Leases - requirements for a lease

Question 1

What is the distinction between a lease and a licence?

Answer 1

A lease is a recognized proprietary right in the land, known technically as a ‘term of years absolute’. It grants the temporary right to use and enjoy the land exclusively. On the other hand, a licence confers a personal permission to be on someone’s land and justifies what would otherwise be a trespass.

Question 2

What are the key differences between leases and licences?

Answer 2

Leases are proprietary rights to land and can be enforced against third parties. They confer the right of security of tenure and can sue third parties for nuisance or trespass. Licences, on the other hand, are personal permissions to be on someone’s land and can only be enforced against the grantor. They have no security of tenure and cannot sue third parties for nuisance or trespass.

Question 3

What was the significance of the Street v Mountford case?

Answer 3

In the case of Street v Mountford, the House of Lords held that an agreement described as a licence was, in substance, a tenancy or lease. This case established that the courts would look at the substance of the arrangement rather than the label used by the parties to determine whether it is a lease or a licence.

Question 4

What are the requirements for a lease to exist?

Answer 4

For a lease to exist, there must be certainty of term, exclusive possession, and the correct formalities used to create the lease. Certainty of term means that the tenancy must be granted for a certain duration. If any of these requirements are not present, the arrangement can only be a licence.

Question 5

What factors determine whether an agreement is a lease or a license?

Answer 5

The courts will always look at the substance of an agreement to determine if it is a lease or license. The label given to an agreement by the parties is inconclusive. For there to be a lease, rather than just a license, there must be a certain term, exclusive possession, and compliance with the correct formalities.

Question 6

What are the essential characteristics of a lease?

Answer 6

The essential characteristics of a lease include a certain term, exclusive possession, and compliance with the correct legal formalities. The payment of rent is not required for a lease to exist.

Question 7

What is the significance of determining whether a party occupies under a lease or a licence in a land law context?

Answer 7

The status of the occupier as either a leaseholder or a licensee is important for two main reasons. First, if the occupier is deprived of their right of occupation, a leaseholder has the right to enforce their proprietary right in the land and recover possession, while a licensee would have to settle for damages. Second, a lease can bind third parties, such as new owners of the burdened land, whereas a licence does not have the same binding effect.

Question 8

What are the requirements for a certain term in a lease?

Answer 8

A certain term in a lease can be evidenced by a fixed term or a periodic term. While a fixed term is more common, a periodic tenancy can also establish certainty of term. A periodic tenancy is generally weekly, monthly, quarterly, or yearly, and it automatically renews until a notice to quit is served.

Question 9

What is exclusive possession in the context of a lease?

Answer 9

Exclusive possession means that the right of occupation grants the occupier the right to exclude all others from the premises, including the landlord. It involves examining the level of control the occupier has over the land and the control retained by the grantor. Factors such as the grantor retaining a key or having a high degree of control over the premises may affect exclusive possession.

Question 10

What factors could defeat the existence of a lease?

Answer 10

Even if exclusive possession exists, certain factors can defeat the existence of a lease and classify the arrangement as a licence instead. Factors such as an act of generosity, a service occupancy, or the absence of intention to create legal relations can defeat a lease. It is important to consider the specific circumstances and intentions of the parties involved.

Question 11

What are the formalities required to create a lease?

Answer 11

The relevant formalities for creating a lease depend on the term of the lease. A lease of over 7 years must be granted by deed and registered at the Land Registry. A lease of 7 years or less must also be granted by deed but does not need to be registered. However, there is an exception for leases of 3 years or less that meet certain conditions, where no formalities are required.

Question 12

What are the conditions for a lease of 3 years or less to be exempt from formalities?

Answer 12

For a lease of 3 years or less to be exempt from formalities, it must meet three conditions: 1) The lease takes effect in possession; 2) The lease is granted at a market rent; and 3) There is no upfront premium payable by the tenant. If these conditions are met, the lease does not need to be in writing and no formalities are required to create the legal estate.

Question 13

What is the short lease exception for periodic tenancies?

Answer 13

A periodic tenancy will almost always fall within this short lease exception providing each period is 3 years or less.

