Chapter 8: Essential requirements of a lease

Question 1

1. Introduction to leases

1.1 Leases: context

Answer 1

A lease is created when one person with an estate in land (the Landlord) grants the temporary
right to another person (the Tenant) to use and enjoy that land exclusively. The right may be granted for weeks, months or years. It may be in a residential or commercial context. For many individuals and businesses that cannot afford, or do not want, to buy a freehold estate, entering into a lease is the most practical option. Further, in some residential instances a long (eg 125 years) leasehold estate is the most commonly available to buy. This is particularly true in most city centres where an individual would most likely buy a flat as opposed to a house.

Question 2

Lease

Answer 2

Perhaps rather unhelpfully, there is a large range of terminology used to describe the ‘term of years absolute‘ (being the technical name for a lease (LPA 1925, s 1(1)(b)). A lease may also be described as a leasehold estate or a tenancy.
If the lease is granted out of a superior lease it will be referred to as sublease or underlease.
The landlord may also be described as the lessor. The tenant may also be described as the lessee. Try not to be too concerned with the terminology and focus instead on the nature of a lease.

Question 3

1.2 Licence

Answer 3

A lease must be distinguished from a licence, which simply confers a personal permission (personal right) to be on someone’s land. A licence justifies what would otherwise be a trespass. The personal/proprietary divide is therefore very important in the context of this area of law. Whether someone occupies a piece of land under a lease, or a licence, has huge implications for their right and the enforceability of it.

Question 4

The key differences between leases and licences are as follows:

Answer 4

Lease: Proprietary right in the land

Licence: Personal permission to be on someone’s land

Question 5

The key differences between leases and licences are as follows:

Answer 5

Lease: Is capable of being enforced against third parties

Licence: Can only be enforced against the grantor

Question 6

The key differences between leases and licences are as follows:

Answer 6

Lease: A tenant can sue a third party for nuisance or trespass

Licence: A licensee is not entitled to sue a third party for nuisance or trespass

Question 7

The key differences between leases and licences are as follows:

Answer 7

Lease: A lease can confer the right of security of tenure

Licence: No security of tenure

Question 8

The key differences between leases and licences are as follows:

Answer 8

Lease: Enforceable in rem

Licence: Enforceable in personam

Question 9

The key differences between leases and licences are as follows:

Answer 9

Lease: Tenants under leases receive various statutory protection

Licence: No statutory protection for licensees

Question 10

Security of tenure

Answer 10

This is the right of occupants of residential or business accommodation (if certain circumstances exist) to remain after the formal arrangement ends and request a new lease

Question 11

1.3 Is the agreement a lease or licence?

Answer 11

It is not always easy to determine whether a lease has been granted or whether the parties have
simply created a licence.
Initially, the courts began by looking at the stated intention of the arrangement and gave weight
to the label, rather than the underlying substance. So if the parties called an agreement a licence then it was a licence and vice versa. This approach continued until the decision of the House of Lords in the leading case of Street v
Mountford [1985] AC 809.

Question 12

Key case: Street v Mountford [1985] AC 809

Answer 12

Facts: Mr Street granted to Miss Mountford a right to occupy rooms. The parties entered into a
written agreement which described the arrangement throughout as a ‘licence’ and called the agreed payment a ‘licence fee’.

Held: The House of Lords held that this was in substance a tenancy, a lease, rather than a licence.
In determining whether an agreement creates a lease or a licence, a court in future would look at the substance, not the label. The parties cannot alter the effect of an arrangement simply by
calling it a licence

Question 13

Lord Templeman

Answer 13

[…] a five-pronged instrument for digging earth is a fork, even though the parties might call it
a spade.
Street v Mountford makes it clear that for a lease to exist there must be:
* Certainty of term; and
* Exclusive possession.

Question 14

Lord Templeman

Answer 14

Although Lord Templeman indicated that ‘payment of rent’ is also essential, LPA 1925, s 205(1)(xxvii) makes it clear that rent is not essential. This was confirmed in the case of Ashburn Anstalt v Arnold [1989] Ch 1. If it is found that the characteristics of a lease are not present, looking at the transaction objectively, then the arrangement can only be a licence.

