Principles of
Landlord & Tenant Law
Cavendish Publishing Limited London • Sydney
EDITORIAL ADVISORY BOARD PRINCIPLES OF LAW SERIES
PROFESSOR PAUL DOBSON Visiting Professor at Anglia Polytechnic University PROFESSOR NIGEL GRAVELLS Professor of English Law, Nottingham University PROFESSOR PHILLIP KENNY Professor and Head of the Law School, Northumbria University PROFESSOR RICHARD KIDNER Professor and Head of the Law Department, University of Wales, Aberystwyth
In order to ensure that the material presented by each title maintains the necessary balance between thoroughness in content and accessibility in arrangement, each title in the series has been read and approved by an independent specialist under the aegis of the Editorial Board. The Editorial Board oversees the development of the series as a whole, ensuring a conformity in all these vital aspects.
Principles of
Landlord & Tenant Law John Rhys Morris, LLM, Cert Ed, Barrister Senior Lecturer in Law University College Northampton
Cavendish Publishing Limited London • Sydney
First published in Great Britain 1995 by Cavendish Publishing Limited, The Glass House, Wharton Street, London WC1X 9PX. Telephone: +44 (0) 171 278 8000 Facsimile: +44 (0) 171 278 8080 e-mail:
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This title was previously published under the Lecture Notes series.
© Rhys Morris, J First edition Second edition
1999 1995 1999
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except under the terms of the Copyright Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P 9HE, UK, without the permission in writing of the publisher.
Morris, John Rhys Principles of landlord and tenant law—2nd ed (Principles of law series) 1. Landlord and tenant—England 2. Landlord and tenant— Wales I. Title II. Landlord and tenant law 346.4’20434 1 85941 384 6 Printed and bound in Great Britain
PREFACE Since the first edition, two Acts of Parliament have received the Royal Assent, which have made substantial changes to the law relating to landlord and tenant. The first was the Landlord and Tenant (Covenants) Act 1995, which has fundamentally altered the enforcement of leasehold covenants created after 1 January 1996, when the Act came into force. The second is the Housing Act 1996, which has made a number of amendments to the law, but perhaps the most notable are those that relate to assured shorthold tenancies granted after 28 February 1997. Further changes in landlord and tenant law are likely, as the present government is considering reforming rent control for residential tenancies, and the recent Law Commission Report No 238 proposes reforms to the law relating to repairing covenants. Landlord and tenant law continues to be one of the most dynamic and interesting areas of study. My thanks to the staff of Cavendish Publishing, and to Diana and Victoria for their continued support. John Rhys Morris February 1999
v
To my parents, John and Valerie Morris
CONTENTS Preface Table of Cases Table of Statutes
v xvii xxvii
SECTION I—CREATION OF LEASES PART A—CREATION 1
2
INTRODUCTION
3
1.1
THE RELATIONSHIP OF LANDLORD AND TENANT
3
1.2
THE VERSATILITY OF LEASEHOLD
4
1.3
LEASEHOLD WITHIN THE CONTEXT OF LAND LAW
7
1.4
CLASSIFICATION OF LEASES
12
1.5
STATUTORY INTERVENTION
16
SUMMARY OF CHAPTER 1
19
LEASES AND LICENCES
23
2.1
DEFINITION OF A LICENCE
23
2.2
TYPES OF LICENCE
23
2.3
DISTINCTION BETWEEN A LEASE AND A CONTRACTUAL LICENCE
26
DISCOVERING WHETHER EXCLUSIVE POSSESSION IS CONFERRED
30
CIRCUMSTANCES WHERE EXCLUSIVE POSSESSION DOES NOT CREATE A LEASE
31
2.6
LODGERS
32
2.7
EXCEPTIONAL CIRCUMSTANCES
32
2.8
MULTIPLE OCCUPATION
35
2.9
BUSINESS TENANT OR LICENSEE
37
2.4 2.5
2.10 CURRENT APPLICATION
37
SUMMARY OF CHAPTER 2
39
ix
Contents 3
CREATION OF LEASES
43
3.1
INTRODUCTION
43
3.2
NEGOTIATIONS FOR A LEASE
43
3.3
CONTRACT FOR A LEASE
45
3.4
THE LEASE
48
3.5
LEGAL LEASES
48
3.6
EQUITABLE LEASES
50
3.7
THE ESSENTIALS OF A LEASE (A TERM OF YEARS ABSOLUTE)
53
3.8
THE RIGHT TO EXCLUSIVE POSSESSION
53
3.9
THE PERIOD MUST BE DEFINITE
53
3.10 PERPETUALLY RENEWABLE LEASES
55
3.11 LEASES FOR LIVES OR UNTIL MARRIAGE
57
3.12 REGISTRATION
57
3.13 ASSIGNMENT OF LEASES
58
SUMMARY OF CHAPTER 3
61
SECTION I—CREATION OF LEASES PART B—CONTENTS 4
COVENANTS AND ENFORCEABILITY
67
4.1
COVENANTS
67
4.2
LEASES GRANTED BEFORE 1 JANUARY 1996
67
4.3
PRE-1995 ACT—ENFORCEMENT DOCTRINES— PRIVITY OF CONTRACT
68
PRE-1995 ACT—ENFORCEMENT DOCTRINES— PRIVITY OF ESTATE
69
PRE-1995 ACT ENFORCEMENT DOCTRINES— RULES RELATING TO BENEFIT AND BURDEN
77
4.6
PRE-1995 ACT—LIABILITY OF AN ORIGINAL LANDLORD
78
4.7
PRE-1995 ACT—LIABILITY OF A REVERSIONER
79
4.4 4.5
x
Contents
5
4.8
PRE-1995 ACT—LIABILITY OF AN ORIGINAL TENANT
79
4.9
PRE-1995 ACT—LIABILITY OF AN ASSIGNEE
85
4.10 THE LANDLORD AND TENANT (COVENANTS) ACT 1995
87
4.11 LIABILITY OF A SURETY
92
4.12 INDEMNITY
95
SUMMARY OF CHAPTER 4
99
IMPLIED AND USUAL COVENANTS
107
5.1
IMPLIED COVENANTS
107
5.2
IMPLIED BY INTENTION
107
5.3
IMPLIED BY LAW
107
5.4
IMPLIED OBLIGATIONS OF THE LANDLORD— QUIET ENJOYMENT
107
IMPLIED OBLIGATIONS OF THE LANDLORD— FITNESS FOR HABITATION AND REPAIR
108
IMPLIED OBLIGATIONS OF THE LANDLORD— NON-DEROGATION OF GRANT
113
5.7
IMPLIED OBLIGATIONS OF THE TENANT
113
5.8
USUAL COVENANTS
114
SUMMARY OF CHAPTER 5
117
EXPRESS COVENANTS
121
6.1
COVENANT BY TENANT TO PAY RENT
121
6.2
COVENANTS NOT TO ASSIGN OR UNDERLET OR PART WITH POSSESSION
123
6.3
COVENANTS RESTRICTING ALTERATIONS
134
6.4
COVENANTS FOR USE
139
6.5
COVENANTS TO REPAIR
139
5.5 5.6
6
SUMMARY OF CHAPTER 6
151
xi
Contents SECTION I—CREATION OF LEASES PART C—TERMINATION 7
METHODS OF TERMINATION OF TENANCIES
159
7.1
EXPIRY
159
7.2
NOTICE TO QUIT
159
7.3
SURRENDER
160
7.4
MERGER
160
7.5
DISCLAIMER
160
7.6
REDEMPTION
161
7.7
ENLARGEMENT
161
7.8
FRUSTRATION
161
7.9
FORFEITURE
161
SUMMARY OF CHAPTER 7
169
SECTION II—RESIDENTIAL TENANCIES 8
INTRODUCTION TO RESIDENTIAL TENANCIES
175
9
RENT ACT 1977-BASIC PRINCIPLES
177
9.1
INTRODUCTION
177
9.2
CONDITIONS OF A PROTECTED TENANCY
177
9.3
TENANCY OF A SEPARATE DWELLING
178
9.4
THE RATEABLE OR RENTAL VALUE
180
9.5
EXCLUDED TENANCIES
181
SUMMARY OF CHAPTER 9
189
10 RENT ACT 1977-SECURITY OF TENURE
193
10.1 INTRODUCTION
193
10.2 TERMINATION OF THE PROTECTED TENANCY
193
10.3 TERMINATION OF A FIXED TERM PROTECTED TENANCY 193 10.4 TERMINATION OF A PERIODIC PROTECTED TENANCY
193
10.5 THE STATUTORY TENANCY
194
xii
Contents 10.6 POSSESSION PROCEEDINGS
198
10.7 TERMINATION OF THE TENANCY BY THE TENANT
205
10.8 SUCCESSION
206
SUMMARY OF CHAPTER 10
207
11 RENT ACT 1977—RENT CONTROL AND PREMIUMS
211
11.1 RENT CONTROL
211
11.2 PREMIUMS
213
SUMMARY OF CHAPTER 11
215
12 HOUSING ACT 1988—BASIC PRINCIPLES
217
12.1 INTRODUCTION
217
12.2 ASSURED TENANCIES
218
12.3 TENANCY LET AS A SEPARATE DWELLING
218
12.4 RATEABLE AND RENT VALUE LIMITS
218
12.5 EXCLUSIONS
219
12.6 SHORTHOLD EXCEPTIONS
220
SUMMARY OF CHAPTER 12
223
13 HOUSING ACT 1988—SECURITY OF TENURE
225
13.1 A CONTRACTUAL FIXED TERM ASSURED TENANCY
225
13.2 A STATUTORY PERIODIC ASSURED TENANCY
225
13.3 VARIATION OF THE TERMS OF THE STATUTORY TENANCY
225
13.4 CONTRACTUAL PERIODIC ASSURED TENANCY
226
13.5 IMPLIED TERMS
226
13.6 PROCEEDINGS FOR POSSESSION
227
13.7 COMPENSATION
228
13.8 GROUNDS FOR POSSESSION
228
13.9 SUCCESSION
235
SUMMARY OF CHAPTER 13
237
xiii
Contents 14 HOUSING ACT 1988—RENT CONTROL
241
14.1 FIXED TERM ASSURED TENANCIES
241
14.2 PERIODIC ASSURED TENANCIES
241
SUMMARY OF CHAPTER 14
245
15 HOUSING ACTS 1980 AND 1988— SHORTHOLD TENANCIES
247
15.1 SHORTHOLD TENANCIES
247
15.2 PROTECTED SHORTHOLD TENANCIES
248
15.3 ASSURED SHORTHOLD TENANCIES
250
SUMMARY OF CHAPTER 15
253
16 LONG RESIDENTIAL TENANCIES
255
16.1 INTRODUCTION
255
16.2 SECURITY OF TENURE
256
16.3 PART I OF THE LANDLORD AND TENANT ACT 1954
257
16.4 LOCAL GOVERNMENT AND HOUSING ACT 1989
262
16.5 RIGHTS OF TENANTS IN BLOCKS OF FLATS
262