Question 14

What is an equitable lease and what are its requirements?

Answer 14

An equitable lease is a form of estate contract that grants the tenant an equitable interest in the land. The requirements for an equitable lease are: the document must be in writing, it must contain all the terms, and it must be signed by both parties.

Question 15

How is the enforceability of a lease affected by its duration?

Answer 15

A lease of over 7 years must be substantively registered at the Land Registry as part of its creation. Such a lease will be enforceable against a third-party purchaser of the burdened land. A legal lease of 7 years or less does not need registering as part of its creation and will be an overriding interest, binding on a new owner of the burdened land. An equitable lease should be protected by the entry of a notice on the charges register of the burdened land or it will not bind a purchaser for value. If not protected in this way, the equitable lease may be binding on a purchaser for value as an overriding interest if the tenant is in actual occupation of the land.

Question 16

How can an equitable lease be protected to bind a purchaser for value?

Answer 16

An equitable lease should be protected by the entry of a notice on the charges register of the burdened land. If not protected in this way, the equitable lease may still be binding on a purchaser for value if the tenant is in actual occupation of the land.

Question 17

What is the impact of a tenant’s actual occupation on the enforceability of an equitable lease?

Answer 17

If the tenant is in actual occupation of the land, an equitable lease may be binding on a purchaser for value as an overriding interest, even if it is not protected by a notice on the charges register of the burdened land.

Question 18

What does certainty of term mean?

Answer 18

Certainty of term means that the tenancy must be granted for a certain duration.

Question 19

How can a certainty of term be shown?

Answer 19

‘Certainty of term’ can be shown in two ways; by either a fixed orperiodic term.

Question 20

When does a fixed term exist?

Answer 20

A ‘fixed term’ exists where the maximum duration of the arrangement is known from the outset.

Question 21

What is a periodic tenancy?

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.

A periodic term may be created expresslyor Impliedly.

Question 22

What is an express periodic tenancy?

Answer 22

An express periodic tenancy is where there is a written agreement documenting the agreement.

Question 23

What is an implied periodic tenancy?

Answer 23

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

What does exclusive possession mean?

Answer 24

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

Question 25

How is exclusive possession assessed?

Answer 25

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 26

What scenarios indicate the occupier does not have exclusive possession?

Answer 26

(1) The landlord retains a key, (2) the landlord provides services; and (3) there is a sharing clause.

Question 27

How can a landlord retaining the key indicate the occupier does not have exclusive possession?

Answer 27

it is the purpose for which the key is retained that matters

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.
In Aslan v Murphy [1990] 1 WLR 766 the court held ‘there is no magic in the retention of a key’ ….. it will not determine the nature of arrangement either way.

Question 28

How can a landlord providing services indicate the occupier does not have exclusive possession?

Answer 28

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.
The occupier is simply a lodger provided the services are actually carried out and a lodger will never enjoy exclusive possession of the premises.

Question 29

How do sharing clauses indicate the occupier does not have exclusive possession?

Answer 29

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 30

What should be considered when determining if a sharing clause is genuine or a sham?

Answer 30

The size and nature of the accommodation – would it be realistic to introduce others into the accommodation given its size?
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?
The wording of the clause (i.e. how widely it is drafted, as the wider it is drafted, the more likely it is a sham clause.)
Whether the clause has ever been exercised – if it has not been exercised then this may indicate it is a sham clause.

Question 31

What must a business tenant show for them to have a lease?

Answer 31

A business tenant must also show it has a certain term andexclusive 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 theLandlord 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.

Question 32

What does a right to relocate in business tenancies suggest?

Answer 32

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.

Question 33

What is a joint tenancy?

Answer 33

Where there is a joint tenancy all co-owners/tenant 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.

Question 34

What the the four unities joint tenants must have?

Answer 34

unity of possession; unity of interest; unity of time; and unity of title

Question 35

What is unity of possession?

Answer 35

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 36

What is unity of interest?

Answer 36

All occupiers must have a leasehold interest for the same term under the same conditions and must be jointly liable for the rent.
Key word or definition: 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 37

What is unity of time?

