8 - Leases Flashcards
What is the difference between a freehold estate and a leasehold estate?
- A freehold estate endures for an uncertain length of time, meaning it is held indefinitely.
- A leasehold estate is an estate of a certain or fixed duration, meaning it has a set term.
- A leasehold estate is carved out of a freehold estate.
- When a freehold owner grants a leasehold estate, they retain the reversion i.e., the right to future possession of the property.
- The freehold estate and leasehold estate can exist concurrently in the same parcel of land.
- The freehold owner can grant a lease for as long as they wish, while a tenant can only grant a sublease for a shorter term than the lease they hold.
What are the reasons a freehold owner may create a lease?
A freehold owner may create a lease for the following reasons:
- To obtain income from the property.
- To retain an interest in the property that can be sold.
- To enforce positive covenants against a successor in title to the original tenant (enforcing positive covenants against a successor in title means ensuring that future tenants are legally bound to fulfill the obligations or duties agreed upon by the original tenant in the lease.)
The landlord retains a fee simple absolute in possession (freehold), as possession is extended to include receiving rent or profits under section 205 LPA 1925.
A legal estate may exist concurrently with or subject to another legal estate, as provided by section 1(5) LPA 1925. The landlord holds a reversion, entitling them to:
- Receive the payment of rent (or profits).
- Retake physical possession once the lease ends.
Is a lease capable of being a legal estate in land?
Yes, a lease can be a legal estate in land.
According to section 1(1)(b) LPA 1925, a lease is a term of years absolute in possession, meaning it can exist as a legal estate in land, provided it meets the necessary conditions of duration and possession.
What are the formalities for creating a legal lease depending on its duration?
Leases for more than three years:
- A deed is required to create a legal lease (s 52 LPA 1925).
- The deed must meet the criteria set out in s 1 LPMPA 1989.
The requirements for a deed are set out in s 1 of the Law of Property (Miscellaneous
Provisions) Act 1989 (LPMPA 1989) which are that it must be:
* In writing;
* Clear on its face that it is a deed;
* Signed;
* Witnessed (by one witness); and
* Delivered.
Leases for three years or less:
Certain short-term leases, known as ‘parol leases’, require no formalities and can be created orally.
To be legal, such leases must meet the criteria set out in s 54(2) LPA 1925:
- The lease must be for three years or less, which includes periodic leases where the period of the lease is for three years or less (e.g., a monthly periodic lease).
- The lease must take effect in possession, meaning the tenant must have the immediate right to possess and enjoy the land.
- The tenant must pay the best rent which can be reasonably obtained, i.e., market rent.
- The landlord must not charge a fine or premium, which is a one-off capital sum (e.g., a £5,000 premium in addition to rent or instead of rent).
Leases for three years or less can also be created by deed.
Leases between three and seven years:
- Residential and commercial leases with a term between three and seven years are not considered registrable leases but can still be noted at the Land Registry against the Landlord’s title.
Leases under three years:
- No deed required and not registrable.
Leases over seven years:
- If the total is more than seven years (ie more than 364 complete weeks) the lease and/or transfer will be compulsorily registrable.
When may equity intervene in the creation of a lease, and what are the required conditions for equity to recognise a lease?
Equity may intervene in two situations:
- When there is a contract to create or transfer a legal estate, or
- When there is an attempt to use a deed but the deed is not valid.
Conditions for equity to recognise the arrangement:
- A valid contract to create or transfer a legal estate, complying with s 2 LPMPA 1989.
- Specific performance of the contract must be available as an equitable remedy.
- Clean hands: The person seeking the remedy must not be in breach of the contract (equitable maxim: “He who seeks equity must do so with clean hands”).
Case Law Examples:
Walsh v Lonsdale (1882): The court recognised an equitable lease based on a valid contract for a seven-year lease, despite the omission of a deed. The court applied the maxim “equity regards as done that which ought to be done.”
Coatsworth v Johnson (1886-90): The court did not recognise an equitable lease because Coatsworth breached a term of the contract, thus lacking “clean hands” to seek the remedy.
What is the status of a lease when a deed is improperly executed, as illustrated by an example where the landlord’s signature is not witnessed?
A lease is capable of being legal under s 1(1)(b) LPA 1925, but it must be created by deed (s 52 LPA 1925) and comply with the deed requirements set out in s 1 LPMPA 1989.
In the example where James, the freehold owner, grants a lease to Helen for five years, but his signature is not witnessed on the deed:
- This is not a valid legal lease, as it does not meet the deed requirements.
- The parol lease exception does not apply because the lease is for more than three years.
Equity may intervene:
- If there is a contract in writing and signed by both parties, and the contract complies with s 2 LPMPA 1989, and there are no issues of bad faith (i.e., clean hands), equity may recognise the arrangement as an equitable lease.
