Certainty of Terms in Lease Contract - Essay Example

 Certainty of Terms in Lease Contract Introduction It is a basic rule that leases should have a fixed term and should have a precise commencing date; or else it would be held as void as held in a very early case Say v Smith1 As per s1 of Law of Property Act, 1925, (LPA), there is only two kind’s estate can be created in a land namely a freehold estate or a leasehold estate. A leasehold estate is made for a year or a fraction of a year or for many numbers of years or for weekly, quarterly, monthly or per annum basis. On 3 December 1868, a longest lease was created by an Irish lease thereby granting for a term of ten million years as regards to a plot for a sewerage tank. In Smallwood v Sheppards2, privilege to occupy a cottage for three following bank holidays held to be a valid lease. In Cottage Holidays Associates v Customs and Excise Commissioners3, it was upheld that a right to occupy a resort cottage for seven days in each year for a period of 80 years as a valid lease4. Privileges and commitments under a lease contract will be established by the general law provision and by the terms contained in the lease contract, like payment of rent by a tenant, repair and renovate the leased property, to use only for the authorised usage, not to sublet or to assign, to make a charge or part with the possession of the land without prior consent from the landlord5. This research essay will make an earnest attempt to elaborate the main ingredients for the award of a valid lease and the possible outcomes of failing to observe with those ingredients with reference to relevant case law and academic commentary. “Requirement of a Valid Lease” For creating a lease contract, there should be a landlord who owns or legally posses the ownership of a land, a tenant who will have the privilege to exclusively possess the land for a definite or contracted period by paying a rent, where the landlord retains a reversionary interest. There should be two parties one –the landlord and the other, the tenant. The landlord cannot give a lease of land to himself as held in Rye v Rye6. In Ingram v Inland Revenue Commissioners7, it was held that a nominee cannot award a lease to his principal. However, s72 (4) of LPA 1925 offers some statutory exception to this8. The subject matter should be a land in a leasing contract as per s205 (1) (ix) of LPA 1925, which includes any land, building on land and rights over such land, which is known as ‘incorporeal hereditaments.’ The landlord must divest himself of everything which he possesses in his leasehold estate. In Milmo V Carreras9, a tenant had sublet a flat to a party which ran beyond the headlease period. It was viewed by the Court of Appeal that tenant had transferred to the sublease the whole of the period available under the headlease and as such, he had not retained any reversion over it. “Certainty of Terms” The duration or term of a lease contract should be certain. Any vague or ambiguous definition of the duration of the term in a lease contract will make the contract invalid and grant of tenancy for the duration of the war was held to be void and viewed to be an ambiguous term as held in Lace v Chantler10. Certainty of the term will be applicable both to periodic and fixed tenancies11. In case of a fixed lease, the maximum tenancy period should be known at the start of the lease. For instance, a fixed lease is one where the term is being mentioned as to ‘hold unto the tenant from 1 day of January 2013 for the term 20 years. In case of periodic tenancy, at the start, if the eventual duration of the tenancy rights cannot be decided, then, it is deemed that it should continue forever and the termination is solely footed upon either party serving intimation to give up such tenancy rights12. However, as long as each separate phase is clear-cut, then the litmus test of certainty of duration is comprehensible. In Prudential Assurance Co Ltd v London Residuary Body13 , it was held that it cannot be considered as uncertain if a tenancy contract is renewable on a yearly basis as the parties to contract has the authority to decide about the continuing the tenancy at the end of the each year by giving notice to the other party14. The term in such tenancy contracts will continue forever as each party to the contract will make a new agreement at the fag end of the each year with or without any new terms for the following year15. In Berrisford v Mexfield Housing Co-Operative Ltd16, it was held that the as per the lease contract existed between the parties, plaintiff (tenant) can terminate his tenancy contract by giving one-month notice, and the Mexfield can terminate the contract if there has been rent arrears or if there is an infringement of any of the conditions of the agreement. However, Mexfield gave one-month notice to vacate the premise which was contended by B. Both High Court, and the Court of Appeal opined that Mexfield was authorised to have the possession of the property by viewing that the bar on the Mexfield’s right to terminate the lease agreement by a notice which resulted in ambiguous about the length of the term. Before the Supreme Court of UK, it was argued on behalf of B that