16.6 PART I—TENANT’S RIGHT OF FIRST REFUSAL
263
16.7 PART II—APPOINTMENT OF MANAGERS BY THE COURT
265
16.8 PART III—COMPULSORY ACQUISITION BY TENANTS OF THE LANDLORD’S INTEREST
267
16.9 TENANT’S RIGHT TO BUY THE FREEHOLD OF A LEASEHOLD HOUSE OR FLAT OR OBTAIN AN EXTENDED LEASE
268
16.10 TENANT’S RIGHT TO BUY THE FREEHOLD OR EXTEND THE LEASE OF A LEASEHOLD HOUSE
269
16.11 TENANT’S RIGHT TO PURCHASE THE FREEHOLD OF A LEASEHOLD FLAT
273
16.12 TENANT’S RIGHT TO EXTEND THE LEASE
275
SUMMARY OF CHAPTER 16
277
xiv
Contents 17 MISCELLANEOUS STATUTORY PROVISIONS
285
17.1 PROTECTION FROM EVICTION ACT 1977
285
17.2 PART VI OF THE LANDLORD AND TENANT ACT 1987
286
17.3 LANDLORD AND TENANT ACT 1985
286
SUMMARY OF CHAPTER 17
289
SECTION III—BUSINESS TENANCIES 18 BUSINESS TENANCIES
293
18.1 SECURITY OF TENURE
293
18.2 REQUIREMENTS FOR THE APPLICATION OF SECURITY OF TENURE PROVISIONS
294
18.3 CONTRACTING OUT
297
18.4 THE CONTINUATION OR HOLD OVER
299
18.5 SECTION 25 NOTICE
300
18.6 VALIDITY OF THE S 25 NOTICE
302
18.7 PROCEDURAL STEPS FOLLOWING A VALID S 25 NOTICE
302
18.8 SECTION 26 NOTICE
303
18.9 SECTION 27 NOTICE
303
18.10 INTERIMRENT
304
18.11 THE NEW TENANCY
305
18.12 STATUTORY GROUNDS FOR OPPOSITION
307
18.13 COMPENSATION FOR DISTURBANCE
309
18.14 COMPENSATION FOR IMPROVEMENTS
309
18.15 REFORMS
310
SUMMARY OF CHAPTER 18
313
SECTION IV—AGRICULTURAL TENANCIES 19 AGRICULTURAL TENANCIES 19.1 INTRODUCTION
323 323
xv
Contents 19.2 AGRICULTURAL HOLDINGS
324
19.3 REQUIRING A WRITTEN AGREEMENT
328
19.4 THE MODEL CLAUSES
329
19.5 RENT CONTROL
330
19.6 TERMINATION
332
19.7 SUCCESSION
336
19.8 COMPENSATION
337
19.9 ARBITRATION
341
19.10 AGRICULTURAL WORKERS’ HOUSING
341
SUMMARY OF CHAPTER 19
343
20 AGRICULTURAL TENANCIES ACT 1995
351
20.1 INTRODUCTION
351
20.2 FARM BUSINESS TENANCIES
352
20.3 TERMINATION OF THE TENANCY BY NOTICE
353
20.4 RENT REVIEW
354
20.5 TENANT’S FIXTURES
355
20.6 TENANT’S IMPROVEMENTS
355
20.7 ARBITRATION
356
SUMMARY OF CHAPTER 20
357
Index
361
xvi
TABLE OF CASES AG Securities v Vaughan [1990] 1 AC 417 Abbeyfield (Harpenden) Homes v Woods [1968] 1 WLR 374 Abbey National BS v Maybeech [1985] Ch 190 Abernethie v AM Kleimann Ltd [1971] QB 10 Addiscombe Garden Estates Ltd v Crabbe [1958] 1 QB 51 Adler v Upper Grosvenor Street Properties Ltd [1957] 1 All ER 229 Air India v Balabel [1993] 30 EG 90 Aldin v Latimer Clark, Muirhead & Co [1894] 2 Ch 437 Allied London Investments Ltd v Hambro Life Assurance Ltd (1985) 50 P & CR 207 Allnatt London Properties Ltd v Newton [1981] 1 All ER 123 Amarjee v Barrowfen Properties Ltd [1993] 30 EG 96 Andrews v Bridgeman [1908] 1 KB 596 Antoniades v Villiers [1990] 1 AC 47 Anstruther Gough Calthorpe v McOscar [1924] 1 KB 716 Apus Properties Ltd v Douglas Farrow & Co Ltd [1989] 2 EGLR 265 Arlesford Trading v Servansingh [1971] 3 All ER 113 Ashburn Anstalt v Arnold [1989] Ch 1 Asian v Murphy [1990] 1 WLR 766 Associated British Ports v CH Bailey plc [1990] 1 All ER 929 Bahamas International Trust Co Ltd v Threadgold [1974] 1 WLR 1514 Bailey (CH) Ltd v Memorial Enterprises Ltd [1974] 1 All ER 1003 Baker v McIver [1990] 40 EG 123 Balfour v Kensington Gardens (1932) 49 TLR 29 Bardrick v Haycock (1976) 91 P & CR 420 Barnes v Gorsuch (1982) 43 P & CR 294 Barrett v Lounova (1982) Ltd [1989] 2 WLR 137 Barth v Pritchard [1990] 20 EG 65 Bates v Donaldson [1896] 2 QB 241 Bates v Pierrepoint (1978) 37 P & CR 420 Battlespring v Gates [1983] 268 EG 355 Baynton v Morgan (1888) 22 QBD 74 Becker v Hill Street Properties Ltd [1990] EG 107 Becton Dickinson UK Ltd v Zwebner [1989] QB 208 Beesly v Hallwood Estates Ltd [1961] Ch 105 Bell v McCubbin [1990] 1 QB 976 Betty’s Cafes Ltd v Philips Furnishing Stores Ltd [1959] AC 20 Bickel v Duke of Westminster [1976] 3 All ER 801
xvii
29, 32, 36, 41 32, 41 166 296, 313 28, 40, 296, 313 127, 152 131, 153 113, 118 85, 102, 305 127, 152, 297, 314 307, 317 124, 151 29, 31, 32, 36, 40, 41 140, 141, 143, 155, 156 93, 104 68, 99 25, 37, 55 30, 31, 40 146
326, 343 121, 151 203, 209 126, 152 185, 190 184, 190 109, 117 308, 318 127, 128, 152 269, 281 199, 208 80, 83, 85, 102 305, 317 97, 105 73 335, 346 308, 318 133
Table of Cases Bickmore v Dimmer [1903] 1 Ch 248 Billson v Residential Apartments [1992] 2 WLR 215 Binions v Evans [1972] Ch 359 Blackmore v Butler [1954] 2 QB 171 Blacksey v Whieldon (1841) 1 Hare 176 Bocardo SA v SM Hotels Ltd [1979] 3 All ER 737 Bolton (HL) Engineering Co Ltd v TJ Graham & Sons Ltd [1956] 3 All ER 624 Boyer v Warbey [1953] 1 QB234 Brew Bros v Snax Ross Ltd (1970) Brickfield Properties Ltd v Hughes [1988] 1 EGLR106 Brikom Investments v Carr [1979] QB 467 Brikom Investments v Seaford [1981] 2 All ER 783 British Empire Mutual Life Assurance Co v Cooper [1888] 4 TLR 362 Bromley Park Garden Estates Ltd v Moss [1982] 2 All ER 890 Brooker Settled Estates v Ayres [1987] 1 EGLR 50 Brown v Brash [1948] 2 KB 247 Brown v Liverpool Corporation [1969] 3 All ER 1345 Brown v Tiernan [1992] EGCS 135 Buchmann v May [1978] 2 All ER 993 Burns v Barrett [1970] 2 QB 657 Burnett (Marjorie) Ltd v Barclay [1980] 258 EG 624 Buswell v Goodwin [1971] 1 All ER 418 Butler Estates Co Ltd v Bean [1942] 1 KB 1 Caerphilly Concrete Products Ltd v Owen [1972] 1 WLR 372 Calabar Properties Ltd v Stitcher [1983] 3 All ER 759 Camden BC v Shortlife Community Housing Ltd (1992) The Times, 12 March Campbell v Lewis (1820)3 B & Ald 392 Carter v White (1883) 25 Ch D 666 Cavalier v Pope [1906] AC 428 Caplan (I and H) v Caplan (No 2) [1963] All ER 930 CBS UK Ltd v London Scottish Properties Ltd [1985] 275 EG 718 Central Estates Ltd v Woolgar (No 2) [1972] 1 WLR 1048 Centrovincial Estates plc v Bulk Storage Ltd (1983) 46 P & CR 393 Chaplin v Smith [1926] 1 KB 198 Chatterton v Terrell [1923] AC 578 Cheapside Land Development Co Ltd v Messels Service Co [1977] AC 904 Cheryl Investments Ltd v Saldhana [1979] 1 All ER 5
xviii
137 162, 164, 166, 167, 172 25, 39 325, 343 115, 119 126, 128, 152 299, 314 76, 101 155 195, 207 111, 118 111 137 130, 131, 153 32 194, 207 112 325, 343 183, 190 28, 40 56, 64 109, 117 96, 104 56, 64 148 34, 35 73, 100 113 295, 296, 304, 313, 316 305, 317 167, 172 80, 82, 102 124, 151 124, 151 121 187, 191
Table of Cases Chester v Buckingham Travel [1986] 1 WLR 96 Church Commissioners v Ve-Ri-Best Manufacturing Co Ltd [1957] 1 QB 238 CIN Properties v Gill [1993] 37 EG 152 City of London Corporation v Fell [1993] 04 EG 113 Clore v Theatrical Properties Ltd [1936] 3 All ER 483 Coatsworth v Johnson (1885) 55 LJQB 220 Cobb v Lane [1952] 1 All ER 119 Colchester Estates (Cardiff) Ltd v Carlton Industries plc [1986] Ch 80 Cole v Harris [1945] KB 474 Collins v Flynn [1963] 1 All ER 744 Congleton Corporation v Pattison (1808) 10 East 130 Cook v Shoesmith [1951] 1 KB 752 Cooper v Tait [1984] 271 EG 105 Coronation Street Properties v Ingall Industries Ltd [1989] 1 All ER 979 Crago v Julian [1992] 1 All ER 744 Crancour Ltd v Da Silvaesa [1986] 1 EGLR 80 Credit Suisse v Beegas Nominees (1993) 2 September (transcript) Creery v Somersell and Flowerdew [1949] Ch 751 Cumming v Danson [1942] 2 All ER 653 Curl v Angelo [1948] EGCS 154 Davies v Yadegar [1990] 1 EGLR 71 De Lassalle v Guildford [1901] 2 KB 215 Deanplan v Mahmoud [1992] 3 All ER 945 Dellneed v Chin [1985] 2 All ER 389 Demetriou v Poolaction Ltd [1991] 1 EGLR 100 Department of the Environment v Allied Freehold Property Trust Ltd [1992] 45 EG 156 Dinefwr Borough Council v Jones (1987) 19 HLR 445 Di Palma v Victoria Square Properties Ltd [1986] Ch 150 Dodson Bull Carpet Co Ltd v City of London [1975] 1 WLR 781 Dresden Estates Ltd v Collinson (1988) 55 P & CR 47 Duke of Westminster v Guild [1985] QB 688 Duke of Westminster v Swinton [1948] KB 524 Duncan (Herbert) Ltd v Cluttons [1993] 04 EG 113 Earl of Normanton v Giles [1980] 1 WLR 28 Edwards v Thompson [1990] 2 EGLR 71 Electricity Supply Nominees Ltd v IAF Group Ltd [1933] 3 All ER 372
xix
