Essential Requirements of a Lease Flashcards
Lease
Proprietary right in land
Capable of being enforced against third parties
A tenant can sue a third party for nuisance or trespass
A lease can confer the right of security of tenure
Enforceable in rem
Statutory protections
License
Personal permission to be on someone’s land
Can only be enforced against the grantor
Licensee is not entitled to sue a third party for nuisance or trespass
No security of tenure
Enforceable in personam
No statutory protection
Security of tenure
: 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.
Requirements for a lease
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.
Fixed term
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.
Break clause: 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.
Periodic term
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.
Express and implied periodic tenancies
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.
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
When will an occupier have exclusive possession?
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.
There are a number of scenarios which may indicate that an occupier does not have exclusive
possession:
8: Essential requirements of a lease 147
KEY
TERM
(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.
Right to relocate
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.
Business 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.
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.
The issue of control in a business context came before the court in Esso Petroleum Co Ltd v
Fumegrange Ltd and others [1994] 2 EGLR 90.
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.
The legal issue with multiple occupiers
Joint tenancy: 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.
4.2 The four unities
4.2.1 Unity of possession
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.
4.2.2 Unity of interest
All occupiers must have a leasehold interest for the same term under the same conditions and
must be jointly liable for the rent.
Joint liability: 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.
4.2.3 Unity of time
All of the occupiers’ interests must start at the same time.
4.2.4 Unity of title
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.
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).
Factors that defeat a lease
Intention to create legal relations
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.
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.
5.2 Service occupancies
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. 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.
Legal leases
The general rule
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.
6.1.2 Leases over seven years
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)).
Leases for seven years or less
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).
The short lease exception
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.
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).
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.
Parol leases
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.