Answer 37

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

Question 38

What is unity of title?

Answer 38

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

Question 39

What happens if the 4 unities are not present?

Answer 39

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 40

What factors may defeat a lease?

Answer 40

These are:
- where there is no intention to create legal relations; and
- where there is a service occupancy.

Question 41

In what circumstances can it be assumed that there is no intention to create legal relations?

Answer 41

afamily 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 rent is paid then this would evidence an intention to create legal relations

Question 42

What is service occupancy?

Answer 42

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.

Question 43

What formalities are required to make a lease?

Answer 43

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.
Leases over 7 years:
If the term of the lease is over 7 years, the lease must also be with 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 of 7 years or less:
If the term of the lease is 7 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).

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:
The lease takes effect in possession (ie the tenant takes the lease immediately).The lease is granted at ‘best rent’ (which has been interpreted as meaning ‘market rent’).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 called 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 44

What the requirements for an equitable lease?

Answer 44

There is a document that complies with LP(MP)A 1989, s 2
AND
The remedy of specific performance is available

The tenant will have an equitable lease (an estate contract) if the agreement is:
* In writing
* Contains all the terms
* Signed by both the parties

Question 45

An occupier entered into a four year agreement by deed with the owner of a registered freehold building to rent a first floor flat. The agreement contains a clause in which the owner of the registered freehold agrees to clean the flat once every two days. The occupier moved into the premises 2 years ago and the freehold owner has not cleaned the premises once.

Which of the following statements best describes whether the occupier has a lease or licence?

A The occupier has a lease because the agreement was created by deed

B The occupier has a licence because the cleaning clause defeats exclusive possession

C The occupier has a lease because the cleaning clause is a sham clause

D The occupier has a licence because there is no certain term

E The occupier has a licence because the deed has not been substantively registered

Answer 45

C

Sham clauses are those which owners of land may insert into a lease to make it look like a licence (defeating the requirement of exclusive possession) and to deny the occupier certain statutory rights which attach to a lease. The cleaning clause, if genuine, would defeat exclusive possession as it means the tenant is not able to exclude the landlord from the premises ‘once every 2 days’. Whether the cleaning clause is a sham or not depends on whether it is being exercised by the owner of the registered freehold, amongst other factors.
On the facts, the cleaning clause hasn’t been exercised once in 2 years. The court would therefore ignore the clause. On the facts there is a certain term and nothing else to suggest the occupier doesn’t have exclusive possession. The agreement has been created by deed, which are the correct formalities for a 4 year lease. The occupier would therefore have a lease.

Question 46

A freehold owner of an indoor market gives a jewellery maker a written “licence” to sell jewellery in a space in the market on weekdays from 9am to 5pm, for a weekly payment. There is no fixed term. The terms of the “licence” give the freeholder the right to choose the space each week, and also impose detailed restrictions on what the jewellery maker can sell and the layout and use of the space. The freeholder usually gives the jewellery maker the same weekly space, but on two occasions has moved them to another space.

Which of the following options best describes whether the jewellery maker(the occupier)is a tenant or licensee?

A The occupier is a tenant because the relocation clause would be thrown out by the court as a sham

B The occupier is a licensee because the agreement is called a “licence”

C The occupier is a licensee because there is no fixed term

D The occupier is a licensee because it does not have exclusive possession

E The occupier is a tenant because it is a business context, not a residential context

Answer 46

D

Caselaw shows that a moving/relocation clause, and control by the landlord, are likely to preclude exclusive possession in a business context, so the best answer is that they are likely to have a licence and be a licensee.
The other options are incorrect. It is not correct to advise that it is a licence just because it’s called a licence, or to advise that they are likely to have a lease just because it’s a business context. The lack of a fixed term does not make it a licence, because it could still be an implied periodic tenancy due to the weekly payment. There are no facts given that show the court will ignore the terms as a sham, the reality is that the relocation clause is exercised.

Question 47

The freehold owner of a block of flats orally allows a person to occupy one of the flats at the market rent of £800 per month. The freehold owner orally reserves the right to enter the flat once a month to carry out any repairs that are needed. Nothing is put in writing and no fixed term is agreed.

