Property Law Land Leases

Post-Somma and Marchant Landlords had become so confident of the courts’ willingness to uphold attempts to avoid the Rent Act, 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 possession 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. 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.

In the case of Minister of Agriculture and Fisheries v Matthews it was held that the Minister had granted the occupier a licence and not a tenancy because it was ultra vires the powers conferred on him to grant a lease. But the House of Lords in Bruton rejected this line of reasoning drawing a distinction between a grantor's lack of capacity and lack of title. Interestingly, it had ruled that the absence of a legal estate does not prevent a grantor from entering into a relationship of landlord and tenant for it had the capacity to do so. Further, Lord Hoffmann suggested that not all leases necessarily give rise to a leasehold estate. According to his Lordship: “The term ‘lease’ or ‘tenancy’ describes a relationship between two parties who are designated landlord and tenant. It is not concerned with the question of whether the agreement creates an estate… which may be binding on third parties”.

What then should we make of the House of Lords’ ruling in Bruton? The effect of this case is that now not all tenancies give rise to a leasehold estate and that some may be purely contractual in nature, with apparently no proprietary characteristics; a concept up till now unknown to property lawyers. It seems, therefore, that Courts are moving steadily towards a major restructuring of a landlord and tenant law (along contractual lines). Surely, the whole point of the so-called lease/licence distinction was to draw a clear dividing line between personal and proprietary rights, where leases are proprietary and licences are personal. It also appears that, the Landlord and Tenant (Covenants) Act 1925 and the Landlord and Tenant Act 1988 could still apply to such a personal tenancy.

In Bruton the House of Lords also considered whether the objective of the housing trust in maintaining a stock of housing, over which it had maximum control in order to provide accommodation for the homeless, prevented a tenancy from arising even though Mr Bruton had exclusive possession. In Street, Lord Templeman identified a number of “special circumstances” displacing the presumption of a tenancy. However, the fact that the Housing Trust was a charitable organisation was considered to be irrelevant when determining whether an agreement is a lease or a licence, for it would be erroneous to claim that a lease granted by one landlord would become a licence if granted by a different landlord. The House of Lords approved of the decision of the Court of Appeal in Family Housing Association v Jones in which, on very similar facts, a licence agreement was construed as a lease.

The ‘mischief’ behind the Street v Mountford, namely, an objective approach to ascertaining the intention of the parties, was to counteract the unequal bargaining strength of the parties. This decision was reached to right the balance between landlords who under the guise of freedom of contract were able to impose their own terms in the agreement and tenants who were seeking protection under the Rent Acts. However, housing charities may have particular reasons for granting a licence instead of a lease, for example, as, in Bruton, there are instances when council property, awaiting redevelopment, can be made available for short-term housing needs but would not be available for letting. If a lease were granted the landlord would be subject to statutory repairing obligations and that would be inappropriate and inconsistent with the proposed redevelopment.

It is apparent that the Bruton decision will find little favour with numerous public bodies which are charged with the responsibility of providing housing for the homeless. As Sir Brian Neill observed (in his dissenting judgment in the Court of Appeal in Bruton), it is by no means clear whether "this result will necessarily inure to the benefit of the class of homeless persons in this country viewed as a whole". The fear is that, following this decision, housing charities and public authorities may be reluctant to provide short-term accommodation for homeless persons, unless the facts are similar to those in Westminster City Council v Clarke [1992].’ This is unfortunate as there will undoubtedly be many situations in which a licence will be the most appropriate means of allowing homeless persons into occupation of temporary housing thereby avoiding the rights and obligations incumbent on the parties to a lease. The result is that such premises will now become unavailable to assist the homeless.

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Bibliography

• Land Law, Texts and Materials, N. Gravels, Sweet & Maxwell Third Edition

• Modern Land Law, OUP Second Edition, M. Thompson

• Land Law, Palgrave Fifth Edition, K. Green & J. Cursley

• Landlord and Tenant Review (2000), M. Pawlowski & J. Brown, Bruton: A new Species of Tenancy

• Conveyancer and Property Lawyer (1999), D. Rook, Whether a Licence Agreement is a Lease: The Irrelevance of the Grantor’s Lack of Title

• Conveyancer and Property Lawyer (2002), M. Pawlowski, Occupational Rights in Leasehold Law: Time for Rationalisation

• New Law Journal (2 November 2001), Richard Colbey, Detecting a Sham

• New Law Journal (18 November 1988), Peter Hutchesson, A. G. Securities v Vaugham, Antoniades v Villiers; Tenancy distinguished from Licence

• Landlord and Tenant Review (1999), M. Pawlowski, When is a Tenancy not a Teancny

• Conveyancer and Property Lawyer (1993), P. F. Smith, What is wrong with certainty in leases

• Conveyancer and Property Lawyer (1986), S. Bridge, Street v Mountford – no hiding place

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