WEEK 13

THE LEASEHOLD ESTATE

LEARNING OUTCOMES:

By the end of this lecture and the accompanying seminar, you should be able to:

 understand the essential requirements of leases and the necessary formalities

 be able to explain the different types of lease available

Required Reading

Clarke and Greer, Chapter 5.1-5.5, pp.129-144

Further Reading

Brown, J. and Pawlowski, M., ‘Rethinking Section 54(2) of the Law of Property Act 1925, (2010)
Conveyancer and Property Lawyer 146

Lower, M, ‘The Bruton Tenancy’ (2010) Conveyancer and Property Lawyer 38-56

Pawlowski, M, ‘Meaning of Property in the Leasehold Context’ (2006) 10(3) L. & T. Review 63-
64

THE LEASEHOLD ESTATE

'Under a lease, an owner of land permits another person, a tenant (or lessee), to occupy the
land exclusively for a period which is determined by contract/agreement, in return for a rent'
(P.F. Smith, The Law of Landlord and Tenant, Butterworths, 1997).

The person granting the lease is called the landlord or lessor (the terms are synonymous). The
person accepting the lease is called the tenant or lessee.

The above description already indicates the contractual basis of the lease - an agreement
between lessor and lessee although, as you already know, the grant of a lease also transfers to
the lessee a proprietary interest in land, an estate in land. Hence, we shall be working both
with the rules of contract law and those of property law.

ESSENTIAL REQUIREMENTS OF A LEASE

(i) a term less than that owned by the grantor;

(ii) that the term shall be of certain duration; and

(iii) the tenant shall have exclusive possession.

TERM LESS THAN THAT OWNED BY THE GRANTOR

In the typical case, a freehold owner of land grants to another person (the tenant), by means of
a contract, a shorter estate in that land - a leasehold estate. In the same way, an existing
leaseholder may grant an estate shorter than his existing lease to another party (the sub-
tenant), thereby creating a sublease. In theory, there is no limit to the number of times that a
piece of land may be let and sub-let, but each sub-lease must be shorter than the lease of the
person who granted it.

CERTAIN DURATION

Essentially, for a valid lease to exist, it must be possible to ascertain whether the lease has a
fixed beginning and a fixed ending. However, as we shall note, the courts take a fairly flexible
approach to interpreting these requirements in order to accommodate the various features of
the different types of leases discussed below. However, see:

Prudential Assurance Co v. London Residuary Body [1992] 2 AC 386, affirming

Lace v. Chantler [1944] KB 368

Berrisford v Mexfield Housing Cooperative Ltd [2011] UKSC 52

EXCLUSIVE POSSESSION

A valid lease must grant the tenant possession of the land to the exclusion of everyone else,
including the lessor. Exclusive possession is determined by examining the factual use of the
land by the parties, not just the intentions expressed in the arrangement. Exclusive occupation
of residential land indicates exclusive possession unless special negativing factors are present
e.g. a family relationship or an act of charity. If a person occupying land does not have
exclusive possession, the only right that may exist is some sort of occupational licence – a
personal rather than a property right. The difference between a lease and a licence has been
well litigated over the years, since a residential lease used to give the tenant certain important
statutory rights and protections which were not available to licensees. The distinction is less
important following the creation of assured shorthold tenancies by the Housing Act 1988,
although a tenant still has advantages which a licensee does not have.

Street v. Mountford [1985] AC 809

Antoniades v. Villiers [1990] 1 AC 417

A.G. Securities v. Vaughan [1990] 1 AC 417

Bruton v. London & Quadrant Housing Trust [2000] 1 AC 406

Kay v. Lambeth LBC [2006] UKHL 10 (see Lord Scott of Foscote)

For a couple of recent cases on Street v. Mountford see:

R (on the application of ZH and CN) v London Borough of Newham and others [2014]
UKSC 62.

Watts v. Stewart [2016] EWCA Civ 1267

PAYMENT OF RENT?