Which of the following options best describes what type of lease (if any) the occupier has?

A The occupier only has a licence because the freehold owner’s right of entry will defeat exclusive possession

B The occupier only has a licence because of the lack of formalities

C The occupier only has a licence because there is no certainty of term

D The occupier has an equitable periodic tenancy

E The occupier has a legal periodic tenancy

Answer 47

E

A monthly periodic tenancy will be implied by the common law from the monthly rent and the LPA 1925 s.54 (2) short lease exception applies, which means no formalities are required to create the lease.
The other options are incorrect. A monthly periodic tenancy is implied by the common law, not equity, and doesn’t need formalities (if market rent) or a fixed term. The limited /restricted reservation of access indicates exclusive possession, and therefore a lease.

Question 48

An owner of a registered freehold house comprising a living space, kitchen, bathroom and bedroom, enters into two separate agreements with two occupiers which purport to grant them a two year licence of the house.

In which of the following scenarios are the occupiers most likely to have entered into a joint lease agreement with the owner of the registered freehold?

A The occupiers pay different licence fees and their agreements started on different days.

B The occupiers pay the same licence fee and their agreements started on the same day.

C The owner and the occupiers are employer and employees respectively and the occupiers are required to live in the house to perform their employment roles.

D The owner has a right of access to provide cleaning services to the occupiers every other day.

E The owner and occupiers are related and they pay licence fees which are significantly lower than the current market rate.

Answer 48

B

On these facts, the occupiers appear to have the four unities (possession, interest, title and time) as required by AG Securities v Vaughan (1990). On the facts, the separate licence agreements are likely to be read interdependently as per Antoniades v Villiers (1990). If the agreements are exactly the same, placing each occupier under the same terms, they will be considered to be ‘artificially separate’ as per Antoniades and this will not defeat the 4 unities from being present. The occupiers would be joint tenants of the property pursuant to a lease.
If the occupier are employer and employee and the occupiers are required to live in the house to perfrom their employment duties, this would defeat a lease as it would be a service occupanies.

Question 49

Two years ago on June 7th, a landlord purported to grant a five-year lease of a house to a man and woman by deed. The rent had been advertised at £1,000 per month. The man and woman signed identical documents on the same day, each stating that the rent was £1,000 per month, although the man signed at 11am and the woman at 2pm on 6th June.

Which of the following option best describe if this is a joint lease or not?

A This is not a joint lease because the man and woman do not have unity of interest

B This is not a joint lease because the man and woman do not have unity of time

C This is a joint lease because the man and woman have the four unities

D This is not a joint lease because man and woman do not have unity of possession

E This is not a joint lease because the man and woman do not have unity of title

Answer 49

C

There is no indication that the man and woman do not have unity of possession. They have unity of interest as they both have a five year lease on the same terms with a joint obligation to pay £1000 rent; they have unity of title as they sign identical documents and they have unity of time as the interest of both started on June 7th. It is irrelevant that they signed the documents at different times.
On the facts the the separate licence documents are likely to be read interdependently as per Antoniades v Villiers (1990).

Question 50

A freehold owner of a shop grants a lease of the shop to a company. The document granting the lease is headed “deed”, signed by the freehold owner and the company, witnessed and dated. The duration of the lease is specified as “until the freeholder requires the shop for redevelopment.” The rent is specified as £100,000 per annum, payable in monthly instalments. The company goes into possession and pays the rent every month.

Which of the following options best describes what type of lease (if any) the company has?

A The company have a monthly periodic tenancy

b The company has a fixed term lease

C The company has an annual periodic tenancy

E The company do not have a valid lease

F The company has an equitable lease

Answer 50

C

The fixed term is void for uncertainty, but because they go into possession and pay rent calculated on an annual basis, they have an implied annual periodic tenancy. The other options are incorrect. The periods (term) of an implied periodic tenancy depend on how the rent is calculated, not how it’s paid. The fixed term is void for uncertainty, so it cannot create a valid legal or equitable fixed term lease.