contract between the parties established a tenancy for life, which was changed into a 90-year term as per the “s.149 (6) of the LPA, 1925.” Finally, the Supreme Court held that B was allowed to retain the possession17. Applying the verdict held in Prudential Assurance case, the Supreme Court viewed that the tenancy contract was invalid for uncertainty as the fetter on notice being offered by Mexfield was of a prospectively uncertain period. It further held that since the tenancy agreement came in to force after 1925, the LPA 1925 will be applicable, which offers a 90-year term determinable by the tenant or landlord as per the conditions of the tenancy agreement18. In Bruton v London & Quadrant Housing Trust19, it was held that a lease may be awarded despite the fact even if the grantor himself does not possess a legal right or estate in the land20. In a lease agreement, commencement of the period should also be definite or certain and if no detail is given as regards to commencement of the lease in the agreement, it would be construed to commence immediately as held in 21Furness v Bond22. In Harvey v Pratt23, though all required conditions were consented between the parties in a lease contract except for the commencement date. The court was of the view that lease is invalid for its vagueness as it made no effort to try to find out probable date the parties to the contract had in their mind24. Reversionary Leases Though, the commencement of a lease should be definite, but it does not connote it has to start immediately on the date of award. As per “s.149(3) of LPA Act ,1925,” it can commence at a later date also as long as this does not occur more than twenty-one years even after the date of award and such leases are known as reversionary leases and such leases are to be compulsorily registered in UK. “Leases for Life or until marriage” A lease until marriage happens or a lease for life does not have definite ending and hence is not an equitable or legal terms of years and hence such leases are held invalid. However, if they are awarded at a fine or at a rent , they are reshaped into a fixed term of ninety years decided on the expiry of the tenant or happening of marriage as per “s.149(6) of the LPA 1925,” as amended by Civil Partnership Act ,200425. Provision controlling the privilege of a landlord to give notice for an imprecise period In Re Midland Railway Co’s’ Agreement ,26 the landowner had given notice of termination in respect of a periodic tenancy by giving notice thereby infringing a term of the lease that he would do so only if the land was needed for his own purpose or business. It was held by the Court of Appeal that the bar on the right to give notice was enforceable, and hence, the notice given by the landowner was not a valid one. The court turned down the argument that the bar in the lease contract made the condition of the lease vague and hence void by citing the decision held in Lace v Chantler viewing that this rule did not extendable to periodic leases27. In Prudential assurance co ltd v London Residuary Body28, where a lease was granted on a non-domestic land, and the duration of the lease was to last until the land was needed by the landowner for the purpose road widening. The defendants did not have authority for road widening as they were not highway authorities. House of Lords was of the view that the lease agreement had not established a tenancy right as the term was for a vague period; however ,there was still existed a periodic tenancy from the fact of entry into enjoyment of land and the payment and acknowledgement yearly rent29 . Maximum Duration in a Lease must be Ascertainable It is to be noted that common law has inflicted a primitive rule that maximum tenure of the land must be discernible. Courts in UK disapproved the lease contracts which intentionally drafted for an indefinite period as in Lace v Chantler where the lease would till the duration of war on in Prudential Assurance Co Ltd v London Residuary Body where a lease contract was held as void as it term intentionally mentioned as until “ Britain wins the Davis Cub” 30. However, the certainty of term rule does not stop the usage of a ‘break clause’ which permits for the termination of the lease by each party to the contract well ahead of the expiration of the full term awarded. In Street v Mountford, a lease agreement was carefully drafted in the guise of a licence so as to shun all resemblance of a lease. The agreement had a heading “license agreement “ and it methodologically circumvented words like ‘tenant’, ‘landlord’, or rent ‘ words, which might remind it as a lease. Further, landlord’s signature was affixed with the following words “ I appreciate and acknowledge that a licence in the above form is not proposed and does not offer me a tenancy”. In spite of these intelligent drafting, the House of Lords viewed it as a tenancy agreement. The identical view was also held in AG Securities v Vaughan31 and in 32Bruton v London & Quadrant Housing Trust33. Drafting of Lease Contracts without infringing the Certainty of Term Rule In Breams Property Investment Co v Stroulger 34, a lease deed was held to be valid as it granted a periodic tenancy which explained that during the