Property Law Land Leases

Freedom of contract versus the recognition of unequal bargaining power of landlords and tenants, together with the Courts' obligation to right the balance have been the defining characteristics of the ambivalence in the distinction between a lease and a license. Is the law clearer today after Street v Mountford [1985] and Bruton v London and Quadrant Housing Trust [2000]? Answer A critical feature of the tenancy is the grant of exclusive possession (a lease), which is the essence of the relationship between landlord and tenant.

A lease is an estate1 in land and is distinguished from a licence, which confers only exclusive occupation and thus, is not protected by the Rent Acts2. However, it must be remembered that a lease also creates a contract between landlord and tenant and that, historically, it was characterised as something of a hybrid, namely, a chattel real, lying between real and personal property. It is apparent that landlords wish to enjoy the benefits of letting their property without the burden of the restrictions imposed by the Acts, for they believe that those Acts unfairly interfere with freedom of contract and aggravate the housing market.

Tenants, on the other hand, believe that the Acts are a necessary protection against the exploitation of people who do not own the freehold or long leases of their homes. Up until mid 1980s, the question of whether an agreement gave rise to a tenancy or a licence depended on the intention of the parties to be derived from the whole of the document and surrounding circumstances: see Addiscombe Garden Estates Ltd v Crabbe [1958].

In Marchant v Charters [1977] Lord Denning held, having regard to the nature and quality of the occupancy, that the occupier did not have a stake in the room, but merely permission for himself personally to occupy it. The facts were such that a bed-sitting room was occupied on terms that the landlord cleaned the room daily and provided clean linen each week.

By virtue of the provision of attendance and services, the vital element of a tenancy (i.e. exclusive possession) was lacking. Hence, the Court of Appeal held that the occupier was a licensee and not a tenant (see also Abbeyfield (Harpenden) Society Ltd v Woods [1968]). In contrast, in Somma v Hazelhurst [1978], where a young unmarried couple occupied a double bed-sitting room for which they paid a weekly rent, the landlord did not provide services or attendance and the couple enjoyed exclusive possession.

However, the Court of Appeal did not ask itself whether they were lodgers or tenants and did not draw the correct conclusion from the fact that they enjoyed exclusive possession. The Court of Appeal, rather, paid too much attention to the fact that the landlord obliged them to enter into separate agreements and reserved power to determine each agreement separately, including that each occupier should sign an agreement to share the room in common with such other persons as the landlord might from time to time nominate.

Post-Somma and Marchant Landlords had become so confident of the courts' willingness to uphold attempts to avoid the Rent Act3, that many did little more than describe agreements as "licences", without bothering with complex devices of the sort used by Miss Somma. The Street v Mountford [1985] ruling eventually sought to introduce certainty into this area of law by providing strict criteria for distinguishing between a tenancy and a licence. In the words of Lord Templeman: "…

the only intention which is relevant is the intention demonstrated by the agreement to grant [(1)] exclusive possession [(2)] for a term [(3)] at a rent". In reality, however, it is the requirement of exclusive possession4 which is the decisive factor in determining whether an occupier is a tenant, unless there are special circumstances which negate the existence of a tenancy (considered below).

The House of Lords stipulated with reiterated emphasis that an express statement of intention is not decisive and that the court must pay attention to the facts, i. e. where the language of licence contradicts the reality of lease, the facts must prevail. Lord Templeman went on to say: 'The manufacture of a five-pronged implement for digging results in a fork, even if the manufacturer, unfamiliar with the English Language, insists he intended to make, and has made, a spade. Another point was that "the court should… be astute to detect and frustrate sham devices and artificial transactions whose only object is to disguise the grant of a tenancy and to evade the Rent Acts.

" The above decision was reaffirmed in Aslan v Murphy (No 1 and 2) [1989], where Lord Donaldson stated that the touchstone by which the 'spade' of tenancy is distinguished from the 'fork' of lodging was exclusive or non-exclusive possession. The Lords' decision in Street, however, still gave scope for landlords to avoid the legislation. Only in AG Securities v Vaughn; Antoniades v Lilliers [1990] (conjoined appeals in which decisions of the Court of Appeal were both overturned) the courts finally managed to put an end to "sham" litigation, though Housing Act 1988 had greatly reduced the incentive for landlords to use such devices.

The Court of Appeal's decision in Bankway Properties v Penfold-Dunsford [2001] illustrates how robust judicial thinking has now become in detecting and rejecting shams relied upon by residential landlords. In examining the approach of the courts to such disputes, it must be remembered that their decisions have been made against the background of various supreme examples of social legislation, designed as a matter of government policy to deal with various problems including homelessness.

However, the legislation has been shifting background, for different governments have adopted different attitudes in balancing the interests of residential occupiers against the interests of landlords; and those different attitudes have been reflected in the legislation. Since it is clear that statutory protection for tenants inevitably involves a corresponding restriction of the freedom of landlords to deal with their property, it is not surprising that landlords have sought to minimise those restrictions and that they have therefore endeavoured to devise arrangements that do not confer Rent Act protection.

5 Although the strict legal issue before the court may be the determination of whether a particular arrangement constitutes a lease or a licence, the court is inevitably aware of both the immediate consequences of its determination for the parties and the long-term consequences of such decisions for the wider homelessness issue. In the last few years, however, the distinction between the lease and the licence has become blurred as a result of the House of Lords' decision in Bruton v London and Quadrant Housing Trust [2000].

The particular issue for decision was whether the Housing Trust was subject to the repairing obligations imposed upon landlords by the Landlord and Tenant Act 1985, s11, which applies only to "leases". There were two possible routes to Mr Bruton's success: (1) to establish that he had a lease (but there was an obstacle as the Housing Trust had no estate in the land, and it was unclear whether it could grant a lease) or (2) to show that a tenancy by estoppel has been created (if the statutory repairing obligations attached to tenancies by estoppel, then Mr Bruton would win).

The issue of proprietory estoppel has been considered, though it was decided that, due to the fact that estoppel "by convention gives effect to the intentions of the party", it did not apply to this case. Hence, what was said in Bruton about the tenancies by estoppel is, strictly, obiter dictum. In Bruton, the Housing Trust was itself merely a licensee of the block of flats. As such, it could not lawfully exclude the owners (Lambeth Council) from entering any of the flats which it occupied under the terms of the licence.

Equally, it was thought, it could not confer such a right of exclusion on any individual occupier of a flat within the block simply because, as licensee, it did not have such a right itself. Here lies the inherent difficulty with the House of Lords' ruling. If occupiers fall to be classified as tenants, then presumably they would be entitled to possession to the exclusion of not only the Housing Trust but all others. Most commentators would agree that it is the right to exclude the world, including landlord, which distinguishes the right of exclusive possession from the right of exclusive occupation.

The difference is that in acquiring exclusive possession the occupier is deemed to acquire dominion over the land (i. e. full control), which is consistent with the acquisition of a legal estate. The only way of avoiding this difficulty is to suggest, as in Bruton, that each occupier holds only a personal tenancy in the sense that it binds only his immediate landlord and not the persons with a superior title. Such a hybrid tenancy, therefore, does not confer exclusive possession against the whole world but only against the grantor.