Lease or Licence

The leading authority on this is Street v Mountford.  Mrs Mountford had been granted the right to occupy a furnished room under what was described as ‘a personal licence’. She had exclusive possession, and had applied for a fair rent. If, as her agreement stated, she had a licence, the rent officer would not have jurisdiction. HL decided that she in fact held a tenancy, which was apparent not least from the terms of the agreement, whereby the landlord expressly reserved the right to enter the room for certain purposes with Mrs Mountford’s consent, thereby confirming the grant of exclusive possession. Lord Templeman emphasised the cornerstones which apply together, as requirements for a lease; exclusive possession, fixed or periodic term certain, and in consideration for a premium or period payments.

For a lease to exist there has to be exclusive possession, without which only a licence can be claimed. In order to prove exclusive possession, no single factor can be taken on it own as conclusive. For example in Family Housing Association v Jones a homeless person was granted a licence, withholding exclusive possession by allowing the landlord to retain a key for access to discuss re-housing. As in Street, the court held that despite the terms set out in the agreement, he had a tenancy. The retention of a key is not sufficient proof of the landlord retaining control of the premises.

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Similarly, exclusive possession alone is insufficient to prove a lease; for example, hotel guests, residents in nursing homes and student halls have exclusive occupation of their rooms but this does not create a lease. In Abbeyfield (Harpenden) Society Ltd v Woods it was held that the hotel guest had no rights to exclude the hotel staff from the room.

Certain exceptional exclusions (set out in Errington v Errington and Woods  and summarised in Street) apply even when exclusive possession is present; Agreements linked to contractual employment enabling better performance of the job, or those falling under the definition of ‘service tenancy’ (e.g. farmers & armed forces) will not constitute a tenancy. In Fachini v Bryson it was argued that an agreement to rent a flat between employee and employer (an ice-cream manufacturer) was a licence, but the court held that it was a tenancy, given that the property was not significant to his duties and therefore entirely separate.

The provision of services (e.g. cleaning, laundry or refuse collection) will usually exclude a tenancy. Lord Templeman in Street implied that such occupants were ‘lodgers.’  In Huwyler v Ruddy limited services were agreed and initially provided for by the landlord’s brother. Peter Gibson LJ found that even though the services had wound down to virtually nothing, the landlord  was obliged to resume services if the tenant so requested, therefore the agreement was a licence.  A similar case, that of Marcou v De Silvesa where services were also provided was found in contrast, to be a tenancy. The distinction here was that the nature of the services did not require entry to the flat and therefore did not interfere with the tenant’s exclusive possession. The key point being that the provision of services in itself does not prevent exclusive possession, rather it is the ability of the landlord or his staff to enter at will.

A further exclusion concerns situations where no intention to create legal relations is demonstrated, for example where tenants are allowed into a premises pending completion of a sale or where there is a gesture of generosity or agreements between families. This was illustrated in Marcroft Wagons Ltd v Smith where Sir Raymond Evershed MR found that a licence had been created. In this case, the landlord showing ‘kindliness and courtesy’ had helped a woman who had just lost her mother, and had no intention of creating a lease. The court was reluctant to find otherwise given that to do so would operate unfairly on benevolent landlords thereby potentially detering other acts of human kindness in times of need.

Street addressed the issue of disputes where agreements were labelled inappropriately. Lord Templeman made it clear that such disputes would be decided by looking at the true nature and construction of the agreement rather than the name given to it by the parties;

‘If the agreement satisfied all the requirements of a tenancy, then the agreement produced a tenancy and the parties cannot alter the effect of the agreement by insisting that they only created a licence’

Lord Templeton went on to urge the courts to be wary of ‘sham’ agreements, where a lease is disguised as a licence or service occupancy. In an attempt to avoid the strict requirements laid down in the Street decision (and thereby tenant’s statutory security), landlords have been very creative in employing devices designed to disguise the granting of exclusive possession. In Aslan v Murphy three such devices were considered; the retention of keys, the right to introduce another occupant and exclusion from the premises for a period of time each day. Here Lord Donaldson MR suggested that the court of first instance should have considered if this whole agreement was pretence, and if it was not, then to have looked at the provisions to see if they were part of the ‘true’ bargain of the parties or mere pretence. It can be seen here that Lord Templeman’s three hallmarks of a lease do not always lend themselves to easy distinction, and since the actual words used by parties when creating the agreements are not reliable, the question as to how ‘true intentions’ are determined has to be raised. Where intentions are not clearly identified at the outset of an agreement, the door is left open for landlords to invent provisions.