agreed time limit , a landlord was barred to issue a termination notice unless for a agreed purpose. In the above case, a lease contract by a land owner in a periodic tenancy not to issue an order to terminate the contract for the period of three years until it needed the land for his own use was held to be valid35. By establishing an express tenancy at will, one can draft a lease contract without infringing the certainty of term rule. In Manfield & Sons Ltd v Botchin36 , a tenant desired to lease a shop which was yet to be developed by the landlord who waited for approval from planning authorities. A tenancy at will was granted to the tenant. The tenant had occupied the shop for more than four years and at the start of the fifth year of occupation, the tenant avowed security of tenure under the Landlord and Tenant Act 1954.It was held that it was a tenancy at will where expressly granted, and if it has no conflicting provisions with the nature of a tenancy at will like forfeiture, was not safeguarded by the 1954 Act, except the two parties really consented it to be as such37. By granting a contractual licence, one can avoid the Certainty of Term Rule in a lease contract. A licence is a just a permission to do some acts on the land or to have possession of it. License does not create an interest on the land even such land is occupied by a licensee for many years. Likewise, one can create a licence mingled with an interest, and the interest will be a right under a contract or a profit a prendre. For instance, if a landowner makes a contract with someone to cut and remove the timber available in his land as held in James Jones Ltd v Earl of Tankerville38. A contractual licence is just a licence that has been awarded through a valid contract. Within the terms of contract, the termination of contract can be made. A reasonable notice should be served to put an end to the licence terms, particularly when there are explicit terms available in the contract as held in Winter Garden Theatre Ltd v Millennium Productions Ltd39 . Normally, a contractual licence does not bind the third parties as held in King v David Allen Ltd40. In Ashburn Anstalt v Arnold41, it was held that a contractual licence cannot be construed as having an interest in the land and cannot have an overriding interest42. Does the Certainty Term Rule need to be reformed? The other side the certainty of term rule is that it refutes effectiveness rational arrangements emanated from a process of cognisant negotiation between like-minded parties. Why the law should prohibit if a landlord and a tenant willing into enter a long lease say for 50 years with a condition of giving one-month notice by either party for putting an end to a lease contract? Why the present law should create frustration on free-willing parties to mutually consented terms with some ancient common law doctrine? In modern days, there is a need to exploit an unused or redundant land for commercial uses by having a flexible, open-minded letting policy, which would make a tremendous commercial prudence both to the landlord and the tenant. In some occasions , the Courts in England tried to minimise the rigour of the “ certainty of the term “ rule as held in Anstalt v Arnold43 , as in this case , the court was of the view that contractual licences are not considered to be interest in land and hence do not obligate third party buyers. There is a persuasive debate for introducing a statutory adaptation of all uncertain terms into an ascertainable term of say, 90 years. Thus, under” s.149 (6) of the LPA 1925,” the leases until marriages and the leases for life are now statutorily changed into a 90-year term which is ascertainable on the marriage or death of the original lessee. As held in Skipton Building Society v Clayton, a lease for life granted in lieu of sale of a freehold land at an economical price is also entitled for this statutory conversion and however, rent free occupation for life will not fall under this category as held in Binions v Evans44. As per Lord Neuberger, the land law is yet to attain a satisfactory state. There is no obvious and practical validation for viewing that a contract for a term of an uncertain period cannot result in a tenancy right or that a fetter of an ambiguous term on the right to serve a notice to quit is void. In view of the above, one has to accept the finding that the verdict of the Supreme Court in Mexfield Housing Co-operative Ltd v Berrisford (2011) and the House of Lords in Prudential Assurance Co. Ltd v London Residuary Body reveal that the law pertaining to the certainty of term rule cannot correctly be explained as being in a acceptable circumstances and reveal that there is no longer any genuine motive or worth lying behind the need for certainty, if indeed, there was ever.” Bibliography Bridge, ‘Periodic tenancies and the Problem of Certainty of term ‘[2010] 74 Conv 492 Bright, S., 'Uncertainty in Leases - Is it A Vice?' (1993)13 Legal Studies 38 Butt P & Castle R W, Modern Legal Drafting: A Guide to Using Clearer Language (Cambridge University Press 2001) Clements L.M., Fairest P B. and Fairest F.B., Housing Law: Text, Cases and Materials. 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