Essential Requirements of a Lease

Question 1

What is a licence?

Answer 1

A licence is a personal right to be on someone’s land which justifies what otherwise would be trespass

Question 2

What are the key differences between a lease and a licence?

Answer 2

• lease is a proprietary right, licence just personal
• lease can be enforced against third parties, licence only against the grantor
• tenant sue third parties under lease for nuisance or trespass, whereas a licensee cannot
• a lease can confer the right of security of tenure, where a licence cannot
• a lease is enforceable in rem whereas a licence is not
• tenants under leases receive various statutory protections, whereas no statutory protection for licensees

Question 3

What are the essential terms requirements for a lease to exist?

Answer 3

• certainty of term
• exclusive possession
• correct formalities have been used to create a lease

Question 4

Is rent an essential term for a lease?

Answer 4

No

Question 5

What happens if the characteristics of a lease are not present?

Answer 5

Then agreement can only be a licence

Question 6

What is certainty of term?

Answer 6

Means that the tenancy must be granted for a certain duration ie you must know when the arrangement will end

Question 7

How can certainty of term be shown?

Answer 7

By showing there is either a

• fixed term
• periodic term

Question 8

When does a fixed term exist?

Answer 8

When the maximum duration of the arrangement is known from the outset

Question 9

What is the effect of there being a fixed term lease?

Answer 9

Neither party can unilaterally bring the lease to an end unless there is a break clause enabling them to do so

Question 10

What is a periodic lease?

Answer 10

A lease for a period that will continually renew until either the landlord or tenant give notice to terminate the tenancy

Question 11

When will there be an express periodic tenancy?

Answer 11

Where there is a written agreement documenting the agreement

Question 12

When will there be an implied periodic tenancy?

Answer 12

Where there is nothing set out in writing but the certain term arises by looking objectively at all the relevant circumstances including payment and acceptance of rent on a periodic basis

Question 13

How is the periodic term to be calculated?

Answer 13

Will be calculated by reference to way the rent is calculated

eg if rent is due monthly then monthly periodic tenancy. If rent is £10,000 a year but paid quarterly then annual periodic tenancy because rent is calculated annually

Question 14

What is exclusive possession?

Answer 14

The right to exclude all others from the property, including the landlord

Question 15

How is exclusive possession to be assessed?

Answer 15

• question of fact
• courts will assess the substance to the agreement and reality of the situation

Question 16

What effect will a clause that appears to defeat exclusive possession but has been in inserted into a lease only to make what would otherwise be a lease be a licence?

Answer 16

It will have no effect

Courts will deem it be a sham clause and ignore it

Question 17

What factors are relevant to deciding whether or not there is a sham clause?

Answer 17

• if the landlord retains a key and has a right of access
• the landlord provides services
• there is a sharing clause
• the landlord retains a right to relocate the tenant

Question 18

What is relevant in relation to the landlord retaining a key and exclusive possession?

Answer 18

• purpose of retention that matters
• if the key is used only in an emergency, by arrangement then exclusive possession may still exist
• if key is used to carry out repairs - would be seen to acknowledge tenant’s exclusive possession
• need to look at whether landlord’s access is restricted or unrestricted

Question 19

What is the effect of the landlord providing services?

Answer 19

Services such as cleaning, changing line etc will mean there will be a licence and not a lease

Question 20

What will the effect of sharing clauses be on whether there is exclusive possession?

Answer 20

If the landlord reserves the right to share the property with the occupiers or reserves the right to introduce others to the property, then there will be no exclusive possession unless than clause is a sham

Question 21

What is relevant to assessing whether a sharing clause is sham clause or not?

Answer 21

• the size and nature of the accommodation - would it be realistic to introduce others to the accommodation given its size
• the relationship between the occupiers - would it be appropriate t introduce more people to the relationship
• the wording of the clause - how widely is it draft (more wide = more likely to be a sham)
• whether the sham clause has ever been exercised

Question 22

What will the effect of the landlord reserving the right to relocate the tenant to alternative premises have on whether there is exclusive possession?

Answer 22

Will mean it is a licence not a lease unless clause is a sham

Question 23

How will the courts interpret exclusive possession in relation to business tenancies?

Answer 23

• court will look at the document as a whole to see if landlord retains control of the property - high degree of physical control will mean no lease
• more weight given to the label given to document ie else or licence as tends to be more equality in bargaining power

Question 24

What is the issue with multiple occupiers and leases?

Answer 24

Question as to whether they have one joint lease or whether they have individual leases

Question 25

When will multiple occupiers have a joint tenancy?

Answer 25

Where there are the four unities:

• unity of possession
• unity of interest
• unity of time
• unity of title

Question 26

What is unity of possession in a lease context?

Answer 26

They must all be entitled to occupy the whole of the premises - no-one has

Question 27

What is unity of interest in a lease context?

Answer 27

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

Not necessary that the interest comes from the one document

Question 28

What is unity of time in a lease context?

Answer 28

All occupiers’ interests must start at the same time

Question 29

What is unity of title in a lease context?

Answer 29

All the occupiers interests must derive from the same document or from separate but identical documents which are interdependent

Question 30

What happens if the four unities of title are not present?

Answer 30

No joint tenancy.

May be each occupier has an individual tenancy if not then individual licences sharing with each other

Question 31

What are the two main situations that will defeat a lease?

Answer 31

Where there is no intention to create legal relations

Where there is service occupancy

Question 32

When will there be an presumption that there is no intention to create legal relations by way of a lease?

Answer 32

Rebuttable presumption in family arrangements, acts of friendship or generosity

Question 33

How the presumption that there is no intention to create legal relations in a family, friend or generosity concept be rebutted?

Answer 33

• can be rebutted by degree of formality
• where market rent is paid

Question 34

When will a service occupancy defeat an arrangement that would otherwise be a lease?

Answer 34

Where the occupancy only arises where there an employee/employer relationship between the landlord and occupier and the occupier only lives there for the better performance of his duties as an employee

Will not defeat lease if it is just a perk of the job

Question 35

What formalities are required to create a legal lease over seven years?

Answer 35

• there must be a deed
• deed must be signed by grantor
• deed must be delivered ie dated
• deed must be registered

Question 36

What formalities are required to create a legal lease for seven years or less?

Answer 36

• there must be a deed
• deed must be signed by grantor
• deed must be delivered ie dated
• no need for registration (will be binding as overriding interest)

Question 37

What is the short lease exception in relation to formalities?

Answer 37

A lease of three years or less need not be created by deed provided that:

• the lease take effect in possession (ie the tenant takes the leases immediately)
• the lease is granted a best rent ie market rent
• the lease is not subject to a fine or premium (no upfront payment for lease)
• no need for registration

Question 38

What kind of leases are likely to fall within ambit of short lease exception?

Answer 38

• short fixed term lease for maximum term of three years or less
• express periodic tenancies (where each individual period is for three years or less)
• implied periodic tenancies (where each individual period is for three years or less)

Question 39

When will there be an equitable lease?

Answer 39

• the parties create one deliberately
• the parties choose to enter into a contract for lease
• the parties tried to create a legal lease but failed by either not creating a valid deed or not registering

Question 40

What formalities are required for creating an equitable lease?

Answer 40

• must be in writing
• must contain all the terms
• must be signed by both parties

Question 41

If there is a conflict between whether it is a lease under common law or equity what will prevail?

Answer 41

Equity will prevail