A Breach of the Purchaser and the Tenant - Case Study Example

LAND LAW The question pertains 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 briefly. 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). 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. 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. 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. 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. 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. 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 leases are not registrable as land charges and would bind the subsequent purchaser of fee simple by way of doctrine of notice. (Ives v. High)9. 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. 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 in conclusion it could be said that 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. References DIXON, M. (2004). Dixon on land law. London, Cavendish Read More