Question 15

For a lease to exist, rather than a licence, there needs to be:

Answer 15

1. Certainty of term
2. Exclusive Possessions
3. The correct formalities used to create a lease

Question 16

1.4 Summary

Answer 16

• A lease is a proprietary right of possession, which attracts statutory possession and can bind
  third party purchasers of the burdened land.
• A licence is a personal right to occupy, which cannot be enforced against third parties.
• The courts will always look at the substance of an agreement to determine if it is a lease or
  licence. The label given to an agreement by the parties is inconclusive.
• The leading case in this area of law is Street v Mountford [1985].
• For there to be a lease, rather than just a licence, there must be a certain term, exclusive possession and compliance with the correct formalities.

Question 17

2. Certainty of term

Answer 17

Certainty of term: Certainty of term means that the tenancy must be granted for a certain duration. This means you need to know when the arrangement will end. If certainty of term is not present in the arrangement, no lease will be found. A certain term can be shown in two ways: by either a fixed or periodic term. In the case of Lace v Chantler [1944] KB 368 a lease ‘for the duration of the war’ failed for lack of certainty.

Question 18

2.1 Fixed term

Answer 18

A ‘fixed term’ exists where the maximum duration of the arrangement is known from the outset. Once a fixed term lease is created, neither party can unilaterally bring the lease to an end earlier unless there is a break clause present in the lease enabling them to do so.

Question 19

Break clause

Answer 19

A break clause is a right for either party (depending on how the clause is drafted) to end the lease early. A break clause may be conditional and often requires notice to be served on the other party to validly exercise the right.

Question 20

Example: Fixed term

Answer 20

A landlord and tenant enter into a lease for a term of five years.

Question 21

2.2 Periodic term

Answer 21

A periodic tenancy is technically a lease for one period. In practice this is generally weekly, monthly, quarterly or yearly, which goes on extending itself automatically until either landlord or tenant give notice to terminate the tenancy. This is a notice to quit.

Question 22

Example: Periodic term

Answer 22

A landlord and tenant enter into a monthly tenancy of a storage locker. Technically there is a
lease of one month, then another, then another (which could go on for years) until either the tenant or the landlord give one month’s notice to terminate the arrangement.

Question 23

2.2.1 Express and implied periodic tenancies

Answer 23

A periodic term may be created expressly or impliedly. An express periodic tenancy is where there is a written agreement documenting the agreement. An implied periodic tenancy is where there is nothing set out in writing, but the certain term arises by looking objectively at all relevant circumstances including payment and acceptance of rent on
a periodic basis.

Question 24

2.2.1 Express and implied periodic tenancies

Answer 24

The ‘term’ of the periodic tenancy depends upon the period by reference to which the rent is
calculated, rather than the intervals at which it is payable. Frequently these are the same: an occupier will be asked to pay £500 per month and will actually pay monthly. But if the tenant agrees to pay £10,000 a year by four quarterly payments, the tenancy is a yearly tenancy not a quarterly tenancy, because the rent is calculated annually

Question 25

Example: Implied periodic tenancy

Answer 25

Monthly payments of rent (without agreement on a fixed term from the outset) by a tenant in
occupation will create an implied monthly periodic tenancy.

Question 26

Key case: Prudential Assurance Co Ltd v London Residuary Body [1992] 2 A.C. 386

Answer 26

This case is an example of where a periodic tenancy was implied in the circumstances.
Facts: A piece of land was sold to the Greater London Council. It was leased back to the seller on
a lease which was to continue until the land was required by the council for road widening purposes. On the abolition of the Greater London Council, the freehold reversion passed to the London Residuary Body (LRB). The LRB had no authority to create roads but served six months’ notice bringing the ‘lease’ to an end.