The nature of agreements in relation to multiple occupancy came before the HL in Antoniades v Villiers,  a case where the owner entered separate agreements simultaneously with the tenants (cohabiting) whereby each agreed to pay half of the rent. The landlord, reserving the right to occupy the premises with them and to introduce others described their agreements as licences. They were found by the court to have joint tenancy and the agreement was labelled a sham. By contrast, in AG Securities v Vaughan agreements made on different dates and for different rents by four occupants were found to be licences, not capable of joint tenancy in the absence of exclusive possession and the four unities. The distinction here is that in the first case, it was not feasible for the landlord to move himself or another tenant into a one bedroom flat. Further the couple were ‘jointly and severally’ responsible for the rent. The latter case involved individually negotiated agreements and the accommodation allowed for residents to leave, and to be replaced. 

 

Exclusive possession may be denied if the landlord reserves the right to genuinely move residents from room to room as in Westminster City Council v Clarke  where it was held that residence in a council run hostel for homeless persons who could not stake a claim on any particular room must be classed as a licence. And  in Duke v Wynne  where an agreement stipulating a ‘mobility clause’ enabling the landlord to house a shifting and multiple population, without an obligation for a single rent relating to the premises. This case was held to be a genuine licence as the clause could be shown to have been used as described.

Whilst somewhat complex in nature, the above cases with the application of thorough logic can be reasoned. The recent case of Bruton v London & Quadrant Housing Trust  however, has served to blur the boundaries. Here, a Charitable Housing Trust (HT), operating as a licensee to Lambeth Council, offered Bruton residence in a block of flats and he brought an action to enforce a repair covenant. As a licensee, the HT had no proprietary interest and therefore no right to exclude the freeholder from the premises. Without this right, the HT would not be able to confer on Bruton the grant of exclusive possession, merely exclusive occupation under a licence. Certainly this is the position from the case law as detailed above and in Street, for if the HT was merely a licensee, how could it create or confer a lease? The terms of the licence between the HT and the Council clearly stated that ‘vacant possession’ would be required on termination of the licence, therefore they had not granted the HT permission to create a lease.

However, the HL held that this was in fact, a tenancy, reaffirming the principles in Street in that a tenancy is the grant of exclusive possession for a term, and at a rent. The reservation of rights of entry by the HT to Bruton’s premises were held to be too limited to negate exclusive possession, and as in Street, served only to reinforce it. No special circumstances (including the landlords licensee status) were found that would exclude a tenancy and the nature of the charitable work was held to be irrelevant. HL it seems, interpreted the tenancy in this instance to be no more than a consensually binding agreement between the grantor and the grantee, giving rise to exclusive possession, and only creating a proprietary interest where the grantor has sufficient interest, which the HT did not have. Where no such interest exists, the HL held that the parties’ rights are purely personal and that the tenancy only binds the immediate grantor, not the freeholder, whose proprietary rights remain unaffected. HL in reaching this decision has, it is argued, created a hybrid lease. Academic writers and legal practitioners have criticised this decision, claiming that it has created more problems in the area of land occupancy than it has solved.

This decision has subsequently been applied in two cases with very similar facts; Kay v Lambeth LBC  and London Borough of Islington v Green and O’Shea. The court of appeal in both of these cases have confirmed that a licensee can grant exclusive possession amounting to a tenancy despite their status and that this agreement will be binding on the contracting parties’ but not on the world, nor on the freeholder that is not a party to the contract.

If then, a Bruton style tenant has merely personal contractual rights that do not confer on him any proprietary interest in land, and only bind the grantor and not the world, how is this to be differentiated from a contractual licensee, who essentially has the same limited rights? What about freedom to contract and privity of contract? Does this now mean that a mere trespasser can grant interest in land? Furthermore, it is usual where a landlord creates a sub-lease for it to be equal to or less than his own interest, in order that there is something to revert back to him at the end of the tenancy. Where the sub-lease is greater, he is seen as having assigned his lease.  What would happen in a situation where a licensee expressly grants exclusive possession and the freeholder exercises his (unaffected) rights to enter the property at will? Clearly the HL decision has posed a number of questions that serve to confuse application of the law in this area.  

