Property and Housing Law - Case Study Example

In order to advise Jerry with regard to the legal status of his occupancy agreement, it will be necessary to establish whether the arrangement constituted a contractual arrangement under a licence, or alternatively granted proprietary rights under a lease. If Jerry is a licensee, Grangewood Properties will be able to take possession immediately on expiry of the five year contract or alternatively upon giving the requisite period of notice set out in the written agreement1. Alternatively, if Jerry is a tenant, then he will have some protection under common law and statute in respect of termination of tenancy, which clearly impacts Grangewood Properties’ rights to get possession of the property2. Additionally, if the arrangements under the agreement point to rights under a lease, it will then be necessary to consider whether the interest takes effect as a legal or beneficial interest, which is relevant to determining Jerry’s position in enforcing these rights against Grangewood Properties. With regard to whether or not the living arrangements constitute a lease or a licence, the general principle of law is that unless an individual occupying another’s land has exclusive possession, they will be a licensee and not a tenant3. Accordingly, if Jerry does not have exclusive possession of the industrial unit, he will be considered a licensee. Furthermore, the other key defining factor of a tenancy is the offer and acceptance of exclusive possession for a term at “rent.4” In the current scenario, clause 5 of the written agreement provides that the “Agreement is not intended to create a tenancy” and that the payment for the terms of occupancy is stated to be for a “quarterly fee” of £5,000. However, the referral to “rent” or “licence fee” is not determinative per se. For example, in Marchant v Charters5, it was held that certain factors are irrelevant to determining whether a lease or licence exists and that it was irrelevant whether the occupation is permanent or temporary and that it was irrelevant if payments were called rent as “use of such terms merely creates a convenient means of verbal referenced to the payments6”. The distinction between a lease and a licence was formulated in the leading case of Street v Mountford7, where Lord Templeman asserted that the general test for determining a tenancy was to firstly consider the question of “exclusive possession” as a starting point and it is irrelevant whether the agreement itself is labelled a licence. Therefore whilst the agreement between Jerry and Grangewood Properties is stated to constitute a licence agreement and not a tenancy under clause 5 of the agreement; the terms of possession will be relevant to determining whether the occupation constitutes a licence or a tenancy regardless of the label given to the arrangement. Moreover, in referring to the decision in the Street case, in Crancour Ltd v Da Silvaesa8it was interpreted that if on the facts, intention to create a legally binding agreement could be determined; it was irrelevant whether the parties actually intended to create a lease or a licence. They referred to Lord Templeman’s statement in Street v Mountford that the terms of occupancy as a lease or licence were ultimately dependent on the facts of each case. Furthermore, in Street v Mountford9 Lord Templeman further stated that the existence of “exclusive possession” was essentially a question of fact and that the intention of the parties was irrelevant10. Accordingly, although at the point of grant both Jerry and Grangewood Properties may not have intended the occupation arrangement to take effect in exclusive possession; if Jerry establishes that in fact the occupation arrangement resulted in the grant of exclusive possession, the arrangement will constitute a lease and not a licence. Additionally, in Street v Mountford it was highlighted that the important issue was to consider whether the occupation was actually exclusive regardless of the terms of the written agreement. This was to ensure protections for provisions purposefully geared towards circumventing legal rights given to tenants. In the current scenario, the agreement between Jerry and Grangewood Properties confers exclusive possession, which will point in favour of a lease. Additionally, in Street v Mountford11, Lord Templeman asserted that the facts would point to a lodger if the landlord provides attendance or services which required the landlord to exercise unrestricted access to and use of the premises. However, in practice many landlords have not wanted to provide the services required but have used the shield of lodger as a route to indicate a licence12. For example, in the case of Aslan v Murphy13, the occupier was made to vacate the premises for 90 minutes every day and the owner retained a key on the pretence of cleaning the room and providing bed linen. However, the Court of Appeal asserted that the term requiring the vacating of room was not actually intended to be acted upon and was therefore a sham14. Additionally in the Aslan15 case, it was asserted that retention of a key proved little by itself and what was important was the consideration of why the key was retained. If it was