- In this case, the lease is an equitable lease.
What are the three essential requirements for a lease to be valid?
The lease must meet the following three essential characteristics:
1. Duration: The estate must be for a duration permitted for a leasehold estate.
2. Exclusive possession: The grant must give the tenant exclusive possession of the land.
3. Correct formalities: The grant must meet the required formalities.
The court considers the substance of the agreement, not just its form. A lease is created even if it is labelled as a licence (Street v Mountford [1985]).
If one or more of the essential characteristics of a lease are missing, then all that has been created is a license.
What are the key differences between a lease and a licence?
Lease:
- Creates a proprietary right in land that can bind a purchaser of the reversion (e.g., freehold estate).
- The lease can be assigned to a new tenant, allowing it to be bought and sold, and the lease continues to exist.
- Occupiers with the benefit of a lease may benefit from a range of statutory protections.
- Enforceable in rem - the right can be recovered and the individual party does not have to settle for damages. The right to possess can be recovered for the duration of the lease if a tenant is deprived of their right.
Licence:
- Creates only a personal right (permission) to use the land that does not bind the purchaser of the reversion (e.g., freehold estate).
- A licence cannot be assigned, and a new licence is required if the identity of the parties changes.
- Occupiers with the benefit of a licence do not benefit from statutory protections.
- Enforceable in personam.
What does the permitted duration requirement for a lease entail?
A lease must have a definable beginning and a definable end, creating a fixed ascertainable period.
The lease can either be:
- For a fixed term: A lease for a specified period.
- Periodic: A lease that automatically renews at regular intervals.
For example, a lease for 1,000 yeats ia valid because it is a certain term with a start and end.
Invalid leases include:
- A lease for the duration of the Second World War was not valid because the duration was not fixed (Lace v Chantler [1944]).
- A lease that continued until the land was needed for road widening was invalid as it lacked a fixed term (Prudential Assurance v London Residuary Body [1992]).
Leases for life create a term of 90 years, ending on the tenant’s death or as otherwise provided for in the agreement (s 49(6) LPA 1925).
Break clauses are allowed, meaning the lease has a fixed ascertainable period, even if there is a right to terminate early.
What does the characteristic of exclusive possession in a lease entail?
Exclusive possession is the ability for the tenant to exercise control over the land:
- The tenant has the right to exclude all others, including the landlord, from the land.
- Exclusive possession extends beyond mere exclusive occupation, which is the characteristic of a licence.
- The tenant does not need to be physically in occupation to enjoy exclusive possession.
If a statement says that exclusive possession is not granted, but the occupier is given general control over the property, this may still constitute exclusive possession and create a lease.
This is equally applicable to businesses and residential properties to show that they have a lease rather than a licence.
What is the key factor that determines whether an agreement is a lease or a licence?
Exclusive possession is the determining factor:
- If there is no exclusive possession, the agreement will only create a licence.
- The landowner may deliberately deny exclusive possession to prevent the occupier from acquiring the benefits of a lease, such as security of tenure.
- Even if the landowner retains a key, this does not negate exclusive possession. However, if the occupier does not have general control of the land, exclusive possession does not exist.
Examples:
Wells v Kingston upon Hull (1875): The ship owners used a dry dock but lacked general control over the dock, so the agreement was considered a licence, despite the word “let” being used.
Westminster City Council v Clarke [1992]: Mr Clarke was placed in a hostel under a “Licence to Occupy”. The agreement had conditions that restricted exclusive possession (e.g., Mr Clarke could be required to share accommodation, and the council could enter at any time amongst other things). As a result, the agreement was deemed a licence.
What is the nature of service occupancies and how do they relate to leases or licences?
Service occupancies occur when an employer allows an employee to live in the employer’s accommodation for the better performance of their duties. This creates a licence, not a lease.
- The service occupancy terminates when the employment ends.
- This arrangement is relevant for workers such as farm workers, caretakers, and members of the police and armed forces.
How does the concept of exclusive possession apply in flat-sharing agreements?
Flat-sharing agreements can either create a lease or a licence, depending on the agreement’s terms and the parties’ intentions regarding exclusive possession.
To determine this, the courts will always look at the substance of a sharing clause.
Examples:
AG Securities v Vaughan: The court ruled that the agreements were independent of each other and did not provide exclusive possession to any one occupant. The bedrooms were occupied on a rolling basis, with different rents and dates, and therefore, the agreements created licences, not leases.
Antoniades v Villiers: The court found the agreements to be interdependent and intended to create joint and exclusive possession of the flat by the couple. Despite a clause allowing others to share the flat, the court ruled this clause was a sham because no one would reasonably expect it to be exercised. As a result, the court held that a lease had been created.