This is the consideration paid to the lessor in return for the tenancy. Its presence is a strong
indication of the existence of a lease but its absence does not necessarily mean that there is no
lease. See Ashburn Anstalt v. Arnold [1989] Ch 1 and Vesely v. Levy and others [2007] EWCA
Civ 367

THE CREATION OF A LEASE

Certain leases not exceeding three years

Certain leases of three years or less (described in the next paragraph) can be created informally
– in other words, there is no need for a s.2 written contract (LP(MP)A 1989, s.2(5)(a)) and no
need for a deed (LPA 1925, s.54(2)). There is, however a need for a deed if a short lease is
assigned.

No formalities are required for the creation of leases which do not exceed three years, and
which give an immediate right to the tenant to possession, and are at the best rent which
can reasonably be obtained (the market rent – see Fitzkriston LLP v Panayi and others [2008]
EWCA Civ 283).

Leases of more than 3 years but not exceeding 7 years

Such leases are legal if a deed is executed. They cannot be registered at the Land Registry
since they take effect as overriding interests under LRA 2002, Schedule 1, para 1 and Schedule
3, para 1). If there is a valid s.2 contract but no deed they will take effect in equity only.
Leases exceeding 7 years

These must be created by deed, and substantively registered at the Land Registry. Exactly the
same conveyancing principles apply to these long leases as apply to the transfer of the
freehold.

TYPES OF LEASE

Fixed term lease

This is lease for a fixed period, e.g. one month, one year, 999 years. A fixed term lease ends
automatically (without notice) when the term expires. Alternatively, such a tenancy may be
ended before the expiration of the term by giving notice to terminate (i.e. via a break clause) or
through surrendering the lease with the agreement of the landlord. Since the lease has a
certain maximum duration, it is considered a valid lease even if it can be terminated before its
automatic expiry.

Note a special case: by LPA 1925, s.149 (6), a lease at a rent, 'for life, or for any term of years
determinable with life or on the marriage of the lessee is automatically converted into a term of
90 years' - a fixed term 90-year lease.

Periodic lease

This is a lease for a minimum initial period agreed by the parties, e.g. weekly, monthly, yearly,
but until notice of termination is given, the tenancy will continue from period to period (week by
week, year by year, etc)

Javad v. Mohammed Aqil [1991] 1 WLR 1007

Here the minimum duration is certain but not the total duration (at least, not until either party
gives notice to terminate). Generally, notice of one full period must be given to determine a
periodic lease - except for a yearly lease where notice of six months is sufficient.

Tenancy at will

This arises where a person occupies land with the consent - at the will - of the owner, under a
tenancy of uncertain duration. The tenancy is determinable at any time simply by a demand for
possession. Typically, an implied tenancy at will arises if a tenant holds over rent-free at the end
of a lease with the implied consent of the landlord. The tenant has no security. He has no
estate in the land which may be transferred to a third party, and to this extent the tenancy at will
resembles a personal licence – it cannot really be described as an estate in the land.

Tenancy at sufferance
A tenancy at sufferance arises where a tenant wrongfully holds over on termination of a
previous tenancy (e.g. on expiry of a fixed term tenancy) without consent of the landlord. It is
not an estate in the land.

Tenancy by estoppel

A tenancy by estoppel arises where a person, the ‘landlord’, who owns no proprietary estate in
land himself or herself grants a ‘tenancy’, meeting all the definitional characteristics of a lease
including exclusive possession for a term, because the law will prevent (estop) the ‘landlord’, as
between himself or herself and the tenant, from denying or disputing the validity of his grant of a
lease. It is as if the law treats both landlord and tenant, between themselves, as having
‘imaginary’ but irrefutable estates in land.

SEMINAR QUESTIONS

1. What are the essential characteristics of a lease? If all of these are present, will a lease
always be created?

2. Do you agree with the reasoning and decision in Prudential Assurance Co Ltd v. London
Residuary Body (1992)? How does the Supreme Court’s decision in Berrisford v.
Mexfield Housing Co-operative Ltd (2011) affect that reasoning?

3. Tom agreed to let his factory to Fred for 5 years, with rent to be payable in advance each
month and 6 months’ notice to be given should either party wish to terminate the
agreement. Fred went into possession immediately and started to pay rent

Tom later sold the factory to Harry, who wished to use the factory himself.

Has a valid lease been created in the following situation? What kind of lease has been
created? Is it legal or equitable? Will the lease be enforceable against a purchaser of
the freehold premises?