Question 27

Key case: Prudential Assurance Co Ltd v London Residuary Body [1992] 2 A.C. 386 Judgement

Answer 27

Held: The House of Lords held that the arrangement was for an uncertain period at the outset and
was therefore not a lease. The court did, however, say that the land was held under a yearly
periodic tenancy that had arisen by virtue of the tenant’s possession and payment of rent by reference to a year.

Question 28

2.3 Summary

Answer 28

• In order for an occupier to have a lease, rather than a licence, they must show they have a
  certain term.
• Certainty of terms means there must be a certain duration to the agreement. It must be clear
  when the arrangement will end.
• Certainty of term can be evidenced by a fixed term or a periodic term.
• A fixed term is the usual way to evidence a certain term eg 5 years/10 years/1,000 years.

Question 29

2.3 Summary

Answer 29

• A periodic term is a tenancy for a period of time that continues indefinitely until a notice to quit
  is served on the other party. Each period is seen as a separate lease with its own certain term.
  The period is usually monthly or annually.
• A periodic tenancy can be express or implied.
• The term of the periodic tenancy is by reference to how the rent is calculated (not to how it is
  payable).

Question 30

3 Exclusive possession

Answer 30

Exclusive possession: Exclusive possession means the right to exclude all others from the
property, including the landlord.

Question 31

3.1 Exclusive possession: context

Answer 31

Demonstrating that exclusive possession has been granted is not always an easy process and has
been considered extensively by the courts. Historically, tenants of residential leases were granted far greater protection (for example rent control under the Rent Acts) and landlords were therefore keen to avoid granting leases.

Question 32

3.1 Exclusive possession: context

Answer 32

The lease/licence distinction was a real battleground, with occupiers seeking to show they were tenants rather than licensees and therefore benefited from the statutory protection afforded to tenants. As a result, there was a huge number of cases in which the court had to consider the nature of an arrangement looking beyond the label given to the agreement by the parties as per Street v Mountford [1985] AC 809.

Question 33

Assured Shorthold Tenancies (ASTs)

Answer 33

Since the introduction of Assured Shorthold Tenancies (ASTs), which you yourself may well occupy premises under, the distinction between a lease and a licence is of far less importance, certainly in a residential context.

Question 34

3.2 When will an occupier have exclusive possession?

Answer 34

Whether exclusive possession exists is a question of fact in each case. The substance of the agreement has to be examined, along with all the facts. The courts will look at the reality of a situation, so that even if a clause appears to defeat exclusion possession but has been inserted into a lease only to make what would otherwise be a
lease, appear like a licence, it will be thrown out as a sham.

Question 35

Scenarios that indicate that an occupier does not have exclusive possession

Answer 35

(a) The landlord retains a key and has a right of access;
(b) The landlord provides services;
(c) There is a sharing clause; and/or
(d) The landlord retains a right to relocate the tenant.

Question 36

Assessment focus point

Answer 36

Exclusive possession is not to be confused with exclusive occupation, where a person occupies land by themselves, without others. Multiple occupiers are capable of having exclusive possession together if they can show certain conditions exist. Namely, they must show that they have the four unities of title and are therefore joint tenants.

Question 37

3.2.1 Retention of a key by the landlord and rights of access

Answer 37

Aslan v Murphy [1990] 1 WLR 766:
[…] there is no magic in the retention of a key […] it will not determine the nature of arrangement either way The fact that a landlord retains a key to the premises may make it appear as if the occupant does not have exclusive possession. However, it is the purpose for which the key is retained that matters.

Question 38

3.2.1 Retention of a key by the landlord and rights of access

Answer 38

For example, if the key is used only in an emergency or by arrangement, then exclusive possession may still exist. The courts will look at whether any right of access the landlord has is restricted or unrestricted. If the access is restricted eg ‘to carry out repairs’ then this is seen as more of an acknowledgement of exclusive possession by the landlord, rather than something that will defeat it. This was expressed by the court in Street v Mountford [1985] AC 809.

