Rules of Legal Lease - Term Paper Example

 «Rules of Legal Lease» 1. Lionel agreed in writing to grant Tom a lease for five years of the Elms, the lease to commence on 1st October 2010. A premium of £1000 was payable at the commencement of the lease, and the rent of £1,500 per month was payable in advance. No formal lease was executed but Tom went in to possession. He sent Lionel a cheque for £1,500 for the first month’s rent which bounced and did not pay the premium. On 5th November Lionel sold the fee simple in the Elms to Martin, who has now completed the purchase and given Tom notice to quit. Tom has still not paid any rent. Advise Tom. The issue in this question relates to a lease being granted, breach of covenants by tenant and the sale of the fee simple interest and the rights of the purchaser and the tenant. The issue would be discussed in respect of both unregistered as well as registered land. Under section 1 of Law of Property Act (LPA) 1925 a leasehold is capable of existing as legal or equitable interest. The three important features that exist in respect of leasehold are, firstly that the fact that a leasehold is created, thereby allows enjoyment of owning of an estate by two or more persons, in the same land concurrently, that is the freeholder who receives rents/profits and the leaseholder enjoying physical possession and occupation of property; secondly both the landlord and freeholder possess a proprietary interest in land; and finally the fact that there are certain obligations, promises to be precise, both by landlord and tenant to do or refrain from doing certain things in respect of the land., these can be express covenants agreed between the parties or implied covenants as a matter of law (implied could be the obligation of the tenant to pay rent under the equitable lease. (Shiloh Spinners v Harding)1). (Dixon 2004) Lord Templeman in Street v Mountford2 said that the essential feature of a lease is that exclusive possession of the property is given to a person for specified term, in return of rent. (Dixon 2004) The most important issues in respect of exclusive possession is the fact that it gives ownership to the person for a specified period of time, and because of it being a proprietary interest, it can be assigned, and may be binding on subsequent owners of reversion. In the case of a license it is more of a personal right, binding on parties who created it. (Lloyd v. Dugdale)3. Furthermore, in the case of leases the landlord’s right is restricted to remove tenants and to set rent, this is contrary to what happens in the case of licences. Therefore the distinction of lease and licence is of the essence. The deciding factor in respect of lease and licence is that of exclusive possession. Exclusive possession is determined by the facts and surrounding circumstances and other factors. Labels in themselves are therefore not decisive, and so the intention of the parties are not relevant, but the substance of rights that have been created have been construed to be relevant. There are certain exemptions where even if the occupier is in exclusive possession a lease is not created ( Lord Denning in Facchini v Bryson)4. (Dixon 2004) In accordance with Lord Templeman in Street, the fact that the substance of agreement and not the label, is what is important, restricts the situations whereby a license would be construed. From the facts, it can be construed that exclusive possession was granted to Tom. The next element that is important is the fact that it must be for a certain term. This is clearly the case as Lionel agreed to grant Tom a lease for five years. The next element of tenancy is that of rent as specified by Lord Templeman in Street. Clearly Tom was under an obligation pay the rent as well as the premium. Thus in the current situation a lease has been created. As far as creation of a lease is concerned, that is done in two stages, the first being the contract being concluded so as to grant a lease between the landlord and tenant, and the next step is that of the execution of the contract by grant of lease by deed. (Dixon 2004) For the existence of a legal lease of more than three years or where a premium is charged are legal only if they are executed by deed, a requirement under section 52(1) of the Law of Property act 1925. A deed has been defined as a formal written document and in accordance with section 1 of Law of Property (Miscellaneous) Provisions Act 1989, a said document is construed to be a deed only if it expressly declared itself to be a deed and is witnessed by one other person. (Dixon 2004) If, however, the lease takes effect for unregistered title, grant by deed is the only requirement so as to convey leasehold estate to tenant, unless compulsory registration of title is required. In the instance of the five year lease granted by Lionel, compulsory registration is not required. In the current situation it would not make a difference if the land was registered or unregistered as clearly a premium was payable and the fact that the lease was for more than three years has made it necessary that the lease be executed in the form of deed or grant by deed which has not been done. Therefore a legal lease does not exist in this situation. As far as equitable leases are concerned, they tend to exist when an enforceable contract is entered into between the landlord and the tenant but