Nailah Robinson

Real Property II Tutorial 2: Licences and Leases

Introduction
Why do we study this topic? Tenants may have certain rights which non-tenants (mere licensees) do not. This is especially the case in countries such as England where there are rent-protection Acts. For example, tenants may be entitled to certain periods of notice, or to reduced rent. As you will see, many of the cases involve tenants wanting to take advantage of the Acts, and landlords who do not want them to.

Parties may make any bargain between themselves, and the Court is unlikely to interfere with the terms, especially where the parties are commercial entities of equal negotiating power. However, the Court is also careful to ensure that there are no fraudulent attempts to evade the law.

Definition of a Lease

A lease is a grant of a legal estate for a term of years. It is more than simply a contract which only gives rights in personam (against the other party). A lease gives rights in rem (against the whole world). In other words, a lease is essentially the same as a freehold estate but bound by time. However the basic rules of contract still apply and a lease (in exceptional circumstances) may be frustrated or set aside for fraud, etc.

A lease is binding on the landlord’s successors in title. Even if the property is sold, the tenant can enforce the lease against the new owner. This is not the case with licences. When the property is sold, the licensee cannot enforce the licence against the new owner, even against an owner who had notice of the licence. (You may see problem questions where a person had a licence to sell popcorn in a theatre lobby where the theatre was subsequently sold.) The licensee’s only option is to sue the original licensor for breach of contract.

The Criteria for a Lease

The traditional and modern test is whether the occupier has exclusive possession, ie, a right to exclude all others.

Unfortunately, the law was in a state of uncertainty for some years, as Lord Denning, in Errington v Errington, introduced a new “intention” test, in which the Court examined all the circumstances to see whether the parties intended the occupier to have a ‘stake’ (property right), or mere personal right. The law became difficult to administer. It was during these years that the Trinidadian case Isaacs v Hotel de Paris was decided.

Thankfully, the House of Lords returned to the “exclusive possession” test in Street v Mountford. No matter what label the parties assign to their contract (eg, licence), where there is exclusive possession for a fixed term, the relationship is a lease. Lord Templeman noted: A five-pronged implement for digging is a fork, even if the manufacturer wishes to call it a spade.

Exclusive possession is different from mere occupation. In the former, the tenant is entitled to lock out the world, including the landlord. There is no exclusive possession where the landlord provides attendance or services (hotel, boarding house, hostel) or retains control of the premises (homeless shelter, dormitory). If the landlord is entitled to bring in other persons to reside in the premises as shared accommodation, then the occupier does not have exclusive possession.

The Court must check for sham conditions such as the case where the landlord made the occupier vacate the premises every day between 10:30 am and noon, and the case where the landlord tried to say that he retained the right to move a stranger into the second bedroom – a room which was only 51 cm wide.

Exceptions

An occupant is not considered to have exclusive possession where:

1. The landlord provides services which require unrestricted access to the premises.

2. The occupant and others have shared accommodation other than as joint tenants (with unity of interest, title, time and possession)

3. The nature of the accommodation is such that the landlord must retain control over it.

There are three circumstances where an exclusive possessor is not a tenant.

1. Where there is no intention to create legal relations, eg, an act of kindness. Note that family arrangements may or may not fall into this category. Depending on the circumstances, a family member may have a valid lease.

2. Where the occupation is referable to another legal relationship, eg, a service tenancy (such as where a housekeeper lives on the job) or a purchaser in possession

3. Where the owner of the land had no power to grant a tenancy.

Formalities for creation

In most jurisdictions, leases for more than 3 years must be created by deed. Leases for 3 years or less may be created by simple writing or orally. (See, e.g. Belize, Cap. 153, s.7, Guyana, Cap. 61:01, s.6). In others, e.g. Trinidad and Tobago, Cap.27, No.16, s.3, leases for 3 years or less may be made by deed or writing, leases for more than 3 years, by deed. In Barbados, Cap.230, s.149, leases for more than 1 year must be made in writing, leases for 1 year or less may be made orally.

Where the parties fail to comply with the requirement, the Court must determine what rights are enforceable. In the common law, a written lease which does not comply with the requirements is treated as a periodic lease where the period is calculated according to the way in which the tenant pays rent.

In equity, a lease which does not comply with the formalities may be treated as an equitable lease. It may be necessary to rely on the equitable doctrine of part performance if the agreement is oral.

Certain restrictions apply to equitable leases:

1. The person seeking to enforce the lease (whether landlord or tenant) may be denied his remedy if he has unclean hands or the circumstances are otherwise unconscionable.

2. The lease is not good against “the chancellor’s darling” (the bona fide purchaser for value without notice)

3. The equitable lease may be assigned, along with the benefits of any covenants, but the burdens of these covenants cannot be assigned. Hence, if the assignee breaches any of the tenant’s obligations, the landlord can only sue the original tenant and not the assignee.

Types of tenancies

1. A fixed-term tenancy

This must have a certain term, e.g., a lease “for the duration of the war” is void for uncertainty:Lace v Chantler [1944] KB 368. This requirement is necessary to distinguish the lease from an estate in fee simple as an uncertain lease might technically never come to an end.

A tenant who enters into possession under a lease which is void for uncertainty, will normally be considered a tenant at will. The Court may treat the lease as a periodic one, or may grant the tenant some benefit using the principles of proprietary estoppel.

2. Yearly, monthly and other periodic tenancies

These continue indefinitely until determined (i.e., terminated) by proper notice. They are not considered uncertain because each party has power to give notice at the end of any year.

3. Tenancy at will

This arises wherever the tenant occupies the land on the terms that either party may end the tenancy at any time. The tenancy may be created expressly or by implication. Common examples are: where a tenant whose lease has expired holds over with the landlord’s permission, where a person is allowed into possession while the parties negotiate the terms of the lease, where a tenant takes possession under a void lease or under an agreement for a lease, and where a person is allowed to occupy a house rent free and for an indefinite period. Note that there must be exclusive possession.

Unless the parties agree that no rent shall be paid, the landlord is entitled to compensation for the use and occupation of the land which will be the ordinary market value of the premises.

The tenancy at will comes to an end when either party determines it, but also when either party dies or assigns his interest.

4. Tenancy at sufferance

This arises where a tenant, having entered under a valid tenancy, holds over without the landlord’s assent or dissent. He differs from a trespasser because his original entry was lawful. He differs from a tenant at will because the landlord has not consented to his continuing occupation. The landlord may eject the tenant, or sue for possession at any time.

Tenancy-at-will vs Licence
What is the difference between a tenancy-at-will and a licence? In 1977 in the UK, the Law Reform Committee (Cmd. 6923) commented that the distinction was “tenuous at best”. The usual differences between licenses and leases apply, especially that exclusive possession is a hallmark of the former. Note, however, that, just like a licence, a tenancy-at-will is not enforceable against the landlord’s successor. It is a mere personal right.

One significant difference arises for the purposes of adverse possession. Time does not start to run in favour of a licensee – he cannot claim adverse possession against the land owner. On the other hand, according to the Limitation Act, time starts to run for the tenant-at-will one year after the tenancy at will commenced. Hence, after the appropriate time has passed, the tenant-at-will can gain a good title against the landowner.

This happened inRamnarace v Lutchman [2001] 1 WLR 1651, [2001] UKPC 25. A niece entered into her uncle’s property with his permission. He told her that she could stay there until she was in a position to purchase. The Privy Council held that this was not a mere licence as there was an intention to create legal relations. The time accordingly started to run a year later, and then a further sixteen years after that (according to the Trinidad Act), the limitation period expired and she became entitled to an adverse title.