Question 39

3.2.2 Landlord provides services

Answer 39

If the landlord provides attendance or services, there is a licence not a tenancy (Marchant v Charters [1977] 1 WLR 1181). Services would include cleaning, changing linen etc.
In this situation, the occupier is simply a lodger provided the services are actually carried out. A
lodger will never enjoy exclusive possession of the premises.

Question 40

3.2.3 Sharing clauses

Answer 40

If a landlord reserves the right to share the property with the occupiers or reserves the right to
introduce others to share, that may mean that there is no exclusive possession, as the occupier
cannot exclude whoever the landlord is able to introduce.
All of the circumstances must be looked at to see whether this is a genuine clause or simply a
sham to defeat exclusive possession, as was made clear in A G Securities v Vaughan and
Antoniades v Villiers both reported at [1990] 1 AC 417t

Question 41

Key case: A G Securities v Vaughan [1990] 1 AC 417t

Answer 41

Facts: The occupants lived in a large flat with four bedrooms and spacious shared accommodation. The occupants, at least at first, did not know each other. They all signed separate agreements setting out the terms of their occupancy; the agreements contained
different monthly payments and began at different times. The landowner reserved a right to
introduce others to share the flat up to a maximum of four people.

Question 42

Key case: A G Securities v Vaughan [1990] 1 AC 417t

Answer 42

Held: The court held that the arrangement was a sensible and realistic one to provide
accommodation for a ‘shifting population of individuals’ who were genuinely prepared to share the flat with others introduced from time to time who would, at least initially, be strangers to them’
and therefore the occupiers did not have exclusive possession of the flat.

Question 43

Key case: Antoniades v Villiers [1990] 1 AC 417t

Answer 43

Facts: The accommodation comprised a small attic flat with a bedroom, sitting room, kitchen and
bathroom. The occupiers, a couple, had been looking for somewhere to live together for several months. When they viewed the flat they asked for a double bed to be provided. They signed separate agreements which were identical; including the level of payments.

The agreements reserved a right for the landowner to introduce others to share and indeed to share the premises himself with the occupants. They also contained acknowledgements that the occupants did not have exclusive possession and that the agreements constituted a licence and that the agreements would be terminated if the parties married.

Question 44

Key case: Antoniades v Villiers [1990] 1 AC 417t Judgement

Answer 44

Held: The House of Lords held it could not realistically have been contemplated that the landlord
would either himself use or occupy any part of the flat or put some other person in to share
accommodation specifically adapted for the occupation by a couple living together

Question 45

Lord Oliver, in Antoniades, commented:

Answer 45

[…] these clauses cannot be considered as seriously intended to have any practical operation
or to serve any purpose apart from the purely technical one of seeking to avoid the ordinary legal consequences attendant upon letting the appellants into possession at a monthly rent.

Question 46

Following circumstances should be considered when determining if a sharing clause is genuine or a sham:

Answer 46

(a) The size and nature of the accommodation – would it be realistic to introduce others into the
accommodation given its size?
(b) The relationship between the occupiers (if there is more than one) – would it be appropriate
to introduce another to share given the relationship between the occupiers?
(c) The wording of the clause (ie how widely it is drafted, as the wider it is drafted, the more
likely it is a sham clause).
(d) Whether the clause has ever been exercised – if it has not been exercised then this may
indicate it is a sham clause.

Question 47

3.2.4 Right to relocate

Answer 47

If the occupation agreement contains a right for the landlord to relocate and move the tenant to
alternative premises, it will not be a lease.
[…] you cannot have a tenancy granting exclusive possession of particular premises, subject to
a provision that the landlord can require the tenant to move to somewhere else.
Dresden Estates v Collinson [1988] 55 P & CR 47 Of course if such a clause is a sham clause, it will not defeat exclusive possession in the
circumstances and will be disregarded by the court. The courts will always look at the substance of an arrangement.

Question 48

Assessment focus point

Answer 48

If a clause would, on the face of it, defeat exclusive possession, always look at the substance and reality of the situation and consider if the clause is a sham in the circumstances.
Following Antoniades, ask questions such as:
* Would it be realistic / possible to exercise the clause?
* How widely is the clause drafted - how much thought went into it?
* Has the clause actually been exercised in the circumstances?

