Tenancy at will vs licence vs short lease vs long lease with break clause

Question 1

what is a tenancy at will vs licence?

Answer 1

• tenancy at will = personal permission given by the landowner for the tenant at will to occupy the premises, can be brought to an end by either party at any time by giving notice
• licence = personal permission given by the landowner for the licensee to use the land, licence may involve some negotiation, and will usually be for a fixed duration

Question 2

advantages (3) and disadvantages (3) of a tenancy at will for a tenant at will

Answer 2

advantages

1. process of setting up is cheaper and faster than a lease as less negotiation is involved
2. avoids onerous obligations of a tenant including repair and maintenance, contributing to insurance and service charge payments
3. can terminate at any time so has flexibility in deciding if the premises is suitable for business in the long term and does not commit to remain (if suitable, can later enter into negotiations for a lease)

disadvantages

1. no certainty as landowner may terminate at any time - bad if T finds the premises suitable and establishes a business premises
2. no SOT
3. personal agreement so if landowner sells land, the successor in title will not be bound by the agreement

Question 3

advantages (2) and disadvantages (2) of a tenancy at will for a landowner

Answer 3

advantages

1. flexible and can terminate if it finds T unsuitable or receives an alternative offer at more favourable terms
2. no SOT

disadvantages

1. no certainty or guaranteed rental income because T can terminate at any time
2. careful in drafting because tenancy at will may become a periodic tenancy which will have SOT
3. L will have to pay for insuring and maintaining the premises used by T

Question 4

advantages (4) and disadvantages (4) of a short term lease of 6 months or less for tenant

Answer 4

advantages

1. compared to tenancy at will, T will have certainty of knowing it cannot be forced to vacate before expiry of term
2. short term allows tenant to test premises out and see if it is suitable - if it is then T can negotiate a longer lease and L may be inclined to keep T instead of going through the onerous process of finding a new tenant
3. SDLT less on short leases
4. L will have little control over premises unlike tenancy at will / licence subject to what L is allowed to do under the lease

disadvantages

1. process of negotiating is more onerous - time and cost may be disproportionate to the short term
2. T must contribute to service charge payments to maintain common parts and the insurance rent in addition to the principal rent
3. T has more onerous obligations of repair and maintenance
4. no guarantee that L will be willing to negotiate a longer lease after short term expires
5. no SOT

Question 5

advantages (3) and disadvantages (1) of a short term lease of 6 months or less for landlord

Answer 5

advantages

1. certainty of fixed term - guaranteed rental income
2. no SOT - T cannot stay beyond the term
3. T must contribute to insurance of property and service charge

disadvantages

1. cost and time to negotiate lease may not be worth the short term - esp if there is another T willing to occupy for a longer term

Question 6

advantages (4) and disadvantages (3) of a long lease with break clause for tenant

Answer 6

advantages

1. break clause desirable as it gives flexibility to terminate the lease earlier depending on if T finds premises desirable or to react to business needs (small or new company and profits not certain so ability to pay rent is uncertain).
2. if premises is desirable, T can simply carry out the fixed term without exercising the break clause
3. SOT applies (but L would usually contract out). T can offer to contract out as a negotiation strategy.
4. good compromise - shows L a level of commitment of the long fixed term while retaining ability of T to terminate early

disadvantages

1. complying with terms of break clause can be onerous and easily forgotten (break penalty, no tenant breaches, up to date rent, reinstate premises)
2. more SDLT payable on longer lease even if there is a break clause
3. L will likely insist on a landlord break as will giving it the right to terminate

Question 7

advantages (4) and disadvantages (2) of a long lease with break clause for landlord

Answer 7

advantages

1. break clause gives flexibility to get rid of undesirable tenant or if L has alternative plans for the premises
2. break clause helps attract prospective tenants esp in a tenant’s market
3. offering break clause can be a sign of compromise where in reality T may decide not to exercise it esp if it established a business presence
4. even though drafting and negotiating a lease will take longer and is more costly, this is proportionate to the length of the term

disadvantages

1. longer term may attract SOT but L may contract out
2. break clause disadvantageous if L wants certainty of knowing Ts are locked in

Question 8

essential characteristics of a lease? (3)

Answer 8

1. certainty of term (cannot be for an uncertain term)
2. exclusive possession
3. formalities

Question 9

lease (4) vs licence (7)

Answer 9

lease

1. has 3 essential characteristics
2. may have SOT
3. can be enforced against subsequent owners and third parties
4. deed harder and longer and more expensive to draft and negotiate

licence

1. personal permission to be on land
2. can only be enforced against the licensor via damages
3. not proprietary interest = cannot be enforced against subsequent owners or third parties
4. licensee has no control over the land (will not be able to carry out alterations)
5. licensor can relocate licensee
6. no SOT
7. licence agreement simpler to draft and negotiate

Question 10

what factors defeat the creation of a lease? (2)

Answer 10

1. no intention to create legal relations = if lease is between family or friends, this is presumed, but presumption can be rebutted if there is a degree of formality and/or market rent is being paid
2. service occupancy = employee occupies employer’s premises for the better performance of their employment duties

Question 11

what is exclusive possession?

Answer 11

• the right to exclude all others from the property including the landlord
• look at all the circumstances - label not conclusive
• if landlord retains key - not conclusive to defeating exclusive possession
• purpose the landlord retains the key is what matters = if to carry out repairs this indicates EP, if access is unrestricted this indicates no EP
• L provides services that L actually carries out - no EP (if not carried out then clause may be a sham)
• genuine sharing clause = no EP if proportionate to size and nature of property, relationship between occupiers, and has actually been exercised (otherwise may be sham so EP)
• business tenancies = label more conclusive - what matters is who retains ultimate control e.g., to alter premises or relocate

Question 12

what are the formalities to create periodic tenancies?

Answer 12

• none - can be written or oral, no registration
• can be express or implied if T pays regular rent

Question 13

what are equitable leases?

Answer 13

• estate contract for a lease = in writing, signed by all parties, contains all terms
• equitable leases where parties try to create a legal lease but fail e.g., not registered or deed not valid = in writing, signed by all parties, contains all terms + remedy of specific performance must be available

Question 14

if the L and T entered into a lease with a term of 5 years but a witness failed to attest L’s signature, but T moved in and pays rent every month, what type of lease is this?

Answer 14

• can either be an equitable lease of 5 years or a monthly implied periodic tenancy
• but equity prevails so it is an equitable lease of 5 years (L cannot serve notice to quit)