Chapter 8: Essential requirements of a lease Flashcards
- Introduction to leases
1.1 Leases: context
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.
Lease
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.
1.2 Licence
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.
The key differences between leases and licences are as follows:
Lease: Proprietary right in the land
Licence: Personal permission to be on someone’s land
The key differences between leases and licences are as follows:
Lease: Is capable of being enforced against third parties
Licence: Can only be enforced against the grantor
The key differences between leases and licences are as follows:
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
The key differences between leases and licences are as follows:
Lease: A lease can confer the right of security of tenure
Licence: No security of tenure
The key differences between leases and licences are as follows:
Lease: Enforceable in rem
Licence: Enforceable in personam
The key differences between leases and licences are as follows:
Lease: Tenants under leases receive various statutory protection
Licence: No statutory protection for licensees
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
1.3 Is the agreement a lease or licence?
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.
Key case: Street v Mountford [1985] AC 809
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
Lord Templeman
[…] 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.
Lord Templeman
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.
For a lease to exist, rather than a licence, there needs to be:
- Certainty of term
- Exclusive Possessions
- The correct formalities used to create a lease
1.4 Summary
- 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.
- Certainty of term
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.
2.1 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.
Example: Fixed term
A landlord and tenant enter into a lease for a term of five years.
2.2 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.
Example: Periodic term
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.
2.2.1 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.
2.2.1 Express and implied periodic tenancies
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
Example: Implied periodic tenancy
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.
Key case: Prudential Assurance Co Ltd v London Residuary Body [1992] 2 A.C. 386
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.
Key case: Prudential Assurance Co Ltd v London Residuary Body [1992] 2 A.C. 386 Judgement
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.
2.3 Summary
- 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.
2.3 Summary
- 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).
3 Exclusive possession
Exclusive possession: Exclusive possession means the right to exclude all others from the
property, including the landlord.
3.1 Exclusive possession: context
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.
3.1 Exclusive possession: context
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.
Assured Shorthold Tenancies (ASTs)
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.
3.2 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.
Scenarios that indicate that an occupier does not have exclusive possession
(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.
Assessment focus point
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.
3.2.1 Retention of a key by the landlord and rights of access
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.
3.2.1 Retention of a key by the landlord and rights of access
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.
3.2.2 Landlord provides services
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.
3.2.3 Sharing clauses
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
Key case: A G Securities v Vaughan [1990] 1 AC 417t
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.
Key case: A G Securities v Vaughan [1990] 1 AC 417t
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.
Key case: Antoniades v Villiers [1990] 1 AC 417t
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.
Key case: Antoniades v Villiers [1990] 1 AC 417t Judgement
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
Lord Oliver, in Antoniades, commented:
[…] 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.
Following circumstances should be considered when determining if a sharing clause is genuine or a sham:
(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.
3.2.4 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.
Assessment focus point
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?
3.3 Business tenancies
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.
In the business context
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.
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.
3.4 Summary
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.
3.4 Summary
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
3.4 Summary
- 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.
4 Multiple occupancy of a lease
4.1 The legal issue with multiple occupiers
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.
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.
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
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.
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)
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.
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)
[…] 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
4.3 Summary
- 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).
- Factors that defeat a lease
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
5.1 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.
5.1 Intention to create legal relations
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. Examples include a caretaker’s flat, gamekeeper’s cottage and domestic staff accommodation.
Two cases illustrate this key principle:
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.
Assessment focus point
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.
5.3 Summary
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.
- Formalities to create a lease
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
6.1 Legal leases
The formalities required to create a legal lease will depend on the length of the term of the lease.
6.1.1 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)).
6.1.3 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).
6.1.4 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.
6.1.4 The short lease exception
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).
Parol 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.
6.2 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.
Example: Leases that fall within the short lease exception
- 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.
6.3 Equitable leases
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.
Key case: Walsh v Lonsdale (1882)
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.
Key case: Walsh v Lonsdale (1882)
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.
6.4 Summary
- 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.
6.4 Summary
- 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.