Is the payment of rent an essential characteristic for a lease to be valid?
The payment of rent is not an essential characteristic of a lease.
However, the payment of rent may support the view that the parties intended to create a formal landlord-tenant relationship, rather than an informal relationship based on family or friendship.
Example:
Ashburn Anstalt v Arnold [1989]: In this case, the payment of rent was used to indicate the parties’ intention to establish a formal landlord-tenant relationship.
How can it be determined whether occupiers of a property have a lease arrangement or are individual licensees?
- If the occupiers together have the right to exclude all others, including the landowner, there is a presumption that they have a lease arrangement.
- The key issue is whether the occupiers have one single lease (a “joint tenancy”) or several individual leases.
- If the occupiers do not have all four unities (possession, interest, time, and title), they cannot have a joint tenancy and are treated as individual licensees sharing the property.
What is required to satisfy the “unity of interest” principle in a joint tenancy?
- All occupiers must have a leasehold interest for the same term, under the same conditions.
- All occupiers must be jointly liable for the rent.
- Joint liability means that if one occupier leaves, the remaining occupiers are liable for the full rent, not just an individual share of it.
What does the “unity of time” require in a joint tenancy?
All of the occupiers’ interests must start at the same time.
What is required to satisfy the “unity of title” principle in a joint tenancy?
All occupiers’ interests must derive from the same document or from separate but identical documents that are interdependent.
What does the “unity of possession” mean in the context of joint tenancies?
- All occupiers must be entitled to occupy the whole of the premises.
- No one occupier has exclusive use of any part of the property.
- If the occupiers can show that each has exclusive possession of a specific part of the property, they may have individual leases rather than a joint tenancy.
What happens if occupiers fail to meet all four unities required for a joint tenancy?
If the occupiers do not have all four unities (possession, interest, time, and title), they cannot have a joint tenancy.
If neither a joint tenancy nor individual tenancy exists, the occupiers will only be considered individual licensees sharing the property.
What are the characteristics of a fixed-term lease, and how is it created?
- A fixed-term lease is a contract that grants the tenant the right to occupy the premises for a specific, fixed period.
- The term of the lease can vary and be set for any duration (e.g., one day, six months, 10 years, or 99 years).
- The tenant agrees to pay rent and fulfil other obligations during the fixed term.
- The lease will expire automatically at the end of the specified period unless extended or renewed.
What is a periodic lease, and how does it differ from a fixed-term lease?
- A periodic lease, also known as a “periodic tenancy,” runs from one period to the next until terminated by notice from either party.
- Each period automatically renews at the end of the previous period.
- The length of each period is determined by the rent payment frequency (e.g., monthly, yearly).
- It is not a fixed-term lease because it continues until one party terminates it through notice.
- A legal periodic lease can arise when the actions of the parties suggest an intention to create a lease. Where the period of the lease is for three years
or less, the lease will be legal if it meets the criteria in s 54(2) LPA 1925 for a parol lease.
How is a legal periodic lease created, and what are the conditions for a valid parol lease?
A legal periodic lease is created when the parties’ actions indicate an intention to create a lease.
For leases of three years or less, a periodic lease will be legal if it meets the conditions of a parol lease under s 54(2) LPA 1925.
These conditions are:
- The lease must be in possession, meaning the tenant must occupy the property immediately.
- The rent must be the best rent reasonably obtainable.
- There must be no fine or premium involved.
- The lease can be created without a deed.
If rent is paid monthly, the lease is a monthly periodic tenancy.
Example:
Katie is the freehold owner of 32 Mabel Grove (‘the Property’). Katie allows Sally into occupation of the Property and Sally pays a rent of £600 per calendar month. Sally has now been in occupation for five years
Has a legal lease been created?
- The lease term is monthly, as rent is paid on a monthly basis.
- Sally has exclusive possession of the property.
- The rent (£600 per month) is considered to be reasonably obtainable, meeting the conditions for a legal lease.
- There is no fine or premium involved.
As the lease is for three years or less, the lease qualifies as a parol lease under s 54(2) LPA 1925, making it a legal monthly periodic tenancy for Sally.
What is the relationship between a landlord and tenant in a lease, and what does a lease represent?
- A lease is essentially a contract that creates an estate in land.
- It represents the agreement between the landlord and tenant, detailing their respective rights and obligations during the lease term.
- The contractual terms within the lease are referred to as covenants.
- Lease covenants are agreed upon through negotiation between the landlord and tenant (or their solicitors).
What information is typically included at the beginning of a lease, and how are terms like ‘Premises’ or ‘Insured Risks’ defined for interpretation?
Most leases begin with the date of the lease, the names of the landlord and tenant, and their addresses.
A well-drafted lease includes an interpretation and definitions section that clarifies specific terms like:
- ‘Premises’
- ‘Insured Risks’
- ‘Common Parts’ of a building.
