Leases and Licenses

It is now becoming increasingly difficult to distinguish between a lease and a license. - Justin Santiago

It used to be that defining a lease or license was simply based on defining a lease according to a criteria based approach. A lease grants exclusive possession of the land for a certain fixed or periodic term, in consideration of premium or periodical payments. The importance in defining a a lease was because a lease was an interest in the land and had the ability to bind subsequent purchasers of the land unlike a license which was merely a personal right. A lease can be associated with covenants that are capable of running with the land, and binding successive owners. This is impossible with a licence.

It is important that leases and licenses are distinguishable as they define different obligations for the parties. Landlords would naturally want to grant only a license in order to avoid the various implied obligations by the landlord to keep the property fit for habitation S8 of the Landlord and Tenant Act 1985 and keep in repair and proper working order structure, exterior and installations S11-16 of Landlord and Tenant Act 1985 and the ability to deny exclusive occupation to occupiers and the ability to exclude them from the property at any time. Tenants on the other would prefer that they had a lease which could be sold, given away or left by will putting much power in the hands of the tenant. Additionally they bind third party purchasers of the landlord’s reversion.

The difficulty in distinguishing leases from licenses stems from the difficulty in putting them into separate compartments. There are different shades of leases and licenses and not all are the same. There exist a continuum rather than separate categories. The reality is that leases and licenses do not exist as labels but as to the effect that it seeks to achieve. This is more akin to the intention based approach.

What is more important than the classification is to try and answer the important question of what did the parties seek to achieve when they entered into the agreement. Did they intend to give an interest in the estate? Was the interest intended to bind third parties? Was there intention for successive owners to be bound by covenants?

The difficulty in distinguishing a lease from a license stems from the inadequacies of the criteria based approach as it has been found in several cases that the criteria are not always certain. -

Exclusive Possession

Street v Mountford hinged on whether the grant conferred exclusive possession. This reasoning was followed in Bruton v London Housing Quadrant where a transaction carefully described as a license was interpreted as a lease because the agreement gave exclusive possession hence creating a lease.

However this criteria based approach if applied strictly could lead to injustice and the courts have intervened to give effect to intention of the parties :-

Agreements containing sham devices purported to deny the occupier exclusive possession as exemplified in Antoniades v Villiers where it was held that an agreement provided for the separate occupancy of an unmarried couple in what was to be their home was held to be a tenancy because the separate agreements was clearly a sham device and the doctrine of pretence would be invoked whereby the courts would strike down the sham devices purporting to deny the occupier exclusive possession since it was clearly evident that the unmarried couple intended to have exclusive possession of the property.

Clear Channel UK Ltd v Manchester City Council in which there was no intention to grant exclusive possession and hence no lease.

Mehta v Royal Bank of Scotland – despite apparent exclusive possession, the occupier of a hotel room was said to have a licence, presumably because it is never intended to create a leaseof such a property.

Where there is no power to create a lease - Gray v Taylor where occupation of an almshouse did not indicate the existence of a lease since the charitable trustees who were landlords did not have the power to create a tenancy,

Exclusive possession does not necessarily connote a tenancy if there are other factors of greater significance to be considered such as absence of the four unities necessary – interest, title, possession and time to support a joint tenancy for the whole premises : AG Securities v Vaughn.

Norris v Checksfield where the right to occupy was given to an employee for the better performance of his duties and therefor not held to be a lease

Bostock v Bryant – act of generosity

Heslop v Burns – where there is no intention to create legal relations at all in a family situation

Fixed term

Leases must have a fixed beginning and a fixed end and be determined at the outset – this would define the term of years absolute laid down by S205(1)(xxvii) LPA 1925 and distinguish a leasehold estate from a fee simple absolution in possession, one of two legal estates according to S1(1) LPA 1925.

This was decided in Lace v Chantler where a lease for the duration of the second world war was held void as being of uncertain maximum duration.

Parliament has pushed for certainty of duration in leases – Validation of War Time Leases Act 1944 was enacted to that converted all war time leases to a term of 10 years with a proviso that either landlord or tenant could terminate the lease once the war ended by giving a month’s notice.

Similarly lease for life and lease until marriage are void but both are saved by S149(6) LPA 1925 which says that these leases are for 90 years and come to an end when the tenant dies.

Perpetually renewable leases are converted into terms of 2000 years : S 145 LPA 1925.

There has been some uncertainty with regard to periodic tenancies i.e. those which repeat indefinitely until ended by notice to quit being given by either party. This sits uneasily against the requirement of certainty of term since the maximum term cannot be predicted at the beginning of the periodic tenancy. There are three different types of reasoning :-

Ashburn Anstalt v Arnold was an attempt to break away from Lace v Chantler as it was stated that a periodic tenancy amounted to a lease on the basis that the term could be rendered certain by action of one of the parties.It was thought that there are good and sound commercial reasons for this. However this line of cases has been overruled by the House of Lords in Prudential Assurance v London Residuary Body (1992) 3WLR 279 that a leasehold term must be certain from the outset. The term relating to the ability of either party to determine a yearly tenancy on six months’ notice to terminate if there was road widening works to be undertaken was not enough. and as a result the tenancy had been lawfully determined. This brings the law back to Lace v Chantler and supports the argument that tit is becoming increasingly difficult to distinguish a lease from a license.

Premium/Periodical Payments

Under S205 of the LPA, rent is not an essential requirement of a lease. Although not a requirement, the courts have decided if a certain sum is paid regularly then it goes towards showing there was a periodic tenancy. In Bostock v Bryant the obligation to pay fluctuating utility bills could not be regarded as rent, being an uncertain sum. Therefor the issue of whether payment of rent determines a lease remains uncertain.