Question 49

3.3 Business tenancies

Answer 49

Street v Mountford [1985] AC 809 is equally applicable to non-residential tenancies. A business tenant must also show it has a certain term and exclusive possession of the premises
in order to establish it is a tenant, rather than licensee. In the context of business arrangements, the result affects security of tenure, as business tenants (but not licensees) are protected by the Landlord and Tenant Act 1954, entitling them to remain in the premises at the end of the lease term and request a new lease.

Question 50

In the business context

Answer 50

In the business context, the court tends to construe the document as a whole to see if the landlord
retains control over the property. In this setting, the courts are more prepared to accept the reality of the label ‘licence’ than they are in the residential context as there tends to be more equality in bargaining power, with commercial leases often negotiated and parties legally represented.

Question 51

Esso Petroleum Co Ltd v Fumegrange Ltd and others [1994] 2 EGLR 90

Answer 51

The question for the court to consider was whether exclusive possession of two service stations
was granted to Fumegrange.
The court held that the degree of control exercised by Esso over the premises and the way in
which it was conducted was inconsistent with an exclusive right to possession of the service
stations being vested in Fumegrange.

Esso could make alterations on the premises; it could install a car wash (as was in fact done); and it could change the layout of the shop. This degree of physical control over the premises and conduct of the business at the service station was held to be very significant.

Question 52

3.4 Summary

Answer 52

For an occupier to have a lease, as opposed to a licence, there must be (among other things)
exclusive possession of the premises.
* Exclusive possession is the right to exclude all others from the premises, including the landlord.
* The courts will look at the reality of an arrangement ie the substance, in considering whether
an occupier has exclusive possession
* In considering whether a clause is genuine or a sham, the court will consider the circumstances
laid down in in A G Securities v Vaughan and Antoniades v Villiers, including whether the clause
could realistically be exercised in the circumstances; how widely the clause is drafted; and
whether the clause has ever in fact been exercised.

Question 53

3.4 Summary

Answer 53

If the landlord provides services to the occupier, there will never be a lease.
* If the landlord retains a key to the premises, this is inconclusive as to whether there is exclusive
possession.
* If a landlord has a right of access to premises, the courts will look at whether the right is
restricted or unrestricted.
* Restricted access is on giving notice or in the event of emergency, and is more of
acknowledgement of exclusive possession, rather than something will defeat it.
* If a landlord has a right to relocate the tenant this will defeat exclusive possession. However,
always consider if such a clause is genuine or a sham in the circumstances

Question 54

3.4 Summary

Answer 54

• In a commercial context, the courts are more willing to accept the label the parties give the
  document, this is because there tends to be more equality in bargaining power, with parties to
  a commercial arrangement often legally represented.
• In determining if a business occupier has exclusive possession, the court looks at the whole of
  the document to see if the landlord retains ‘control’ of the premises.
• If the landlord retails a high degree of control over the premises and how the occupier runs its
  business from the premises, there is unlikely to be a lease.

Question 55

4 Multiple occupancy of a lease

4.1 The legal issue with multiple occupiers

Answer 55

Where two or more people share premises, can they still have a lease?

Do they still have exclusive possession if they cannot exclude each other? If the occupiers together have the right to exclude all others, including the landowner, then prima facie there is a lease arrangement. The question is whether they have one single lease (a ‘joint tenancy’) or several individual leases. Note. Here we are considering co-ownership of a leasehold estate. Read alongside the coownership chapter, where you were introduced to co-ownership generally.

Question 56

Joint tenancy

Answer 56

Where there is a joint tenancy all co-owners/tenants are deemed to constitute one single entity, and own/lease the whole property as one collective entity. Nobody owns a single/specific share; rather each are jointly and severally liable for the terms of the agreement.
As joint tenants are viewed as a single entity, they must hold the four unities: AG Securities v
Vaughan [1990] AC 417: unity of possession; unity of interest; unity of time; and unity of title.