solely intended for emergency access, it was consistent with a lease. Alternatively, if the key was used for regular access to provide frequent services such as cleaning at regular intervals, the occupier would be a lodger under a licence16. If we apply this by analogy to the scenario, whilst clause e) provides of the written agreement requires Jerry “not to interfere with Grangewood Properties Limited’s rights of possession or control of the unit”; the regular receipt of rent and the term of five years as requirement of Jerry’s occupation will alternatively point in favour of Jerry’s occupation being a tenancy. For example, in Prudential Assurance Co Limited v London Residuary Body Limited17 the property concerned was non-domestic land and the landlord required the property back for road widening. The House of Lords held that whilst the original agreement did not constitute a tenancy because it was for an uncertain duration, the fact of possession, payment and acceptance of rent resulted in a periodic tenancy. The next issue is to consider is whether Jerry’s rights under the lease are enforceable in terms of the lease being valid. In order for a lease to be valid, the case of Lace v Chantler18 asserts that it must be for a determinable period (in the case of periodic tenancies/recurring tenancies) or a specified period of time, which in the current scenario is specified as being for a period of five years.19 In the current scenario, the written agreement between Grangewood Properties and Jerry will point in favour of there being a valid legal lease. Alternatively, if the requirements for a legal lease are not complied with, it may take affect as an equitable lease as a properly construed contract for the creation of a lease as “equity treats as done that which ought to be done”. Moreover, the fact that the agreement was in writing would satisfy the section 2 requirements of the Law of Property (Miscellaneous) Provisions Act 1989, which requires any contracts for dispositions of interests in land to be made in writing20. Therefore, notwithstanding the express terms of clause 5, the case law as applied to the facts suggests that it is highly likely that the terms of Jerry’s occupation of the industrial unit will constitute a lease as opposed to a licence. As the unit is used for business, Jerry’s occupation will constitute a business lease21. On this basis, business tenancies for a term in excess of six months provide tenants with security of tenure under Part II of the Landlord and Tenant Act 1954 (LTA). Accordingly, upon expiry of the term, the lease will “hold over” under the LTA 1954 and continue by operation of law22. It can only be terminated by Grangewood Properties according to one of the procedures laid down in the LTA 1954. The terms of the agreement were stated to constitute a tenancy and as such, the security of tenure provisions of the LTA 1954 have not been excluded. Accordingly, in order to terminate, Grangewood Properties will have to serve a notice under Section 25 of the LTA 1954 specifying a termination date of not more than 12 months nor less than 6 months from the date of service.23 Additionally, the specified date cannot be earlier than the expiry date of the initial fixed term of the lease24. If we apply this to the current scenario, this suggests that the earliest Grangewood could terminate would be upon the expiry of the five year period under the LTA 1954. The notice must specify reasons for objections to a new tenancy only using certain specified grounds25. The exact wording of the grounds are set out in section 30(1) of the LTA 1954 and are reproduced in full in the body of the section 25 request26. With regard to the current scenario the most relevant ground for Grangewood Properties would be the section 25(f) ground that they intend to “demolish or reconstruct the premises comprised in the holding”. Additionally, under the LTA 1954 Grangewood would have to pay Jerry compensation if successful in getting possession under a section 25 order27. Accordingly, in summary regardless of the express terms of the agreement purporting to be a licence agreement, the case law suggests that it is highly likely that the terms of Jerry’s occupation of the industrial unit will constitute a lease as opposed to a licence. As the unit is used for business, Jerry’s occupation will constitute a business lease and if the LTA provisions have not been contracted out of, Jerry will have security of tenure and Grangewood Properties will have to obtain a court order to secure possession. Grangewood Properties will also be liable to pay Jerry compensation. BIBLIOGRAPHY Elizabeth Cooke, (2006). Land Law. Oxford University Press Dixon, M (2005) Principles of Land Law. 5th Edition. Routledge -Cavendish Publishing Gray (2008). Elements of Land Law. Oxford University Press 4th Edition J MacKenzie& M Phillips (2005). Land Law. 10th Edition Oxford University Press Megarry and Wade., (2008) The Law of Real Property. 7th Edition Sweet & Maxwell R Sexton (2006). Land Law. 2nd Revised Edition. Oxford University Press. Legislation Landlord & Tenant Act 1954 Law of Property (Miscellaneous Provisions) Act 1989 Available at www.opsi.gov.uk accessed November 2009 Read More