115, 119, 161, 170 46 130 81, 102, 299, 314 39 51, 62 33 146 179, 189 143, 155 72 124, 151 196, 207 78, 101 74 30 140 128 198, 208 179, 189 135, 154 111, 118 84, 102 37, 42 110 316 109, 117 163, 171 301, 315 37, 42, 295, 313 110, 117 135, 154 81, 82, 102, 299, 314 342, 349 308, 318 148
Table of Cases Elite Investments Ltd v TI Bainbridge Silencers Ltd [1986] 2 EGLR 43 English Exporters (London) v Eldonwall [1973] Ch 415 ER Ives Investments Ltd v High [1967] 2 QB 379 Errington v Errington [1952] 1 KB 290 Essexcrest Ltd v Evenlex Ltd [1988] 01 EG 56 Estates Gazette Ltd v Benjamin Restaurants [1995] 1 All ER 129 Estavest Investments Ltd v Commercial Express Travel Ltd (1989) 21 HLR Eton College v Bard [1983] Ch 321 Expert Clothing Services and Sales Ltd v Hillgate House Ltd [1986] Ch 340 Facchini v Bryson [1952] 1 TLR 1386 Family Housing Association v Jones [1990] 1 WLR 779 Farr v Ginnings (1928) 44 TLR 249 Fawke v Viscount Chelsea [1979] 250 EG 855 Fennbend Ltd v Miller [1988] 20 HLR 19 Feyereisel v Turnidge [1952] 2 QB 29 Field v Barkworth [1986] 1 All ER 362 Flexman v Corbett [1930] 1 Ch 672 Follett (Charles) Ltd v Cabtell Investment Co Ltd (1987) 55 P & CR 36 Franke v Hackmi [1984] CLY 1906 Friends Provident Life Office v British Railways Board [1996] 1 All ER 336 Gladstone v Bower [1960] 2 QB 384 Glass v Kencakes Ltd [1966] 1 QB 611 Gofor Investment v Roberts (1975) 29 P & CR 266 Goldstein v Sanders [1915] 1 Ch 549 Gower v Postmaster General (1887) 57 LT 527 Granada TV Network v GUS (1963) 187 Estates Gazette 391 Griffiths v English [1982] 261 EG 257 Grove v Portal [1902] 1 Ch 727 Groveside Properties v Westminster Medical School [1983] 267 EG 593 Gurton v Parrott [1991] 18 EG 161 GUS Property Management v Texas Home Care Ltd [1993] 27 EG 130 Hadjiloucas v Crean [1988] 1 WLR 1006 Hadley v Baxendale (1854) 9 Ex 341
143, 155 304, 316 25, 39 24, 32, 39 298, 314 70, 86, 99, 103 195, 197, 208 269, 281 164, 171 33, 41 32, 34, 41 132 305, 316 199 182, 190 124 115, 119 305, 316 183, 190 89 326, 343 165, 171 195, 207 132 73, 100 133, 153 185, 190 124, 151 295, 313 294, 313 83, 102 32 148
xx
Table of Cases Hafton Properties v Camp (1993) 13th May (transcript) Hagee (London) Ltd v AB Erikson and Larson [1975] 3 All ER 23 Halsall v Brizell [1957] Ch 169 Hamilton v Martell Securities Ltd [1984] 1 All ER 665 Hampstead Way Investments Ltd v Lewis-Weare [1985] 1 All ER 564
110, 117 298, 314 25 146 179, 189, 195, 204, 207, 209 94, 104 110, 118 150 109, 117 96, 105 115, 119 148 33, 41 145 200, 209 196, 207, 208 313 197, 208
Hans Place, Re [1992] 44 EG 143 Hargroves Aronson & Co v Hartopp [1905] 1 KB 472 Hart v EmelkirkLtd [1983] 3 All ER 15 Hart v Windsor (1844) 12 M & W 68 Healing Research Trustee Co Ltd, Re [1992] 2 All ER 481 Henderson v Hay (1792) 3 Bro CC 632 Heron II (The), Koufos v Czarnikow Ltd [1969] 1 AC 350 Heslop v Burns [1974] 1 WLR 1241 Hill v Barclay (1810) 16 Ves 402 Hill v Rochard [1983] 2 All ER 21 Hiller v United Dairies Limited [1934] KB 57 Hillil Property Co v Narrane Pharmacy (1979) 39 P & CR 67 Hilton v Plustitle [1988] 1 WLR 149 Holding and Management Ltd v Property Holding and Investment Trust plc [1990] 1 All ER 938 Holme v Brunskill (1877) 3 QBD 495 Horowitz v Farrand [1956] 5 CL 207 Horsford Investments Ltd v Lambert [1976] Ch 39 Houlder Bros v Gibbs [1925] All ER Rep 128 Hua Chia Commercial Bank v Chiaphua Investment Corp [1987] AC 99 Hurst v Picture Theatres Ltd [1915] 1 KB 1 Industrial Properties Ltd v Associated Electrical Industries Ltd [1977] QB 580 International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513 Inwards v Baker [1965] 2 QB 29 Irvine v Moran [1991] 1 EGLR 261 Janes (Gowns) Ltd v Harlow Development Corporation [1980] 253 EG 799 Javad v Aquil [1991] 1 All ER 243 Jeune v Queens Cross Properties Ltd [1974] Ch 97 Johnsey Estates Ltd v Lewis and Manley (Engineering) Ltd [1987] 2 EGLR 69
xxi
142, 155 93, 104 308, 318 179, 189 130, 133, 153 73, 74, 100 23, 24, 39
52, 63 131, 134, 153 25, 39 140
305, 316 15 148 96, 105
Table of Cases Johnson v Maconochie [1921] 1 KB 239 Johnson v Moreton [1980] AC 37 Jones v Burgoyne [1963] 188 EG 497 Josephine Trust v Champagne [1963] 2 QB 160 Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850 Katherine et Cie Ltd, Re [1932] 1 Ch 70 Kavanagh v Lyroudias [1984] 1 All ER 560 Killick v Second Covent Garden Property [1973] 2 All ER 337 King, Re [1963] Ch 459 King v David Allen & Sons (Billposting) Ltd [1916] 2 AC 54 King v South Northamptonshire District Council [1992] 06 EG 152 Kumar v Dunning [1989] QB 193 Lace v Chantler [1944] KB 368 Lam Kee Ying Sdn Bhd v Lam Shes Tong [1974] 3 All ER 137 Landau v Sloane [1982] AC 490 Langford Property Company v Tureman [1949] KB 29 Lee-Verhulst (Investments) v Harwood Trust [1973] QB 204 Lee-Parker v Izzett [1971] 1 WLR 1688 Linden v Secretary State for Social Services [1986] 1 WLR 164 Lister v Lane and Nesham [1893] 2 QB 212 Liverpool CC v Irwin [1977] AC 239 London Borough of Hounslow v Twickenham Garden Developments Ltd [1971] Ch 233 Long Acre Securities Ltd v Electro Acoustic Industries Ltd [1990] 6 EG 103 Long v Millar (1879) 4 CPD 450 Luganda v Service Hotels [1969] 2 All ER 692 Lurcott v Wakely and Wheeler [1911] 1 KB 612 Lyons v Caffery [1983] 266 EG 213 Maddison v Alderson (1883) 8 App Cas 467 Malpas v St Ermin’s Property Co Ltd [1992] 1 EGLR109 Mancetter Development Ltd v Garmanston Ltd [1986] QB 1212 Marchant v Charters [1977] 3 All ER 918 Marcroft Wagons Ltd v Smith [1951] 2 KB 496 Marsden v Edward Heyes Ltd [1927] 2 KB 1 Matthews v Smallwood [1910] 1 Ch 777 Matthey v Curling [1922] 2 AC 180 McAuley v Bristol City Council [1992] 1 QB 134 McDougall v Easington District Council [1989] 1 EGLR 70 McNerny v London Borough of Lambeth [1989] 1 EGLR 53
xxii
138 334, 346 333, 346 138
302, 315 94, 95 179, 189, 196 132 79, 101 39 110, 118 73, 78, 100, 101 54, 55, 63 124, 151 186 195, 207 295, 296, 313 148 295, 313 143, 155 110, 118, 119 24, 39 303, 316 46, 61 23 143, 155 185, 191 46, 61 170, 282 114, 119 28, 40, 182, 190 34, 41 114 167, 172 83, 102 113 141, 155 113
Table of Cases Middlegate Properties Ltd v Bilbao Caroline Co Ltd (1972) 24 P & CR 329 Midland Rly Co’s Agreement, Re [1971] Ch 725 Mikeover Ltd v Brady [1989] 3 All ER 618 Mistry v Isidore [1990] 31 EG 43 Moat v Martin [1950] 1 KB 175 Moorcock, The (1889) 14 PD 64 Morrow v Nadeem [1986] 279 EG 1083 Moule v Garrett (1872) 7 LR Exch 101 Mullaney v Maybourne Grange (Croydon) Management Co Ltd [1986] 1 EGLR 70 Murphy v Sawyer-Hoare [1993] 27 EG 127 Murray v Birmingham City Council [1987] 2 EGLR 53 Mykolyshyn v Noah [1971] WLR 1271 National Carriers v Panalpina (Northern) Ltd [1981] AC 675 Neale v Del Soto [1945] KB 144 Nelson Developments v Taboda (1992) 24 HLR 426 New England Properties v Portsmouth Properties [1993] 1 EGLR 84 Norwich Union Life Insurance Co v Low Profile Fashions [1992] 21 EG 104 Nye v Davis [1922] 2 KB 56 O’Brien v Robinson [1973] AC 912 Old Grovebury Farm Ltd v W Seymour Plant Sales and Hire Ltd (No 2) [1979] 3 All ER 504 Olympia and York Canary Wharf Ltd v Oil Property Investment Ltd [1994] 29 EG 121 O’May v City of London Real Property Co [1982] 1 All ER 660 Otter v Norman [1988] 2 All ER 897 Overend v Oriental Finance Corporation (1874) LR 7 HL 348 Owen v Gadd [1956] 2 QB 99 P and A Swift Investments v Combined English Stores [1989] AC 632 Packaging Centre v Poland Street Estate (1961) 178 Estates Gazette 189 Palmer v Macnamara [1991] 1 EGLR 121 Parker v Boggan [1947] KB 346 Parker v O’Connor [1974] 3 All ER 257 Parker v Webb (1693) 3 Stalk 5 Pearce v Gardner [1897] 1 QB 688 Pearson v Alyo (1990) 25 EG 69
xxiii
86, 102 55, 63 35, 41 204, 209 126, 152 107, 110, 117 301, 315 95–97, 105 144, 156 94, 104 112 200, 209 161 179, 189 182, 190 142, 155 80 182, 190 109, 117 126, 152 134, 153 306, 317 182 93, 104 108, 117