Question 57

4.2 The four unities

4.2.1 Unity of possession

Answer 57

All must be entitled to occupy the whole of the premises. No-one has exclusive use of any part. If the occupiers can show that they each have exclusive possession of a part of the property then it is possible for them to have individual leases of their own part.

Question 58

4.2.2 Unity of interest

Answer 58

All occupiers must have a leasehold interest for the same term under the same conditions and must be jointly liable for the rent.

Question 59

Joint liability

Answer 59

Joint liability in a lease means if one occupier left, the remaining occupier(s) would be liable for the whole rent payment, not an individual share of it.

Question 60

4.2.3 Unity of time

Answer 60

All of the occupiers’ interests must start at the same time.

Question 61

4.2.4 Unity of title

Answer 61

All of the occupiers’ interests must derive from the same document or from separate but identical
documents which are interdependent. If it is found that the occupants do not have all of the four unities, they cannot have a joint tenancy. If neither a joint tenancy nor an individual tenancy exists then the occupants can only
be individual licensees sharing with each other.

Question 62

Key case: Antoniades v Villiers [1990] 1 AC 417 and AG Securities v Vaughan [1990] 1 AC 417 (both cases were decided together at the same time)

AG Securities v Vaughan

Answer 62

In AG Securities v Vaughan the occupants, at least at first, did not know each other. They all
signed separate agreements setting out the terms of their occupancy (no unity of title); the agreements contained different monthly payments (no unity of interest) and began at different times (no unity of time). For these reasons the court held that the occupiers were not joint tenants.

Question 63

Key case: Antoniades v Villiers [1990] 1 AC 417 and AG Securities v Vaughan [1990] 1 AC 417 (both cases were decided together at the same time)

Answer 63

In Antoniades the occupiers, a couple, had been looking for somewhere to live together for several months. They signed separate agreements which were identical, including the level of payments, for the small attic flat. The court held there was ‘an air of total unreality about these documents read as separate and individual licences in the light of the circumstance that the appellants were together seeking a flat as a quasi-matrimonial home’ ie the separate agreements would not
defeat unity of interest or title on these facts and the court will always look at the substance of
the arrangement.

Question 64

Key case: Antoniades v Villiers [1990] 1 AC 417 and AG Securities v Vaughan [1990] 1 AC 417 (both cases were decided together at the same time)

Answer 64

[…] The two agreements were interdependent. Both would have been signed or neither. The two
agreements must therefore be read together. Mr. Villiers and Miss Bridger applied to rent the flat jointly and sought and enjoyed joint and exclusive occupation of the whole of the flat. They shared the rights and the obligations imposed by the terms of their occupation. They acquired joint and exclusive occupation of the flat in consideration of periodical payments and they therefore acquired a tenancy jointly

Question 65

4.3 Summary

Answer 65

• Where two or more people share occupation of premises they can still have exclusive possession, even though they cannot exclude each other. They must show they have a joint tenancy.
• As joint tenants, co-owners are seen as a single entity, which can have exclusive possession.
• In order to have a joint tenancy, co-owners must show they have the four unities.
• The four unities are: possession, interest, time and title.
• The leading cases on this issue are Antoniades v Villiers [1990] 1 AC 417 and AG Securities v
  Vaughan [1990] 1 AC 417
• In Antoniadies, the court considered the reality of the situation and despite the fact the coowners signed separate documents, the court held these were interdependent on each other
  and identical, which meant there was both unity of interest and unity of title (in addition to time and possession).

Question 66

5. Factors that defeat a lease

Answer 66

For a lease to exist, rather than a licence, the essential requirements of a lease, certainty of term
and exclusive possession, must be met. The lease must also be created in accordance with the
correct formalities. However, even though these requirements of a lease may be present, there are other factors that could defeat an agreement from being a lease.
The main situations where something which would otherwise be a lease is merely a licence are:
(a) Where there is no intention to create legal relations; or
(b) Where there is a service occupancy

Question 67

5.1 Intention to create legal relations

Answer 67

In the case of Facchini v Bryson [1952] 1 TLR 1386 Denning LJ set out the circumstances from
which a lack of intention to create legal relations can be deduced, making an arrangement simply
a licence. He said that where there is a family arrangement, an act of friendship or generosity, it can be
presumed that there is a lack of such intention.