the execution of deed does not occur. The different steps involved in the process are that an enforceable contract must be existent, which must be cover all the terms and conditions, in writing and must be signed (section 2 of Law of Property (Miscellaneous) Provisions Act 1989); the requirement that the remedy of specific performance should be available, should any of the party to the contract wants to enforce such a contract and induce the grant of a legal lease (Coatsworth v. Johnson)5. However, it is important to note that specific performance would only be available if valuable consideration has been provided for by the person who wished to enforce the contract; that if damages are awarded it would be an inadequate remedy; and the person who wishes to use specific performance must come with clean hands under the principles of equity. If all these terms are satisfied then the court would enforce the contract so as to create an equitable lease on the same terms as the ungranted legal lease (Walsh v. Lonsdale)6. This is the general way whereby an equitable lease is presumed. There is another way whereby equitable lease is found, that is, the doctrine of proprietary estoppel, that is, where the landlord has promised some right to the tenant verbally or in writing which has been relied upon by him to his detriment. Thus an equitable lease would be construed under proprietary estoppels. (Taylor Fashions v. Liverpool Victoria Trustees)7. (Dixon 2004) The creation of equitable leases is the same for registered or unregistered lease. In the current scenario it can be seen that Lionel agreed to grant a lease to Tom in writing. Therefore if that is to be treated as a contract and contains all the terms and conditions, then one of the requirements is satisfied. As far as specific performance is concerned, it can be seen that valuable consideration can be the monetary amount that had been agreed between the parties. The premium and the rent would be consideration. Even though such consideration was agreed upon and never paid, it can be argued that consideration being agreed upon was sufficient. Clearly, damages would be an inadequate remedy for the tenancy and so Tom can prove that with ease. However, the problem in specific performance lies with the equitable principle of clean hands, Tom has defaulted upon rents and his cheque for the rent has bounced, this would go against him and possibly result in the failure of an equitable lease being construed in his favour. As for proprietary estoppels Tom can argue that he relied on the promise to his detriment and prove that by providing sufficient grounds. If the doctrine of proprietary estoppels is found then Tom would be given an equitable lease. By the facts the situation in itself is not evident. The position in respect of equitable lease and its effects to a third party (purchase of the reversion from the landlord) differ in accordance with the title being registered or unregistered. In the case of unregistered land, if it is found that equitable lease has arisen as a result of an enforceable contract the it is registrable as class C(iv) land charges (‘estate contracts’) against the name of the freehold owner. If there has been a failure to register then the interest becomes void against a purchase and thus an ejection of the person who is the equitable tenant if the free hold interest is sold (Hollington Bros. v Rhodes)8. As far as the doctrine of proprietary estoppel is concerned, such equitable lease are not registable as land charges and would bind the subsequent purchaser of fee simple by way of doctrine of notice. (Ives v. High)9. (Dixon 2004) Thus if the Elms is an unregistered land then Tom should have registered it under class C(iv), if the enforceable contract is found in his favour. Thus failure to register his interest would result in Martin applying for his ejectment from the Elms. Under the head of proprietary estoppels, if a detriment is shown and estoppels established, then Tom can by way of doctrine of notice establish his equitable interest. In the instance of registered land equitable interest might be minor interests if adequately protected by notice or caution, and so would bind purchasers of the fee simple/ reversionary interest that is, if the caution is upgraded to a notice. As per the LRA 2002 such leases would be protected by means of a notice usually consensual form which is deliberately created by registered proprietor and the tenant. Equitable leases in fact most of them take effect as overriding interests and therefore bind (automatically) subsequent purchasers. The reason for such is that the equitable tenant would be in majority of cases in actual occupation in accordance with s.70(1)(g) of the LRA 1925. Under the new LRA 2002 these interests for the time being would remain the same, but subsequently it would be impossible to create an equitable lease. (Dixon 2004) Thus (presuming an equitable lease has been found per se) on the facts if a minor interest is found in favour of Tom then if such has been protected by notice or caution it would bind Martin and under the LRA 2002 by a consensual form (which cannot be seen to have existed on the facts. However, it is more than likely that an overriding interest would be found in favour of Tom as he is in actual occupation in accordance with s.70(1)(g). Thus he would bind Martin regardless of the fact that he has done anything in respect of the equitable lease. Therefore, the most important issue for Tom would be to get specific performance for the existence of an equitable lease and the reason for a default in failure to pay, but this in itself would not create a hurdle as he is in actual occupation of the Elms. Therefore his overriding interest would bind Martin. 