72, 74, 78, 100 131, 153 185, 191 133 111 73, 100 46, 61 301, 315
Table of Cases Perera v Vadiyar [1953] 1 WLR 672 Perry v Sharon Development Co Ltd [1937] 4 All ER 390 Plough Investments Ltd v Manchester City Council [1989] 1 EGLR 244 Ponderosa International Developments Inc v Pengap Securities (Bristol) Ltd [1986] 1 EGLR 66 Post Office v Aquarius Properties Ltd (1987) 54 P & CR 61 Proudfoot v Hart [1890] 25 QBD 42 Prudential Assurance Co Ltd v London Residuary Body [1992] 3 WLR 279 Purchase v Lichfield Brewery [1915] 1 KB 184 Quick v Taff Ely Borough Council [1986] QB 809 R v Rent Officer for London Borough of Camden ex p Plant [1980] 257 EG 713 Ravenseft Properties Ltd v Davstone (Holdings) Ltd [1980] QB 12 Redspring v Francis [1873] 1 All ER 640 Reid v Dawson [1955] 1 QB 214 Rimmer v Liverpool City Council [1985] QB 1 Ropemaker Properties v Noonhaven [1989] 34 EG 40 RPH Ltd v Mirror Group (Holdings) Ltd [1993] 1 EGLR 74 Rugby School (Governors) v Tannahill [1935] 1 KB 87 Rutherford v Maurer [1962] 1 QB 16 Rylands v Fletcher (1865) 3 H & C 774 Salomon v Akiens [1993] 14 EG 97 Scala House District Property Co Ltd v Forbes [1974] QB 575 Selous Street Properties v Oronel Fabrics Ltd (1984) 270 Estates Gazette 643 Sheldon v West Bromwich Corporation (1973) 25 P & CR 360 Shell Mex BP v Manchester Garages [1971] 1 WLR 4612 Shelly v United Artists Corporation Ltd [1990] 16 EG 73 Shiloh Spinners v Harding [1973] AC 691 Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 Siddiqui v Rashid [1980] 3 All ER 184 Skipton Building Society v Clayton (1993), The Times 25 March Smith v Draper [1990] 27 EG 69 Smith’s (Henry) Charity Trustees v Wagle [1989] 11 EG 75 Smith’s Lease, Re [1951] 1 All ER 346 Somma v Hazelhurst [1978] 1 WLR 1014 Southport Old Links Ltd v Naylor [1985] 273 EG 767 Spencer’s Case (1583) 5 Co Rep 16a
xxiv
108, 117 109, 117 142, 155 133, 134, 153 141, 155 141, 144, 155 55, 63 75, 76, 101 112, 143, 155
183, 190 142, 155 200, 209 328, 344 110, 118 166, 167, 171 96, 104 165, 171 325, 343 111 303, 315 165, 171 83, 93, 102, 104 112 37, 42, 295, 313 300, 315 76, 101 107, 117 200, 209 57, 64 302, 315 187, 191 127, 128, 152 29, 31, 40 301, 315 71, 75, 100
Table of Cases Stacey v Hill [1901] 1 KB 660 Stack v Church Commissioners [1952] 1 All ER 136 Steadman v Steadman [1976] AC 536 Stent v Monmouth District Council [1987] 1 EGLR 59 Street v Mountford [1985] AC 809
Stribling v Wickham [1989] 27 EG 81 Sutton (Hastoe) Housing Association v Williams [1988] 1 EGLR 56 Swallow Securities Ltd v Brand [1983] Ch 190
93, 104 138 46, 61 143, 155 26, 29–32, 34, 35, 37, 40, 326 36, 41 144, 156 146
Tandon v Trustees of Spurgeons Homes [1982] AC 575 Tanner v Tanner [1975] 1 WLR1346 Targett v Torfaen Borough Council [1992] 3 All ER 27 Tarjomani v Panther Securities Ltd (1982) 46 P & CR 32 Taylor Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133 Terrel v Murray (1901) 17 TLR 570 Thomas v Sorrell (1673) Vaugh 330 Timmins v Moreland Street Property Trust Ltd [1958] Ch 110 Trans-Britannia Properties Ltd v Darby Properties Ltd [1986] 1 EGLR 151 Tredegar Enterprises Ltd, ex parte [1992] 29 EG 122 Tropis Shipping Co Ltd v Ibex Property Corporation Ltd (1967) EGD 433 Tulk v Moxhay (1848) 2 Ph 774
170, 282 24, 39 110, 118 298, 314
United Scientific Holdings Ltd v Burnley BC [1977] 904 Upjohn v Macfarlane [1922] 2 Ch 256
121 199, 208
Valiant v Dodemede (1742) 2 Atk 546 Vernon v Smith (1821) 5 B & Ald 1
25, 39 145 23, 39 46, 61 295, 313 78, 101 301, 315 77
86, 102 72, 73, 100
Wakeham v Mackenzie [1968] 1 WLR 1175 Walsh v Lonsdale (1882) 21 Ch D 9 Wandsworth Borough Council v Singh [1991] EGLR 75 Warnford Investments Ltd v Duckworth [1979] Ch 127 Warren v Keen [1954] 1 QB 15 Watts v Yeend [1987] 1 All ER 744 Westminster City Council v Clarke [1992] 2 WLR 229 Wetherall v Smith [1980] 1 WLR 1290 Williams v Burrell (1845) 1 CB 402 Williams v Earle (1868) LR 3 QB 739 Wilson v Finch Hatton (1877) 2 Ex D 336
xxv
46, 61 51, 63 296, 313 85, 94, 102 114, 119 328, 344 32, 34, 35, 41 327, 343 73, 100 73, 100 108, 117
Table of Cases Wilson v Flynn [1948] 2 All ER 40 Windsor (Dean & Chapter) v Hyde (1601) 5 Co Rep 24a Winter Garden Theatre (London) Ltd v Millennium Productions Ltd [1948] AC 173 Wood v Leadbitter (1845) M & W 838 Woodall v Clifton [1905] 2 Ch 257 Woolworth (FW) & Co Ltd v Lambert [1937] Ch 37 Woolworth (FW) & Co (No 2) v Lambert [1938] Ch 883 Woolworth (FW) plc v Charlwood Alliance Properties Ltd [1987]1 EGLR 53 Wright v Howell (1947) 92 Sol Jo 26 Wycombe Health Authority v Barnett (1982) 47 P & CR 394 YMCA v Saunders [1990] EGCS 154
131, 153 73, 100 24, 39 23, 39 73, 100 136, 154 136, 137 132, 153 179, 189 114, 119 179, 189
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TABLE OF STATUTES Access to Neighbouring Land Act 1992 110 Administration of Justice Act 1985 163 s 55 163, 71 Agriculture Act 1970— ss 38, 39(2) 334 Agricultural Holdings Act 1986 17, 183, 190, 219, 296, 323–27, 330, 332, 336–38, 341, 342, 345, 347, 348, 351 s1 326, 327 s 1(1) 324, 326, 327, 343 s 1(2) 326, 343 s 1(3) 327 s 1(4), (5) 325, 343 s2 327 s 2(1), (2) 325 s 2(2)(b) 326, 343 s 3(1) 326 s5 327 s 6(1) 328 s 7(1) 146 s 7(3) 329, 344 s8 330 s 8(2) 329 s 8(3) 329, 344 s 8(4, (6) 330, 344 s 9(1), (3) 330 s 10 355 s 12 331, 333, 341, 345, s 13 s 25(1) s 26 s 26(1) s 27 s 31 s 32 s 35 ss 39, 53 s 60
346, 348 341 332, 345 334 333, 346 333, 334, 346 336, 347 336, 339, 347 337 336 339
s 66 339, 348 s 69 337 s 71 330, 340 s 71(1) 340 s 72 340 s 83(1) 341, 349 s 84 340 s 96 325, 343 s 96(1) 332 Sched 1 328, 329, 331, 344 Sched 2 345 Sched 3 335 Sched 4 342 Sched 7 338, 347, 348 Sched 8 338, 339, 347, 348 Sched 9 338, 347 Sched 11 341 Agricultural Holdings (Amendment) Act 1990 335 Agricultural Tenancies Act 1995 323, 342, 351–54, 357, 358 s1 352 s5 354, 358 s6 354 s8 355 s9 354, 355 ss 10, 12, 13 355 ss 15–18, 20–22 356 s 28 357 s 38(2) 352 Arbitration Act 1996 341, 357 Common Law Procedure Act 1852 8, 163, 170 ss 210, 212, 214 162, 170 Costs of Leases Act 1958— s1 50 County Courts Act 1984— s 138 163, 171 Criminal Law Act 1977 162, 170 Defective Premises Act 1972 113, 118
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Table of Statutes s 4(1), (4) 113 Furnished Houses (Rent Control) Act 1946 177 Grantees of Reversions Act 1540 68 Housing Act 1980 217, 147, 248, 249, 253 s 52(1) 248, 253 s 53 253 s 55 249 s 64 202 s 81 135, 154 s 89 228, 138 s 89(1) 203, 209 Housing Act 1985 17, 26, 123, 151, 196 s 79(3) 34 s 97 135, 154 s 604 108, 117 s 610 138, 154 Housing Act 1988 16, 17, 26, 135, 175, 176, 196, 197, 206, 211, 217–20, 223, 225, 233, 234, 237, 241, 242, 245, 247, 251, 253, 255, 262, 264, 279, 296, 323, 341, 342, 349 s1 218, 219, 223 s 5(3) 225 s6 225 s8 228, 238 s9 232, 239 s 12 228, 238 s 14(1) 243, 245 s 14(2) 243, 246 s 15 123, 151, 226, 237 s 16 226, 237 s 17 231, 235, 240 s 17(2), (3) 235 s 17(4) 235, 240 s 19A 220, 254 s 20A 251
s 21 s 22 s 24 s 27 s 34 s 35 s 36(1) s 39 ss 53, 53 s 116(1) Sched 1 Sched 2 Grounds 1–15 Grounds 1–5 Ground 1
251, 253, 254 251, 254 342 162, 170 247, 248, 256 200 177, 220, 223 206, 210, 220 249 111 219, 223, 230 228, 238 342 243, 246 227, 229, 231, 238, 349 Ground 2 227, 229, 238 Ground 3 204, 227, 230, 238 Ground 4 204, 227, 230, 238 Grounds 5–9 227, 238 Grounds 5–7 231 Ground 5 205 Ground 7 236, 240 Grounds 8–10 232 Ground 8 233, 239 Ground 9 139 Grounds 10–15 227, 238, 239 Ground 10 233 Grounds 11–13 233 Grounds 13–15 201 Grounds 14–17 234 Grounds 14, 15 204 Ground 16 202, 227, 238, 239 Ground 17 239 Sched 2A 220, 248, 250, 254 Housing Act 1996 16, 26, 110, 196, 217, 220, 234, 238, 247, 248, 250, 251, 254, 270, 323 s 83 287 Insolvency Act 1986
xxviii
94, 160, 169