What are the operative provisions in a lease concerning ‘Demise and Rents,’ and what do they establish?
The operative provisions in a lease typically cover the Demise and Rents sections.
Here, the landlord demises (grants) the lease of the premises to the tenant.
This grant is for a specified term and is made in consideration of:
- Rent paid by the tenant, and
- Covenants entered into by the tenant.
This section establishes the essential obligations and conditions under which the landlord transfers possession rights to the tenant for the lease term.
What matters are typically covered in the ‘Provisos, Agreements and Declarations’ section of a lease?
This section is a miscellaneous part of the lease that covers several important issues, including:
- Forfeiture: The landlord’s right to end the lease early if the tenant breaches it.
- Damage and destruction by insured risks: Clauses explaining what happens if the premises are damaged or destroyed due to an insured risk.
- Exclusion of security of tenure provisions: Clauses regarding the exclusion of security of tenure rights under the Landlord and Tenant Act 1954.
What are ‘Rights Granted’ in a lease, and what might they include?
The ‘Rights Granted’ section outlines specific rights given to the tenant, which are necessary for full use of the premises. These may include:
- Right of way: Access rights to enter the premises.
- Right to park cars in a nearby car park.
Easements for using other parts of the building, such as:
- Access to common parts of the building.
- Use of conducting media (e.g., utilities infrastructure) for essential services.
What are ‘Rights Excepted and Reserved’ in a lease, and why might they be needed?
The ‘Rights Excepted and Reserved’ section allows the landlord to retain certain rights over the tenant’s premises. This is often to facilitate:
- Access for maintenance, repairs, or improvements to other areas of the property.
- Running cables or other utilities through the tenant’s space to service other parts of the building.
What provisions might a lease include regarding ‘Rent Review’ and ‘Service Charge’?
Rent Review: Mechanism for reviewing the rent at regular intervals to adjust it, typically to reflect current market conditions.
Service Charge: A sum charged by the landlord to cover the costs of services provided to tenants in a property, such as maintenance and repair of exteriors and common areas (excluding areas the tenant has agreed to maintain).
What is required for the execution of a lease, and what are the exceptions for short leases?
Both the landlord and tenant, along with any guarantor, must execute the lease according to normal attestation rules.
For a lease to be legal, it must generally be granted by deed under LPA 1925, s 52, unless it qualifies as a short lease (3 years or less) under LPA 1925, s 54(2), in which case it does not need to be granted by deed.
What is a guarantor’s covenant in a lease?
An individual or company guarantor may also be a party to the lease and will covenant to guarantee payments that must be made under the lease and the performance of any other obligations so that if the tenant defaults in payment, the landlord is able to call upon the guarantor.
What are ‘Prescribed Lease Clauses,’ and when must they be included in a lease?
‘Prescribed Lease Clauses’ are specific clauses that must be included at the start of a lease when it is registrable under the Land Registration Act 2002.
These clauses streamline lease registration with the Land Registry and typically cover:
- Date of lease
- Landlord’s title number
- Parties involved
- Term of the lease
- Easements granted and reserved
What are the key covenants typically found in a lease?
Tenant’s covenants:
- Payment of rent
- Contribution towards insurance
- Repair obligations
- Alterations to the property
- Alienation, i.e., subletting or assigning the lease
- Use of premises,
Landlord’s covenants:
- Quiet enjoyment, ensuring tenant’s peaceful possession of the property
- Insurance of the property
What covenants are implied in the absence of an express obligation from the landlord?
Implied covenants on the part of the landlord include:
- Quiet enjoyment (ensuring tenant’s possession is not disturbed)
- Obligations in respect of the fitness of the property, which ensure the property is fit for habitation
What is meant by the covenant of quiet enjoyment in a lease?
The quiet enjoyment covenant means that the tenant’s lawful possession of the land will not be substantially interfered with by the landlord’s actions
It does not require the absence of all noise, but regular excessive noise may be considered substantial interference.
Residential tenants are further protected by the Protection from Eviction Act (PEA) 1977, which prevents landlords from unlawfully depriving tenants of their occupation.
Any acts that interfere with a residential tenant’s peace or comfort and are done with the intention of forcing them to vacate the property are offences under the PEA 1977.
What are the landlord’s obligations in relation to the fitness of the property, and when are they liable?
Under s 11 of the Landlord and Tenant Act 1985, the landlord has specific obligations to maintain the fitness of the property in a dwelling-house:
- To keep the structure and exterior of the dwelling-house in repair.
- To ensure that installations for the supply of water, gas, electricity, and sanitation are in proper working order.
- To keep installations for space heating and water heating in proper working order.
The landlord is only liable for disrepair once the issue has been notified to them.