2. Ahmed, having obtained, in June 2010, a place on the LL.M course at the University of Bedfordshire, set about finding accommodation in Luton. He read in the local paper, under the heading ‘to let’, an advertisement which said simply ‘Flat available near University’. Ahmed rang the telephone number given. Javeira, who answered gave the address and made an appointment for Ahmed to view the flat. Ahmed liked the flat and said that he would like to take it from 1st September 2010 to 31st August 2011. Javeira then said, ‘of course I only give licences – here’s the agreement – it gives me the right to occupy too but I’d only do that in the vacation and then adjust payment’. The agreement is headed ‘This Licence’ and refers to ‘payment for occupation’. Advise Ahmed whether this will be a valid lease. He is most anxious not to have to find new accommodation at a crucial time of his academic year. The question pertains to the basic distinction between leases and licenses which will be explained in turn and proprietary estoppels all of these will be explained in order to determine the outcome of the proposition provided. The issue of whether Ahmed has obtained a lease or licence would therefore be made after the distinction between the two are made. Vaughtan Cj [Thomas v. Sorrell ] describes licenses as “a dispensation or licence properly passeth no interest, no alters or transfers property in anything but only makes an action lawful, which without it had been unlawful”. (Dixon 2004) A licence basically involves permission from the owner of the freehold interest, given to another person so as to use that land for some purpose e.g. attending a cinema, or parking a number of cars (Batchelor v. Marlowe )The basic characteristics of a license are that there are no formal requirements for its creation as such, although occasionally there might be certain pre conditions that are imposed upon a licence and therefore it is dependent upon the fulfilment of conditions which have been imposed by some other area of law e.g. and “offer and acceptance” for contractual licences. Furthermore a licence may be granted to any person, and not necessarily anyone who also owns land; licences tend to differ from easements and most freehold covenants in that respect. A licence has therefore been described not as an interest in land, but rather a right over land that is one that is personal to the parties. As a consequence of this reason, licence does not “run” with the land, and unlike easements and freehold covenants, cannot be enforced against a purchaser of the land and moreover if the person who granted the licence i.e the licensor dies then the licensee cannot claim his rights against the successors of the licensor. A licence is problematic because an interest in land is not created and therefore certainty of term is lost. (Dixon 2004) The most common type of licenses is a “bare licence”. It is, in essence, permission given to enter upon the land, which is given voluntarily by the owner, who in turn receives nothing in return, thus, it is not supported by “consideration”. Thus it is safe to say that there is no contract between the parties. A bare licence lasts only for so long as the licensor wishes and can be terminated by him with ease. Thus, the licensor may terminate the licence by giving reasonable notice to the licensee as can be seen in Robson v. Hallet , Re Hampstead Garden . It is important to reiterate that there is no doubt that a bare licence is not an interest in land, it is personal in its nature only. Such a licence is incapable of binding a third party whatsoever. However it should be noted at the outset that a licensor can grant a licence coupled with an interest. It must be noted that the licence only has this characteristics because it is coupled with a grant: it has no proprietary status of its own. (Dixon 2004) Another important type of license is a “contractual license”. A contractual licence is similar to bare licences, with the important proviso that such licences are granted for valuable consideration e.g. purchase of a cinema ticket. Crucially, they are not contracts for the disposition of an interest in land (they are not proprietary) and so need not meet the requirements of S.2 Law of Property (Miscellaneous Provisions) Act 1989. (Dixon 2004) A licence does not bind subsequent purchasers of the freehold interest and therefore the licence may be ended by the person who takes reversion of the freehold interest, thereby creating further problems of uncertainty in respect of tenure. As far as leasehold is concerned, it allows two or more persons to enjoy the benefits of owning an estate in the same piece of land at the same time. Both the landlord who due to his fee simple interest and tenant who by his tenancy, have a proprietary right in the land. Thus, the tenant owns the lease, and the landlord owns the right to possession of the property when the lease ends. Lord Templeman in Street v. Mountford noted that the essential qualities of a lease