Table of Statutes s 178 104 s 178(2) 94 s 178(4) 93 s 315 93, 104 Judicature Act 1873 11, 76 Judicature Act 1875 11 Land Charges Act 1972— s 4(6) 47, 63 Land Registration Act 1925 8, 11, 57, 64 s 24 96, 105 s 70(1) 12 s 70(1)(g) 12, 25, 48, 52, 62, 63, 73, 76 s 70(1)(k) 52, 58, 63, 64 Landlord and Tenant s 1(1), (2) 310, 319 s3 138, 154 s 18(1) 147, 156 s 19 91, 123, 125, 127, 134, 139, 152, 226 s 19(1) 128, 129, 136 s 19(1)(a) 124, 126, 127, 151 s 19(1)(b) 123, 151 s 19(2) 136, 137, 154 s 19(3) 139 Landlord and Tenant Act 1954 17, 81, 95, 160, 181, 183, 186, 187, 191, 219, 233, 256, 257, 262, 272, 277, 279, 293, 294, 297, 313, 353 s2 277 s 2(6) 257 s3 258–61, 277 s4 258 s5 261, 278 s7 260 s 10 261 s 12 258–60, 278
xxix
s 13(2) s 13(3) s 13(4) s 14 s 16(1) s 23 s 23(2) ss 24–28 s 24 s 24A s 24(2)(b) s 25
s 26 s 26(2) s 27 s 29 s 29(2) s 30 s 30(1) s 33 s 34 s 34(3) s 35 s 38 s 38(1) s 38(4) s 40 s 43 s 43(1)(a), (b) s 43(1)(d), (2), (3) s 44 s 55 s 64 Sched 3
259, 278 260 259, 278 259 262 186, 293, 294, 303, 313 296 298, 314 293, 299, 301, 303, 314, 316 299, 302, 304, 316 298, 314 81, 293, 294, 299–304, 311, 312, 314–16 294, 299–301, 303, 304, 311, 312, 316 298 294, 300, 303, 304, 316 294, 300, 314 315 294 307, 318 305, 317 305, 306, 316, 317 307 306, 317 127, 128 127, 152, 297, 298, 314 298, 314 300, 311, 315 313 296, 313 297, 314 300 259 261, 302, 304, 307, 316–18 258–60, 278
Table of Statutes Landlord and Tenant Act 1985 17, 107, 286 s1 287 s8 112 s 8(1) 108, 117 s 8(2) 108, 109 s 10 109 s 11 13, 111–13, 118 s 11(1) 111, 118 s 11(1A)(a), (b) 111 s 11(2) 112, 118 ss 11(3)–(6), 12(1), (2) 112 s 17 148 ss 18–30 287, 290 Landlord and Tenant Act 1987 17, 110, 149, 156, 263, 267, 268, 281, 286, 287, 289, 290 s1 263, 279 s2 263 s3 264, 279 s4 264, 280 s5 263, 264, 279, 280 s6 265, 280 s7 265, 280 s8 265 s 21(3)(a) 265 s 22 149, 266 s 23 266 s 24 149, 266, 281 s 25 267, 281 s 48 286 s 58 264, 265 Landlord and Tenant Act 1988 128–30, 137, 152, 154 s1 226 Landlord and Tenant (Covenants) Act 1995 6, 19, 67, 74, 80, 87, 89, 92, 99, 103 s1 89 s2 89, 103
s 3–16 89 s3 90, 91, 103, 104 s4 90, 92 s5 90, 103 s 11 90 s 16 90, 103 s 17–20 89 s 17 91, 93, 103, 104 ss 18–20 91, 103 s 21 89 s 22 134 s 24 90 Landlord and Tenant (Licensed Premises) Act 1990— s 1(1) 297 Law of Property Act 1922 56 s 145 56 Sched 15 56, 57 Law of Property Act 1925 8, 11, 69, 161, 165, 169 s 1(1) 9, 20 s 1(2) 9 s 1(3) 10 s 1(5) 9, 20 s 40 45, 47, 61, 62 s 52 48, 160, 298 s 54(2) 13, 48, 62 s 62 51, 52 s 77 96, 105 s 79(1) 71 s 84 138, 154 s 101 229 s 141 68, 72, 75, 79, 89, 99, 100 s 141(1) 71 s 142 72, 75, 79, 85, 89, 100, 102 s 142(1) 71 s 144 123, 151 s 146 126, 145, 146, 164–67, 171, 172 s 146(2) 165, 171 s 147 146, 147, 156
xxx
Table of Statutes s 149 54, 63, 332 s 149(6) 57, 64 s 196 159 s 205(1)(ii) 51, 62 s 205(1)(xxiii) 44 s 205(1)(xxvii) 53, 63 Sched 15 Law of Property Act 1969 293 Law of Property (Miscellaneous Provisions) Act 1989 48 s1 49 s2 47, 61, 62 s 2(2) 47 Leasehold Property (Repairs) Act 1938 145, 146, 156, 167, 172 s 1(1), (2) 145 Leasehold Reform Act 1967 13, 14, 17, 133, 268, 269, 281, 269 s 2(1) 270 s3 269 ss 4, 4A 270 s5 271, 282 s9 272 s 14 282 s 15 272 ss 17, 18 271, 282 Sched 3 271 Leasehold Reform Housing and Urban Development Act 1993 13, 14, 17, 267, 268, 270, 273, 275, 282 s5 273 s8 273, 275, 283 Leasehold Reform Housing and Urban Development Act 1993 s 13 273, 282 s 17 274 s 18 283
s 19 275 s 21 275, 283 s 37 275 s 87 266 Sched 6 275, 283 Limitation Act 1980— s 19 122 Local Government and Housing Act 1989 262, 272, 279 s 186 256 Sched 10 221, 256, 262 Matrimonial Homes Act 1983— s 1(6) 196, 207 Protection from Eviction Act 1977 17, 108, 113, 194, 285, 286, 289 s 1(1) 162, 170, 285 s 1(2), (3) 285 s 1(5) 286 s5 207 s 5(1) 286 Rent Act 1977 16, 28–30, 35, 36, 175–81, 184–87, 189–91, 193–96, 207, 211–13, 215, 217–20, 223, 229, 232, 239, 241, 247, 253, 255, 257, 258, 261, 262, 277, 279, 294, 296, 342 s1 177, 178 s 2(1) 194, 207 s 2(1)(b) 206, 210 s 3(1) 197, 208 s 3(3) 205, 210 s4 177, 190 ss 5–16 177, 181 s5 190 s 5(4) 182 s6 182, 190, 219 s7 177, 182, 190 ss 8, 9 182, 190, 204
xxxi
Table of Statutes ss 10, 11 s 12 s 13 ss 14–16 s 20 s 21 s 22 s 24 s 26 s 51 s 67(1), (2) s 67(3) s 70(1)(a), (3), (3) s 89(1)(a) s 98 s 98(1) s 98(1)(a) s 100
183, 190 177, 180, 184, 185, 187, 189, 190 186, 191 186, 191 177, 180, 184, 189 177, 180, 189 189 186, 191 182, 190 212 211 212, 215 211, 215 199, 208 185 198 198, 200, 208 198, 203, 208, 209
s 119 s 120 s 123 s 128 s 152 Sched 1 Sched 2 Sched 15
213, 216 123, 151, 213 213 213, 215 178 197, 206, 210 184, 185, 190 185, 198, 199, 202–05, 208, 209, 233, 134, 247, 248, 253, 259, 278
Rent (Agriculture) Act 1976 26, 323, 341, 349 Rent Charges Act 1977 10 Statute of Wills Act 1540 8 Supreme Court Act 1981— s 37 150 Tenures Abolition Act 1660 8 Unfair Contract Terms Act 1977 148
xxxii
SECTION I CREATION OF LEASES
PART A CREATION
CHAPTER 1
INTRODUCTION
1.1
The relationship of landlord and tenant
It should be noted that, strictly, only the Crown is entitled to be referred to as an ‘owner’ of land, since William I claimed all land in Britain as his by conquest. We therefore can only ‘hold’ land. When a person ‘holds’ land free from any dues or payment, that person is known as a ‘freeholder’, or, more technically, as ‘the holder of the freehold estate of a fee simple absolute in possession’. A freeholder is popularly seen as an ‘owner of land’. Such a freeholder may not wish to occupy any or a part of that land, either because it is surplus to requirements or because the land was bought as an investment, that is for the specific purpose of providing a financial return. In either case, the land may provide an income or profit for that freeholder by his or her letting another occupy or use the land and paying a sum of money for the right to do so. That occupier or user is known as a ‘leaseholder’, or more technically, ‘the holder of the leasehold estate of a term of years absolute’. The freehold estate of a fee simple absolute in possession is, as will be noted later, for an indeterminate period, whereas a leasehold estate for a term of years absolute is for a specified period of time. Therefore, the relationship of landlord and tenant, or lessor and lessee, arises when a person who is entitled to hold land either as a freeholder or leaseholder grants the rights to use and occupy that land to another, who will be a leaseholder. The leaseholder may wish to occupy the land of the freeholder because of its position, or because of the cost to purchase premises outright, or because he or she only requires the premises for a specific time; for example, the property may be occupied or used as a shop in a town centre, or as a residence. This relationship between freeholder and leaseholder is known as that of ‘landlord and tenant’, or ‘lessor and lessee’. The freeholder of the land is the ‘landlord’ or ‘lessor’, and the occupier is the ‘tenant’ or ‘lessee’. The terms ‘landlord’ and ‘tenant’ are the most common, and, therefore, will be used throughout these notes. The arrangement between the landlord and tenant is a contract, that is a legally binding agreement, which is known as a ‘lease’ or ‘tenancy’. The term ‘lease’ is usually used for a fixed term and ‘tenancy’ for periodic, although few make this differentiation these days. However, the term ‘tenancy’ is used in statutes and this term is used in this text when reference is being made to statutory provisions.
3
Principles of Landlord and Tenant However, a lease is a special kind of contract in that it is also a conveyance, and so grants an estate in land, which is the right given to the tenant by the landlord to use and occupy that land, as referred to above. The lease may contain many terms regulating the relationship between the parties, allowing for a variety of uses of the property. Since the lease is a conveyance, and so is usually by deed (a written document), the terms contained in the lease are called, technically, ‘covenants’.
