18.4 Leases and Licences

18.4 Leases, Licences and Leasehold Covenants

Quick Answer: A lease is a legal estate if it gives exclusive possession for a term certain (Street v Mountford). A licence does not. Once there is a lease, privity of contract and privity of estate (old tenancies) or the Landlord and Tenant (Covenants) Act 1995 (new tenancies) decide who can sue and be sued on the covenants. Alienation is controlled by the covenant and by LTA 1927 and LTA 1988. Breach can lead to debt claims, CRAR (commercial rent), or forfeiture. A lease also ends by expiry, notice, surrender, merger, break or disclaimer.

This independent OpenExamPrep section is FLK2 Land Law. Independent OpenExamPrep Property Law and Practice materials cover the conveyancing machinery of grants, assignments, licences to assign and completion formalities. Use those materials for the file steps. Use this section for the proprietary characterisation, the running of covenants, and the ways a lease ends.

The landlord and tenant relationship

A lease carves a term of years absolute out of a superior estate (LPA 1925 s.1(1)(b)). For the term, the tenant holds the land as owner of that estate; the landlord holds the reversion. The relationship is both proprietary and contractual. The lease instrument (or the short legal parol tenancy) is the contract. The estate is the property right that can bind purchasers of the reversion and, depending on the rules below, assignees of the term.

That dual character is why SQE questions move people: a new landlord buys the reversion; the tenant assigns; a guarantor is asked to pay. Characterise the right first (lease or licence), then identify the estate (legal or equitable), then apply the correct covenant regime (old or new tenancy), then pick the remedy.

Essential characteristics: lease or licence

Street v Mountford [1985] AC 809 is the test. If the occupier has exclusive possession for a term certain, the arrangement is a lease, even if the document is headed 'licence' and even if the parties protest that they do not intend to create a tenancy. Rent is usual, because it is the landlord's return, but it is not essential (Ashburn Anstalt v Arnold [1989] Ch 1). Exclusive possession means the occupier can exclude the world, including the landlord, from the premises, subject only to limited rights of entry (inspection, repair) that are consistent with a tenancy.

The courts look through sham clauses. Antoniades v Villiers [1990] 1 AC 417 treated two identical 'licences' over a small flat, with a pretended landlord right to insert extra occupiers, as a joint lease. Genuine sharing of a large house under independent agreements can remain a licence (AG Securities v Vaughan [1990] 1 AC 417). A pretence of daily hotel-style services, or a retained key used as a device rather than for real attendance, does not save a licence label (Aslan v Murphy [1990] 1 WLR 766). There is no exclusive possession where the occupier is a lodger, a service occupier whose occupation is required for the job, or a hostel resident whose room can be changed and who does not have a defined space to the exclusion of the provider (Westminster City Council v Clarke [1992] 2 AC 288).

Term certain. A fixed term of years is certain. A periodic tenancy is certain in the sense that it continues from period to period until notice. An arrangement 'for the duration of the war' or 'until the landlord needs the land' fails as a lease for uncertainty of term unless statute or construction saves it. A periodic tenancy can be inferred from payment and acceptance of a regular rent.

Bruton v London & Quadrant Housing Trust [2000] 1 AC 406 is the special case: a contractual 'lease' as between occupier and grantor can exist even if the grantor has no estate (the housing trust was itself a licensee). That Bruton tenancy does not create a legal estate capable of binding the site owner. For most SQE problems the landlord does have an estate, and Street produces a proprietary lease.

Formality. A legal lease for more than three years must be created by deed (s.52 LPA 1925). Section 54(2) saves a legal parol lease that takes effect in possession, is for not more than three years, and is at the best rent reasonably obtainable without a fine. A contract to grant a lease, complying with section 2 LP(MP)A 1989, can be an equitable lease (Walsh v Lonsdale (1882) 21 Ch D 9): equity treats as done that which ought to be done. On registered land, a legal lease for more than seven years is a registrable disposition; shorter legal leases can override. Equitable leases need a notice (or, on first registration, may be obvious from occupation).