In conclusion, the hallmark of exclusive possession when distinguishing between a lease and a licence has survived the test of time. Historically it was the most important factor, and today it remains so, for without it, there can be no lease. It can be seen however, that exclusive possession sits centrally within a whole host of other circumstances that can prove difficult to negotiate.

It would appear that the decisive factor in Bruton was indeed that he had been granted exclusive possession, and the HL seemingly disregarded all of the other factors that were present. This seems to narrow the scope when it comes to leases v licences, having merely added a ‘new species’ of agreement, whilst leaving the requirement for exclusive possession intact.  Yet, the decision has opened up a fertile debate as to what then, the difference actually is. It may be a fitting end to refer to the words of Lord Denning MR in Street;

‘If exclusive possession at a rent for a term does not constitute a tenancy then the distinction between a contractual tenancy and a contractual licence becomes wholly unidentifiable’.

Bibliography

Books

Bray, J Unlocking Land Law (Hodder & Stoughton, 2004)

Chang, C & Weldon, J Nutcases - Land Law (3rded, Sweet & Maxwell, 2003)

Chappelle, D Land Law (7thed, Pearson Longman, 2006)

Colbey, R Residential Tenancies (4thed, Cavendish Publishing 2001)

Murphy, T, Roberts, S & Flessas, T Understanding Property Law (Sweet & Maxwell, 2004)

Smith, PF The Law of Landlord & Tenant (6th ed, Butterworths LexisNexis, 2002)

Thompson, MP Modern Land Law (2nded Oxford University Press 2003)

Wilkie, M, Luxton, P & Malcolm, R Questions & Answers Land Law (5thed, Oxford University Press, 2005)

Wilkie, M & Cole, G Landlord and Tenant Law (4thed, Palgrave Law Masters, 2000)

Articles

Boone, K Lease or Licence 

Bright, S Beyond Sham and into Pretence [1991] 11 Oxford Journal of Legal Studies 138

Bright, S Uncertainty in leases: Is it a vice? (1993) 13 Legal Studies 38

Brown, J & Pawlowski, M Bruton: A new species of tenancy, Landlord & Tenant Review, 2000 4 (6), 119-122

Dixon, M Leases and Licenses: new headaches? (1999) 28 Student Law Review 60

Morgan, J Service Occupier or Service Tenant? Legal Executive Journal, March 1992, 16

Ross, L Lease v Licence, Law Society Gazette, Wed. 15th July 1992, 25

Pawlowski, M Occupational rights in Leashold Law; time for rationalisation, Conv. 2002, Nov/Dec, 550-559

Websites

Table of Cases

Abbeyfield (Harpenden) Society Ltd v Woods [1968] 1 WLR 374

AG Securities v Vaughan [1990] 1 AC 417

Antoniades v Villiers [1990] 1 AC 417

Ashburn Anstalt v Arnold [1989] Ch 1

Aslan v Murphy [1990] 1 WLR 766

Bostock v Bryant (1991) 22 HLR 449

Bruton v London & Quadrant Housing Trust [1999] 3 WLR 150

Colchester Council v Smith [1991] Ch 446

Duke v Wynne [1989] 3 All ER 130,CA

Errington v Errington and Woods [1952] 1 KB 290

Fachini v Bryson [1952] 1 TLR 1386

Family Housing Association v Jones [1990] 1 All ER 385, CA

Huwyler v Ruddy (1995) 28 HLR 550

Kay v Lambeth LBC [2004] EWCA Civ 926

Lace v Chantler [1944] K.B.368

London Borough of Islington v Green and O’Shea [2005] EWCA Civ 56

Marchant v Charters [1977] 1 WLR 1181

Marcou v De Silvesa [1986] 52 P & CR 2

Marcroft Wagons Ltd v Smith [1951] 2 All ER 271

Prudential Assurance Co. Ltd v London Residuary Body [1992] 2 AC 386

Say v Smith (1563) 1 Plowd 269

Street v Mountford [1985] AC 809

Westminster City Council v Clarke [1992] 2 AC 288

Table of Statutes

Eviction Act 1977

Housing Act 1985

Housing Act 1988

Housing Act 1996

Land Registration Act 2002

Landlord and Tenants Act 1985

Law of Property Act 1925

Rent Act 1977

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