1.2
The versatility of leasehold
This relationship is of benefit to both parties and is one of the most versatile arrangements created by the law. This may be seen in the following ways. 1.2.1
The sublease
The tenant may choose not to occupy the premises personally, but allow another person to do so under a further arrangement, known as a ‘sublease’. The tenant would then become a landlord as well as a tenant, and the person to whom he or she had leased the property would be a subtenant. For example: A may hold the freehold legal estate of a fee simple absolute in possession (which is indeterminate). A may grant a leasehold legal estate for a term of years absolute of 50 years to B (the headlease). B may grant a leasehold legal estate for a term of years absolute of 49 years 364 days to C (sublease). C may grant a leasehold legal estate for a term of years absolute of 49 years 363 days to D (underlease). And so on… Note that the sub or underleases are always for a lesser period than the lease above (at least one day less). This is because a tenant cannot give a better title than the one he or she already has. 1.2.2
Assignment of the reversion and charging
The freehold landlord retains an interest in the property and will, of course, receive the property back at the end of the lease term and will be able to occupy it. This is known as the ‘reversion expectant upon the lease’. However, during the term of the lease, the freehold landlord may sell the freehold to another. By doing so, the landlord is selling to the purchaser the right to receive the rents and profits and the right to receive the property back at the end of the term, that is, the reversion expectant on the lease. The purchaser will become the new landlord. The freehold landlord is said to be ‘assigning the reversion expectant on the lease’. 1.2.3
Assignment of the lease
The tenant also has an interest in the land and, if he or she is in occupation, may sell the remainder of the lease to a purchaser. The purchaser will become
4
Introduction the new tenant. The tenant is said to be ‘assigning the remainder or residue of the lease’. The tenant is referred to as the ‘assignor’ and the purchaser as the ‘assignee’. It should be noted that the assignee may in turn assign the remainder of the lease to another, and so on. If the tenant has sublet the premises, then he or she will be in the position of a landlord, and so will still have an interest in the property. That interest will be the ‘reversion of the remainder of the lease after the sublease has ended’. He or she also has the right to receive the rents and profits under the sublease. As with the freehold landlord, the leasehold landlord may also sell or ‘assign’ the reversion. Since there may be very little left of the lease once the sublease has ended, the purchaser will really be interested in the rent paid by the subtenant which the purchaser, as the new leasehold landlord, will be entitled to receive. A subtenant may also let, and such a lease is known as an underlease. Further strata may also be created by subunderleases and so on. In addition, the subtenant may assign the remainder of the sublease, or the reversion of the sublease if he or she has underlet. The same options are open to undertenants and subundertenants. Freehold landlords, leasehold landlords, tenants, subtenants, undertenants etc, and their assignees may use their interest in the land as security for a loan. 1.2.4
Income and maintenance
A lease provides the landlord who has the freehold not only with an income by way of a payment, known as rent, for the use of the land, but also provides a person, in the form of the tenant, who will, under the terms of the lease, look after the premises. A lease further provides the tenant with premises as a residence, shop, office, or as a means of income by subletting the premises to another, also for a payment of rent. 1.2.5
Control by the landlord
The freehold landlord does not lose all control of the property by leasing it, since the lease may contain terms requiring the tenant to use the premises for certain purposes only, or to maintain the premises, or prohibiting the tenant from acting in a certain way in relation to the premises, or not to act in a certain way unless the landlord has given his or her consent. Details relating to these terms are considered in Chapter 6. The covenants contained in the lease are readily enforceable by each party against the other. This is not as true of covenants contained in a conveyance of freehold property. To compare this further, reference should be made to a general text on land law with particular attention to positive and restrictive covenants in relation to freehold land. However, in outline, the main reason for the difficulty is that a positive covenant in a conveyance of a freehold property, requiring the purchaser to
5
Principles of Landlord and Tenant keep the premises in repair, can only be enforced by privity of contract between the seller and the buyer. Once the property is sold, the seller who imposed the covenant will probably move away and will have no interest in the property. There will be little or no incentive to enforce the covenant just to assist those who still live in the vicinity. Even if the seller remains, when the buyer in turn sells the property to another, there will be no privity of contract between the original seller and the new buyer, and since, under the doctrine of privity of estate, as applied to covenants contained in conveyances of freehold property, only the benefit passes, not the burden, it would not be possible to enforce the covenant directly against the new buyer. The seller would have to enforce the covenant against the original buyer, and then, by means of indemnity, enforce the covenant against the new buyer. The defect with this is that the repairs will still not be undertaken, as specific performance will not be obtained, only damages, and so the persons adjacent to the property will continue to suffer from the disrepair. Also, the more sales of the land, the longer and less reliable the chain of indemnity becomes. Because of this difficulty in enforcing covenants in relation to freehold land, building societies and banks are reluctant to advance loans secured upon freehold flats. However, the doctrines of privity of contract and privity of estate operate more effectively in respect of covenants contained in a lease than in respect of those contained in a conveyance of freehold land. A landlord will continue to have an interest in the property even though he or she does not occupy it, since it will, at some time, revert back. Also, in relation to leases granted before the coming into effect of the Landlord and Tenant Act (Covenants) Act 1995, the doctrine of privity of estate arises wherever the relationship of landlord and tenant exists and enables both the original parties and their successors, while they hold the leasehold interest, to enforce directly against one another the covenants that touch and concern the land. The doctrines of privity of contract and estate operate more effectively in respect of covenants contained in a lease. The 1995 Act has altered the way in which leasehold covenants can be enforced, but their enforcement continues to be more effective than that of freehold covenants. The enforcement of covenants in leases is described in more detail in Chapter 4. Therefore a landlord can enforce a covenant in a lease against the tenant, such as requiring the tenant to keep the property in repair. The tenant in turn can enforce a covenant in a lease against the landlord, such as to ensure that all the common areas and any parts of the building which the landlord is required to maintain are kept in good repair. Also, if a tenant of one part of the building fails to maintain his or her part of the property, causing damage to another tenant’s premises, then, if the landlord fails to take action, the tenant who is suffering the damage may take action against the landlord, who will then be obliged to take action against the tenant causing the damage.
6
Introduction
1.3
Leasehold within the context of land law
Having stated the rudiments of leasing, and having pointed out some of its advantages, it is now necessary to consider the technical way in which leases operate in the law. This may be understood by a brief review of the following doctrines. 1.3.1
Doctrine of tenure
Tenure is the doctrine that applies to the conditions under which land is held. As stated, land in England and Wales is, strictly speaking, not owned, but held from the Crown. At one time, land was held by giving some service or paying some due to the King or Queen, either directly or through a lord. These services or dues were known as ‘tenures’, and described the way a person held the land. So far as freehold land is concerned, all dues and services have been abolished, and so tenure is of little or no importance to freeholders. However, tenure still exists in relation to leasehold land, since it is held by virtue of the tenant paying a due in the form of rent to the landlord. 1.3.2
Doctrine of estates
Estate is the doctrine that applies to the length of time for which a person is entitled to hold land. Land can only be held from either the Crown, if it is freehold, or from a landlord, if it is leasehold, for a certain period of time. This period of time is expressed as an ‘estate’. The estate which gives the longest period of time is the ‘freehold estate of a fee simple absolute in possession’. This gives the holder the right to hold the land for an indefinite period. Other estates are ‘freehold estates for life’, which allow the holder to hold it just for his or her life, and ‘freehold estates in fee tail’, which means that they can be held indefinitely, provided they are inherited by a particular member of the family, for example, a male heir. A leasehold estate, however, is described as being for ‘a term of years absolute’, and can only be held for a specific number of years. It will be found that all land is held by someone as a fee simple absolute in possession, and that all other estates are secondary to that one estate, whether they be a freehold estate for life or a leasehold estate for a term of years. The important point to note is that more than one estate can be held in any one piece of land at any one time. At the end of each leasehold estate, the interest in the land will revert to the immediate landlord until it returns to the freeholder. Each further leasehold estate must be for a lesser period than the one immediately above it, because a person cannot give a better title than he or she already has. Therefore, a piece of land may be subject to a number of legal estates.
7
Principles of Landlord and Tenant 1.3.3
The doctrine of possession or seisin
Since the only person who could be described as an absolute owner is the monarch, the emphasis in English land law is placed upon the fact of possession, or ‘seisin’ as it is also known, rather than upon ownership. The effect of this is that, for a person to recover land, it need only be shown that he or she has a better title than the person in occupation. The claimant does not need to show a better title than anyone else. In relation to land subject to a lease, it must be noted that the freeholder is deemed to be in possession. This has had an effect on the classification of property. 1.3.4
Classification of property
Property may be classified as follows: (a) personal or personalty; (b) real or realty. Personal property was so called because it only created rights in personam. This meant that, if an individual was dispossessed of personal property, he could sue only the person who had dispossessed him. As a result, the individual may not be able to obtain the property back as of right but may only receive compensation instead. Real property was so called because it created a right in rem. This meant it was a right in the thing, and if an individual was dispossessed of real property, he or she could seek the return of the property itself and protect the right against the world. Leaseholds, or ‘chattels real’, were classified as personal property since, originally, these could only be enforced against a person under a contract and not as an interest in the land itself. The initial result of this classification meant that a tenant, if wrongfully dispossessed, only had a right to reclaim the land against the landlord and his or her successors in title. However, this right of ejectment was extended to any person who dispossessed the tenant. The classification did result in some early advantages for the leaseholder over the freeholder, in that a freeholder, being the person in possession, was liable for feudal services. Also, freehold land could not be passed by will, whereas leasehold could be. However, the process of assimilating the distinctions between real and personal property in general, and between freehold and leasehold property in particular, was commenced by the Statute of Wills Act 1540 and the Tenures Abolition Act 1660, continued by the Common Law Procedure Act 1852, and completed by the 1925 legislation.
