant serves a formal notice to quit on the landlord. However, many periodic tenancies have statutory protection against eviction so that a notice may only be effectively served in the circumstances set out in the relevant statute. The period of notice in a periodic tenancy is the equivalent period of each periodic term. It is subject to the requirement that it must be given at least four weeks before the date on which it is to take effect. Shorter notice may be accepted by the landlord, but there is no legal obligation on the landlord to accept a shorter notice than is required by law.

Surrender

A lease can be determined by the surrender of the interest of the tenant to his immediate landlord. This must be contained in a deed.

Disclaimer –

Through this method, the tenant denies the landlord’s title, for example by tendering rent to a third party. Disclaimer can occur in one of two ways:

• either by the tenant clearly disclaiming his lease; or

• where the liquidator of an insolvent company disclaims a lease owned by the company if it is seen to be unsaleable.

Merger

If the tenant acquires the landlord’s reversion while holding the tenancy then the two interests become merged.

Frustration

If a supervening event has brought about a fundamental change of circumstances then the tenancy may be said to be frustrated.

Repudiation

Where there is a breach of a fundamental term, the courts may hold the agreement to be repudiated and the contract to be at an end.

A ‘break clause’

This can occur in commercial leases and it will allow either the landlord or the tenant to determine the lease on certain dates before the term expires.

Forfeiture

The lease may be forfeited if there is a breach of covenant. This is strictly regulated and is not available in cases of non-payment of rent until the landlord has formally demanded the rent. The landlord should have expressly reserved the right of re-entry in the lease.

If the landlord has reserved a right of re-entry and the tenant breaches a covenant, it is up to the landlord to decide whether or not the right of forfeiture is to be exercised.

If the landlord wishes to exercise the right of forfeiture, he must act to end the lease. This can be by physically re-entering the premises or granting a fresh lease to another.

If the landlord has not acted to express his intention to end the lease, he may be treated as waiving the right of forfeiture. In order to establish waiver of forfeiture, the landlord must:

be aware of the commission of an act of forfeiture by the tenant; and
carry out some unequivocal act recognizing the continued existence of the lease.

Leasehold covenants

Leasehold covenants are promises contained in leases by which one party undertakes to do something or not do something. A carefully drafted lease may contain a large number of express covenants, some by the landlord and some by the tenant, which regulate in detail the parties conduct under the lease. An implied covenant is a covenant that is not specifically mentioned in the lease. Common express and implied leasehold covenants are listed below:

Express covenants: there are many different types of covenant – two of the most common being the tenant covenanting not to assign or sublet the lease, or the landlord covenanting to repair the property.

The tenant’s implied obligations: keeping property in ‘a tenant-like manner’ to allow the landlord to enter and inspect the property and to pay rent, rates and taxes.

The landlord’s implied obligations: to permit the tenant ‘quiet enjoyment’ of the premises – not to harass or interfere with the tenant’s enjoyment; not to derogate from grant; to ensure that dwelling houses are reasonably fit for humans; to keep in repair the structure of a dwelling house let for a term of less than seven years (S1 of LTA 1985).

Watch the PowerPoint presentation link below which explains the enforcement of leasehold covenants.

https://vimeo.com/213877084/c95de70434 Transcript

Further reading

In addition to the reading recommended within the lesson: Essential reading

Martin Dixon, Modern Land Law (10th Edition, Routledge 2016) Chapter 6 which can be accessed through your online e-library.

References

Roger Smith, Property Law Cases and Materials (Longman Law Series) (6th Edition, Pearson 2015)

John Duddington, Land Law (Law Express) (1st Edition, Longman 2006)

Judith Bray, Unlocking Land Law (5th Edition, Routledge 2016)

Nicola Jackson, John Stevens, Robert Pearce, Land Law (5th Edition, Sweet & Maxwell 2013)

Charles Harpum, Martin Dixon, Stuart Bridge, Megarry & Wade: The Law of real property, (8th Edition, Sweet & Maxwell 2012)