Question 68

5.1 Intention to create legal relations

Answer 68

However, just because there is a family relationship between the parties, it does not automatically
follow that there is no intention to create legal relations.
If there is a degree of formality to the agreement and/or a market rent is paid then this would
evidence an intention to create legal relations even if the arrangement is between family
members/friends.

Question 69

5.2 Service occupancies

Answer 69

It is important to realise that this type of occupancy only arises where there is an employer/employee relationship between the landowner and the occupier. Where the occupier is
required to live in the premises for the better performance of his duties as an employee, there is
no tenancy, even though a rent may be paid. Examples include a caretaker’s flat, gamekeeper’s cottage and domestic staff accommodation.

Question 70

Two cases illustrate this key principle:

Answer 70

In Norris v Checksfield [1991] 1 WLR 1241 a lorry driver claimed a lease of the premises he was occupying as part of his job. The court held there was no lease and it was a service occupancy because he required the premises for the better performance of his job. It meant he could do late night/emergency on short notice deliveries.

In contrast, in Royal Philanthropic v County (1985) 276 EG 1068 a teacher, who was occupying a
house near the school where he taught, was held by the court to have a lease (ie there was no
service occupancy) because the occupation did not enable him to better perform his duties as a
teacher and it was simply a perk of the job.

Question 71

Assessment focus point

Answer 71

The key question to ask to determine is a service occupancy exists is whether the employee is
in occupation for the better performance of their job role.

Question 72

5.3 Summary

Answer 72

Even though the essential requirements of a lease may be present; there are factors that you
need to be aware of that would prevent the agreement from being a lease.
* These are:
- Where there is no intention to create legal relations; or
- Where there is a service occupancy.
* If the agreement is an ‘act of generosity’ there would be no intention to create legal relations.
This is presumed where the parties are family/friends, but the presumption can be rebutted in
circumstances where there is a degree of formality to the agreement and/or a rent is paid.
* A service occupancy will exist where there is an employer/employee relationship between the parties and the occupation is for ‘the better performance of the employee’s duties’ eg a caretaker.

Question 73

6. Formalities to create a lease

Answer 73

For a lease to exist, rather than a licence, the essential requirements of a lease, certainty of term
and exclusive possession, must be met. The lease must also be created in accordance with the
correct formalities. Formalities are the rules that must be followed to formalise the arrangement ie the steps the parties need to take. Given the proprietary status of a lease, there is a high degree of formality that the parties must adhere to in order to create the legal estate. We will focus on the formalities requires to create a legal lease and the circumstances where an equitable lease may be recognised

Question 74

6.1 Legal leases

Answer 74

The formalities required to create a legal lease will depend on the length of the term of the lease.

Question 75

6.1.1 The general rule

Answer 75

To create a legal lease, a deed must be used (LPA 1925, s 52). The requirements of a valid deed are set out in LP(MP)A 1989, s 1.

Question 76

6.1.2 Leases over seven years

Answer 76

If the term of the lease is over seven years, the lease must also be registered (LRA 2002, s 27(2)(b)(i)). This is a compulsory registration requirement. If not done a legal leasehold estate will not have been created (LRA 2002, s 27(1)).

Question 77

6.1.3 Leases for seven years or less

Answer 77

If the term of the lease is seven years or less, the lease does not need to be registered. Such leases
still take effect as legal leases and will be binding on a new freehold estate owner as an overriding
interest (LRA 2002, Sch 3 para 1).

Question 78

6.1.4 The short lease exception

Answer 78

Certain short leases, which fulfil certain conditions, have no formal requirements, yet they will still
exist as legal leases. They need not even be in writing.