8
Introduction Nevertheless, leases are strictly still classified as ‘personalty’ in that a gift in a will of ‘all my personalty to X’ would include any leases held by the testator, whereas a gift in a will of ‘all my realty to Y’ would exclude any land held under a lease. 1.3.5
Interests in land
Although one person may hold an estate in land, another person may have an interest in or over it. In fact, several people may have a variety of interests in relation the same land, for example, easements, profits à prendre, mortgages, restrictive covenants, and licences. The consideration of these is more appropriate to a general land law course. 1.3.6
Common law and equity
The common law commenced as the basic law of England and Wales and today represents the main estates and interests in land. Equitable rights in land developed, as in other areas of the law, due to defects in the common law which led to injustices which the Lord Chancellor, through the Court of Chancery, sought to remedy by applying equitable principles. Therefore Equity evolved as a body of laws that, so far as land law is concerned, would recognise estates and interests that the common law would not recognise. At one time, both the common law and equity recognised a great many estates and interests. However, this made conveyancing of estates and interests in land very difficult. As a result, legislation passed in 1925 reduced the number of legal estates and interests, and established a system of protecting holders of equitable interests and enabling purchasers to obtain interests or estates in land either free of the equitable interests, by overreaching them, or clear in the knowledge that such interests exist by requiring them to be registered, and conveyancing was thereby simplified. By virtue of s 1(1) of the Law of Property Act 1925, the only estates which are capable of subsisting or of being created at law are those of the freehold estate of a fee simple absolute in possession and a leasehold estate of a term of years absolute. As estates, they are both interests in land as opposed to easements, restrictive covenants, etc, which are interests over land. All other estates are now equitable interests. By virtue of s 1(5) of the Law of Property Act 1925, these two common law estates may exist at the same time in relation to the same piece of land. Although there will be only one legal freehold estate (fee simple absolute in possession) there may be several legal leasehold estates (term of years absolute). Also, by virtue of s 1(2) of the statute, the only interests or charges in or over land which are capable of subsisting or of being created at law are:
9
Principles of Landlord and Tenant (a) legal easements, rights and privileges: a right attached to land A, entitling the occupant to do something on land B (for example, a right of way) or preventing the possessor of land B from interfering with some benefit to land A (for example, a right to light); (b) rentcharges: where land is charged with the payment to someone of an annual or periodic sum. If the money is not paid, the person with the benefit of the rentcharge is entitled to enter the land in order to enforce payment, for example, by taking from the income of the land the amount that is owed. Rentcharges in the west of England were commonly created through the sale of land, whereby the seller would receive a lump sum plus a rentcharge securing an annual payment. The Rentcharges Act 1977 prevents the creation of new rentcharges, and existing ones are to end in 60 years from the date of the Act. It is, nevertheless, still possible to create a rentcharge, for example, by leaving property to a person, subject to a periodic payment to an individual. This sort of rentcharge is the subject of trust; (c) charge by way of legal mortgage; (d) a charge on land not created by an instrument: for example, a tithe annuity; (e) rights of entry: for example, rights of entry reserved in leases should a tenant fail to comply with any of the terms. A similar right is also reserved in the creation of rentcharges. For the common law to recognise these estates and interests, they must be created with the correct formalities. In the context of leases, these formalities are considered more fully in Chapter 3. All estates or interests that are not legal are equitable (s 1(3)), including those that are potentially legal, but have not been created with the correct formalities. Equitable interests may arise as follows: (a) informality: where the proper formalities for creation or conveyance of a legal estate or interest were not observed, for example, a contract is made to create a lease but the lease is not executed; (b) inability: where only an interest recognised by equity could be created, for example, a trust or an option for the grant of a lease; (c) intention: where it is the intention of the grantor (the person creating the right) that only an equitable interest will be created, even though a legal interest could have been created
10
Introduction 1.3.7
Distinction between legal estates and interests and equitable interests
The distinction between legal estates and interests and equitable interests was maintained by the 1925 legislation. Since the Judicature Acts 1873–75, common law and equity have been administered in the same courts, and both the common law remedy of damages and the range of equitable remedies, for example, specific performance and injunction, are obtainable irrespective of whether a person holds a legal estate or interest or an equitable interest. Nevertheless, the occasions when the remedy of damages will be awarded at common law are different from those when equitable remedies, such as an injunction or specific performance, will be granted. Also, in land law generally, and in relation to landlord and tenant in particular, differences remain in the formalities required for the creation of a legal estate or interest and an equitable interest. For example, leases and rules relating to registration of legal estates and interests are different from those relating to equitable interests. 1.3.8
Registration
Before a prospective purchaser or tenant of land buys or leases property, he or she will wish to find out as much as possible about it, such as, whether the person selling or leasing has the right to do so (that is, has title to it) and what encumbrances, such as restrictive covenants or mortgages, are attached to it. Before 1925, the prospective purchaser or tenant could only look at the title deeds to a property in order to find out about it, and so had to rely upon the documentation provided by the seller. Such documentation was often complex and unreliable. To overcome this difficulty, it was proposed that a register should be created, which would set out a description of the land, the names of the proprietors, and a list of all the encumbrances to the land. Therefore, all land would be registered. However, it was not possible to do this overnight, and so, to overcome the immediate problems in relation to the land which would, for some time, be unregistered, a more limited register was established, on which would be listed the main encumbrances on the land. This is known as the land charges register, and is situated at the Land Charges Department in Plymouth. Thérefore, there are two systems of conveyancing: one in relation to title to land, known as ‘unregistered land’, which was not yet entered in the register held at HM Land Registry and its district registries, and the other in relation to title to land which is entered on the register, and which is therefore known as ‘registered land’. Unregistered land A purchaser of unregistered land must look at the title deeds to ensure that the seller or landlord has the right to title to the land, and at the land charges register
11
Principles of Landlord and Tenant at the Land Charges Department to see what encumbrances may adversely affect the title. Certain encumbrances must be registered. These are nearly all equitable interests, with the notable exception of second legal mortgages. These charges are registered under classes of number and letter, for example, contracts for leases are listed as C(iv). It was not thought necessary to register legal interests, as these would probably be obvious from the deeds. If an equitable interest is not registered, then generally, it will be void against a purchaser or tenant of land. Exceptions are interests within classes C(iv) and D, which are only void against a purchaser or tenant of a legal estate for money or money’s worth, and so would be valid against the holder of an equitable lease, even if not registered. Some encumbrances are not registrable, either intentionally or inadvertently. A purchaser or tenant must make full investigation and inspection to seek to discover these, and only if this is done, and the encumbrances not found, will the purchaser or tenant take free of them. If, however, such an interest is discovered, then he or she will take subject to it. This is known as ‘the doctrine of notice’. Registered land Eventually, all land will be entered on the register at HM Land Registry and its district registries. The idea is that this should set out all the prospective purchaser or lessor needs to know about the land, and that such information is guaranteed to be accurate. All the encumbrances that should be listed on the land charges register at the Land Charges Department in relation to unregistered land must also be listed on the charges part of the register at HM Land Registry. However, certain interests are not registrable, and most of these are listed under s 70(1) of the Land Registration Act 1925. The list indicates that legal interests do not have to be registered, but, generally, with some exceptions, notably under s 70(1)(g) relating to interests of a person in actual occupation of the land, equitable interests are not included in the list, and so must be registered. Conclusion It will be noted that references are made throughout this book to the requirements of registration and the effect of non-registration of interests, both in relation to registered and unregistered land. More details concerning registered and unregistered land will be found in a general book on land law, and its mention here is merely to put in context the references in this book.
1.4
Classification of leases
There are various classifications of leases, which correspond either to the ways in which a lease may be created, or to the types of lease.
12
Introduction 1.4.1
Creation of leases
A lease may be created expressly or impliedly, for a fixed term (long or short), or periodic term. Other leases may be created as tenancies at will, tenancies by sufferance or tenancies by estoppel. Express Leases may be created expressly by a written or oral agreement between the landlord and the tenant. For a lease of over three years to be recognised at common law (‘a legal lease’), it must be made with the formality of a deed, otherwise it may be an equitable lease. Leases of three years or less will be legal leases, whether made orally or in writing, provided that they satisfy all of the elements set out in s 54(2) of the Law of Property Act 1925, which are considered more fully in Chapter 3. Implied Leases may be implied if the landlord grants exclusive possession of land to the tenant in return for a periodic payment of rent, and provided that there is an intention to create the relationship of landlord and tenant. Fixed term (long or short) A lease may be for a fixed term, that is, determining on a specific date or after a specific period, which may be long or short. There is no definition of a ‘long’ or ‘short’ term lease, but a period of seven years or less is usually treated as a short term, a view confirmed by the provisions of s 11 of the Landlord and Tenant Act 1985; whereas a lease exceeding 21 years is viewed as being long, as confirmed by the provisions of the Leasehold Reform Act 1967 and the Leasehold Reform Housing and Urban Development Act 1993, and as would seem to be indicated by the requirement that such leases must be registered at HM Land Registry. There is no limit to the length of a lease at common law. Long leases of 99 years or more are similar to freehold leases, in that the leasehold interest is usually purchased for a lump sum called a ‘premium’ or ‘fine’, which is a capitalised rent. The rent itself, referred to in these circumstances as ‘ground rent’, is then usually a nominal sum. However, the tenant and his or her assigns will still be liable to comply with all the covenants of the lease throughout the term of the lease. It may seem strange that a person should wish to grant a lease for such a long term, in respect of which he or she will not receive the reversion. However, this may be done for the following reasons: (a) as mentioned above, covenants in freehold conveyances are difficult to enforce and yet are comparatively more readily enforceable in respect of leasehold property. Since, by the nature of its construction, the structural
13
Principles of Landlord and Tenant
(b)
(c)
(d)
(e)
stability and amenity of one flat or unit in a building depends on the maintenance and neighbourly attitude of the occupiers of the other flats or units in the building, it is essential that the covenants relating to repair and conduct contained in any conveyance should be enforceable. Therefore, to ensure that such covenants are enforceable, the leasehold conveyance is usually chosen to such an extent that banks and building societies are reluctant to grant mortgages for flats unless they are leasehold; to ensure that the property let in units or flats is generally, and the common parts in particular are maintained properly, the landlord will assume responsibility for them. Then, also to ensure that the cost of the maintenance repairs and decoration is met by the tenants, landlords will impose, within the lease, a service charge to cover these costs usually payable annually; owners of some estates have, in the past, sought to ensure that housing and other developments are kept to a certain standard and appearance, sometimes because they see themselves as benefactors, and sometimes because they have other land adjacent, the value of which they feel may be affected if the development were allowed to deteriorate. Therefore, they have let houses or other buildings on the development on long leases, rather than selling the freehold outright, in order that they may maintain some control. The ground rents set in these circumstances have usually been low, and, in recent years have, in some cases, cost more to collect than they have realised; owners of some estates, on the other hand, have held such valuable property, such as that of the Duke of Westminster in central London, that, even though the reversion may be far into the future, it still has a substantial current value. In addition, some such property has been of such value that, even with a considerable premium, a high ground rent can also be charged; on the termination of a fixed term, whether a long or short lease, the lease reverts back to the landlord. However, in respect of long residential leases, statutory provisions have enabled eligible tenants either to purchase the freehold or to obtain a further lease. The provisions relating to leasehold houses are contained in the Leasehold Reform Act 1967, and those relating to flats are found in the Leasehold Reform Housing and Urban Development Act 1993. It is notable that the legislation is only designed to enable tenants of flats to purchase the whole building collectively: it does not allow an individual tenant of a flat to purchase the freehold of just that flat, which would be a ‘flying freehold’ if it were not on the ground floor. Unlike Scottish law, English law appears to have difficulty in dealing with the ‘flying freehold’ situation.