are that it gives a person the right of exclusive possession of property, for a term, at a rent. These three conditions are commonly regarded as the indicia of leasehold. (Dixon 2004) Further Lord Templeman in Street went on states that labels in themselves were not decisive and so it does not matter if an arrangement is referred to as licence, which in reality is a lease. Thus the rights that have been created by the agreement and not the intention of the parties are determining factors when deciding whether an arrangement is a lease or a licence. The reason for labels not being a deciding factor is because generally the person who own a fee simple interest tends to exclude the creation of a leasehold interest by specifically drawing up an agreement which states it to be a licence and not a lease. (Dixon 2004) The term exclusive possession means that the occupier has a right to use the premises with exclusion of everyone else even the owner or the land lord of the property. In the case of Street v. Mountford exclusive possession was defined as “The tanant possessing exclusive possession is able to exercise the rights of an owner of land which is in the real sense his land albeit temporarily and subject to certain restrictions. A tenant armed with exclusive possession can keep out strangers and keep out the land lord. Furthermore this exclusive possession shall be for a fixed term with an agreed payment as rent for the possession. (Dixon 2004) In order to ascertain the nature of relationship between Ahmed and Javeria we will need to see whether Ahmed has exclusive possession and that for a term and on payment of rent. Lord Templeman’s speech in the seminal case of Street v Mountford provides a useful guide to the approach adopted by courts in considering whether an agreement created a lease or a license. The first question which should be is that does Ahmed have exclusive possession, secondly was their intention to create legal relations between the parties, thirdly are there circumstances which are giving rise to the occupiers exclusive possession fourthly are there any exceptional circumstances in the case which might negate the intention of creating a lease . Thus these question would be determining factors and pivotal so as to ascertain the relationship between Javeria and Ahmed. In this case it has been agreed between the parties that Ahmed shall have exclusive possession for an agreed tenor and upon payment of an agreed rent per month. However Javeria has kept a condition that she might come in occupation of the premises during the vacations and if she comes in to possession, rent for the period will be adjusted accordingly. The question being whether Ahmed has exclusive possession or not given that Javeria has a right to occupy the flat if she wishes to during the vacations. In the case of Antoniades v Villiers “a couple took a one bedroom flat under written agreements which were described as licence agreements. Each signed a separate agreement and each agreement provided that the licensor ‘might also occupy the premises or might license others to occupy jointly with the ‘licences’. The House of Lords held that his arrangement was clearly a lease and that the terms allowing for occupation by the landlord or others were simply sham. The fact that the agreement between Ahmed and Javeria has been termed as a licence would not be decisive and so the substance of rights that have been created would be looked into when determining whether a lease or a licence is to be construed. Clearly the label of licence would be negated and so that tool being used by Javeria would be negated as per the decision of Lord Templeman. In light of the above it can be clearly said that Ahmed has exclusive possession of the flat for a fixed term as has been stated and upon payment of rent which has been fixed and the term that Javeria can come in to the premises in vacation would be found to be mare sham so to avoid rent acts, as well as stopping creation of exclusive possession provision, however, the decision of House of Lords in Antoniades would protect Ahmed and such a clause by Javeria would be found to be a sham so as to avoid the creation of and hence Amed can be safely said to have a valid lease which has been created in his favour and therefore he can enjoy his rights as a tenant and can enjoy exclusive possession of the flat. In respect of the lease that has been created in favour of Ahmed, since this is a lease which has been created by way of a written contract, it would give him an immediate right of possession of the land. Thus in the current situation a legal lease has been created in favour of Ahmed. It can be argued that the lease may be classified as a periodic tenancy which may be renewed at the end of term. Furthermore the right being registered as a legal lease is negated by the fact that the interest that has been created is for a period which is less than three and therefore no requirement of registration and such leases are legal per se without any requirement of it being registered contrary to a lease which is for a time period of more than three years which has different provisions. Thus Ahmed has a legal lease in his favour and so need not worry about finding any other accommodation as a valid lease has been created in his favour. References: DIXON, M. (2004). Dixon on land law. London, Cavendish Read More