Question 79

6.1.4 The short lease exception

Answer 79

LPA 1925, s 54(2) states that a lease with a term of three years or less need not be created by deed provided the following three conditions are all met:
(a) The lease takes effect in possession (ie the tenant takes the lease immediately).
(b) The lease is granted at ‘best rent’ (which has been interpreted as meaning ‘market rent’).
(c) The lease is not subject to a fine or premium (meaning there is no upfront payment for the
grant of the lease, which you could commonly expect to see with very long leases).

Question 80

Parol leases

Answer 80

These short leases, also known as parol leases, whether created by deed or less formally under s 54(2), do not need to be registered to exist as legal leases because only leases of over 7 years must be registered.

Question 81

6.2 Parol leases

Answer 81

The types of arrangement which fall within the ambit of the short lease exception are:
* Short fixed-term leases (those with a maximum term of three years or less)
* Express periodic tenancies (where there is a tenancy agreement)
* Implied periodic tenancies (where an occupier is in possession and paying a rent at regular
intervals)

Note that periodic tenancies, whether express or implied, will only fall within the ambit of LPA
1925, s 54(2) if each individual period of the tenancy is for three years or less, which is likely to
be the case.

Question 82

Example: Leases that fall within the short lease exception

Answer 82

• Short fixed-term leases: A tenant rents a flat for an agreed fixed term of two years. This arrangement does not need to be in writing.
• Express periodic tenancies: A tenant rents a flat on a rolling monthly basis paying an agreed
  monthly rent. There is a written agreement documenting the agreement. In this situation, the
  written agreement does not need to comply with any formalities.
• Implied periodic tenancies: A tenant is in occupation of premises paying an agreed rent on a monthly basis, but nothing documents this arrangement. In this situation, a periodic tenancy may be implied. It will still be a legal lease because no formalities are required to document the arrangement.

Question 83

6.3 Equitable leases

Answer 83

An equitable lease may be created deliberately, if the parties choose to enter into a contract for
lease, or it may be that the parties try to create a legal lease but fail, by either not creating a valid deed or not registering the lease, if required. The courts will recognise the tenant as having an equitable interest in the land (an equitable lease) on the same terms as the defective legal lease providing:
* There is a document that complies with LP(MP)A 1989, s 2; and
* The remedy of specific performance is available.

Question 84

Key case: Walsh v Lonsdale (1882)

Answer 84

Facts: By way of a valid agreement, Lonsdale agreed to grant to Walsh a seven-year lease over a
cotton mill in return for an annual payment of rent. No deed was executed as required to create a
legal lease of this duration. Walsh took possession of the mill. Lonsdale demanded that Walsh pay
a year’s rent in advance in accordance with the clause in the agreement.

Lonsdale was not paid. The legal issue for the court was, what was the nature of the relationship between the parties. This would determine whether the rent clause in the agreement was enforceable entitling Lonsdale to exercise a remedy. On the facts there could be both an implied annual periodic tenancy and an equitable seven-year lease.

Question 85

Key case: Walsh v Lonsdale (1882)

Answer 85

Held: Walsh occupied under a seven-year equitable lease. There was only one lease; the equitable
lease on the terms of the agreement for lease.
Principle: Where there is conflict between the common law and equity, equity will prevail.

Question 86

6.4 Summary

Answer 86

• In addition to having a certain term and granting exclusive possession, a lease must also
  comply with the correct formalities.
• As a general rule, all leases must be created using a deed.
• There is an exception to this rule for short term leases of three years or less, which comply with
  the conditions in LPA, s 54(2).
• Leases of over seven years must also be registered in order to be validly created.

Question 87

6.4 Summary

Answer 87

• Legal leases of seven years or less do not need to be registered, they will be binding on a thirdparty purchaser as an overriding interest.
• An equitable lease exists where there is a contract to grant a lease. This is a form of estate contract.
• If in the same circumstances there is both an implied legal lease and an equitable lease, the equitable lease will prevail.