14
Introduction Periodic leases Unless terminated by notice to quit, periodic tenancies may exist indefinitely. A lease may be for a periodic term, such as weekly, monthly, quarterly, or yearly. It may be created expressly or impliedly. An implied lease will usually arise when the landlord grants the tenant possession of the premises and accepts rent, and will normally be periodic, the length of the term being taken from the rental periods. Periodic leases are still within the definition of ‘a term of years absolute’ and even if they are oral, or in writing but not by deed, they may still be legal leases. Tenancy at will A tenancy at will exists when the tenant occupies land with the landlord’s consent on the understanding that either the tenant or the landlord may terminate the tenancy at will. No notice is required by either party. A tenancy at will may be created either expressly or impliedly, and the main examples of this type of tenancy are on holding over on the expiry of one tenancy before another is granted, or during the course of negotiations before a tenancy is granted. Rent is not payable in respect of an implied tenancy at will, but a landlord is entitled to ‘mesne profits’. Following the case of Javad v Aquil (1991), the difference would appear to be a matter of circumstances. In Javad, although a regular payment was taken in much the same way as rent, the court considered that the surrounding circumstances made it clear that only a tenancy at will existed while negotiations for a lease took place. Tenancy by sufferance A tenancy by sufferance exists when, although the tenant occupied the land initially with the landlord’s consent, that consent has now been withdrawn, or has ceased to apply, and the tenant has no statutory security of tenure. Therefore, the tenant is occupying the land wrongfully, that is, wrongfully holding over and so becomes a trespasser. Tenancy by estoppel If a person purports to grant a lease of land in which that person has no estate, he or she is estopped from repudiating the tenancy and the tenant is estopped from denying its existence. If the landlord later acquires an estate in the land, for example, by purchasing the fee simple, then this is said to ‘feed the estoppel’ so that the tenancy becomes fully effective and the tenant acquires an actual estate in the land.
15
Principles of Landlord and Tenant 1.4.2
Residential leases
Generally, these relate to premises that are used as dwellings, but the statutory rules relating to residential leases have meant that, in some circumstances, the terminology has a precise meaning. 1.4.3
Business leases
Again, these generally relate to premises used for business purposes, but, as with residential property, the statutory rules have meant that a precise meaning is sometimes afforded to this wording. 1.4.4
Agricultural leases
Until statutory rules were introduced, these were regulated by the common law and custom. In looking at this area, it is important to note not only the rules concerning agricultural holdings, but also houses provided for those working in agriculture. 1.4.5
Public sector lease
These include lettings by local authorities, new town corporations, urban development corporations, housing action trusts and housing corporations.
1.5
Statutory intervention
The main principles for the creation, content and termination of leases or tenancies have evolved from the common law. However, these principles have been substantially modified by statute. In considering the effect of legislation on leases, it is convenient to deal with the topics in accordance with the classification above and corresponding to the layout of this book. 1.5.1
The creation, content and termination of leases
This is predominantly under the rules of the common law and equity, and statutory interference is mainly in specific areas, rather than an attempt to codify These matters are dealt with in Section I. 1.5.2
Residential leases
Residential leases, both long and short term, have been substantially affected by statute. Tenancies made before 15 January 1989 are mostly governed by the provisions of the Rent Act 1977, whereas those made after that date are bound by the provisions of the Housing Act 1988, as amended by the Housing Act
16
Introduction 1996. The legislation defines those leases that come within its provisions. This legislation is designed to give tenants security of tenure and a measure of rent control, although such control is very slim indeed in respect of the leases that come within the Housing Act 1988. Also, a form of security of tenure is given under the Leasehold Reform Act 1967, in respect of houses, and under the Leasehold Reform Housing and Urban Development Act 1993 in respect of flats that are let on long leases, in that the tenants who qualify may purchase the freehold or obtain a further long lease. Further miscellaneous provisions are dealt with in other legislation, such as the Protection from Eviction Act 1977, the Landlord and Tenant Act 1985, and the Landlord and Tenant Act 1987. The matters relating to residential leases are dealt with in Section II. 1.5.3
Business leases
Most business lease tenants are given security of tenure under Part II of the Landlord and Tenant Act 1954, with provisions for compensation for improvements contained in Part I of the Landlord and Tenant Act 1927. These are considered in Section III. 1.5.4
Agricultural leases
Certain tenants holding under agricultural leases of agricultural holdings are given security of tenure under the Agricultural Holdings Act 1986. This comes in Section IV. 1.5.5
Public sector leases
Certain public sector tenants are given security of tenure in the form of secure tenancies under the provisions of Part IV of the Housing Act 1985.
17
SUMMARY OF CHAPTER 1
INTRODUCTION The relationship of landlord and tenant The freehold estate of a fee simple absolute in possession is for an indeterminate period, whereas a leasehold estate for a term of years absolute is for a specified period of time. The relationship of landlord and tenant, or lessor and lessee, arises when a person who is entitled to hold land either as a freeholder or leaseholder grants the rights to use and occupy that land which he or she has to another who will be a leaseholder. A lease or tenancy is a special kind of contract, in that it is also a conveyance, and so grants an estate in land which is the right given to the tenant by the landlord to use and occupy that land. Versatility of leasehold The versatility of the relationship is seen in that: (a) (b) (c) (d)
the tenant may sublet the premises; the landlord may assign the reversion; the tenant may assign the lease; the landlord has an income in the form of rent and a person in the form of the tenant to maintain the premises; and (e) the landlord can control the use of the premises by the enforcement of the covenants. The doctrines of privity of contract and privity of estate operate more effectively in respect of covenants contained in a lease than those contained in a conveyance of freehold land. The original landlord and tenant of a lease may remain liable under the lease for the whole term, through the doctrine of privity of contract. Also, the doctrine of privity of estate arises wherever the relationship of landlord and tenant exists, and enables both original parties and their respective successors, while they hold the leasehold interest, to enforce against one another directly the covenants that touch and concern the land. The enforcement of covenants in leases has been substantially changed by the Landlord and Tenant (Covenants) Act 1995 for leases made after its commencement (see Chapter 4).
19
Principles of Landlord and Tenant
Tenure within the context of land law Tenure is the doctrine which applies to the conditions under which land is held and still exists in relation to leasehold land, since it is held by virtue of the tenant or lessee paying a due in the form of rent to the landlord or lessor. Estate is the doctrine which applies to the length of time a person is entitled to hold land. The estate which gives the longest period of time is the freehold estate of a fee simple absolute in possession, which gives the holder the right to hold the land for an indefinite period. A leasehold estate is described as being for a term of years absolute and can only be held for a specific number of years. By virtue of s 1(1) of the Law of Property Act 1925, these are the only two legal estates capable of subsisting or of being created in law. All other estates are now equitable interests. Legal estates must be created with the correct formalities. If they have not been created with the correct formalities, they may be equitable interests. All land is held by someone as a fee simple absolute in possession. All other estates are secondary to that one estate, whether they be freehold estates for life or in tail, or leasehold estates for terms of years. By virtue of s 1(5) of the Law of Property Act 1925, these two legal estates may exist at the same time in relation to the same piece of land. Although there will be only one legal freehold estate (fee simple absolute in possession), there may be several legal leasehold estates (term of years absolute). For example, A may hold the freehold legal estate of a fee simple absolute in possession (which is indeterminate). A may grant a leasehold legal estate for a term of years absolute of 50 years to B (the headlease). B may grant a leasehold legal estate for a term of years absolute of 49 years 364 days to C (sublease). C may grant a leasehold legal estate for a term of years absolute of 49 years 363 days to D (underlease). And so on… The ‘subleases’ or ‘underleases’ are always for a period of at least one day less than the headlease above them. This is because a tenant cannot give a better title than the one he or she already has. At the end of each leasehold estate, the interest in the land will revert to the immediate landlord until it returns to A. Differences remain between legal estates and interests and equitable interests. The common law remedy of damages has different features from those of the equitable remedies. There are different formalities for the creation of legal estates and interests and equitable estates and interests.
20
Introduction
Classification of leases Fixed term leases may be created expressly. Periodic leases may be created expressly or impliedly. Other leases may be created as tenancies at will, tenancies on sufferance or tenancies by estoppel. Different statutory provisions apply to leases, depending on whether they are private residential, business, agricultural, or ‘public sector’ leases.
Statutory intervention Statute has interfered in the creation, content and termination of all these types of lease, but particularly in the area of security of tenure, and to some extent in the area of rent control.
21
CHAPTER 2
LEASES AND LICENCES
2.1
Definition of a licence
A licence is a mere permission to enter or use land. Most importantly, it does not give an interest in land, but merely prevents a person’s entry or use of the land from being a trespass. A dispensation or licence properly passes no interest, nor alters or transfers property in anything, but only makes an action lawful, which without it would be unlawful (Vaughan CJ, in Thomas v Sorrell (1673)).
2.2
Types of licence
There are four main types of licence. 2.2.1
Bare licence
A ‘bare licence’ is a permission that may be revoked at any time, and such revocation must be complied with within a reasonable time; for example, permission granted to visitors, such as milkmen or postwomen, to walk along the access to the door of a building, or permission to enter a shop. It is also seen as a residuary class of licence, in that it covers the permissions that are not created by contract or estoppel. 2.2.2
Licences coupled with a grant
Where a person is given a right on land to hunt or cut wood or hay, then there is an automatic licence to enter the land to exercise that right. 2.2.3
Contractual licence
A contractual licence is one that is given for consideration, and may or may not carry a variety of terms as to the extent of the licence and the manner in which the rights given under the licence might be exercised. Examples of contractual licences are a seat to watch a film, as in Hurst v Picture Theatres Ltd (1915), or entry to a race course, as in Wood v Leadbitter (1845), or accommodation in a hotel bedroom or lodgings, as in Luganda v Service Hotels (1969).
23
Principles of Landlord and Tenant Contractual licences are usually expressly created, although, even where there was no express contractual agreement, the courts have been prepared to imply a contractual licence, as in Tanner v Tanner (1975). In this case, a licence was implied in favour of a woman to look after her children in a house until they were of school age and for so long as the accommodation was reasonably required. The licence was said to be granted by her lover in return for her giving up a statutorily protected lease to move into the house with him. Although both bare and contractual licences are revocable at will by the grantor, in the case of a contractual licence, the grantor is open to an action for breach of contract, affording the licensee an action for either damages or an equitable remedy as appropriate. So, in Hurst v Picture Theatres Ltd, in which a person was ejected from a cinema having bought a ticket to see the show, it was held that, if circumstances had allowed, an injunction or specific performance could have been claimed to prevent his removal, but as these remedies in the event were not satisfactory, then damages could be awarded. See, also, Winter Garden Theatre (London) Ltd v Millennium Productions Ltd (1948) and London Borough of Hounslow v Twickenham Garden Developments Ltd (1971). Under normal contractual principles, the benefit of a contractual licence can be assigned to a successor, but the burden of a contractual licence cannot, because the third party would not be a party to the original contract. Therefore, if a licensor sells his interest in property, the purchaser is not bound by the licence and may revoke it without being liable in action for breach of contract, since he is not a party to the contract. See King v David Allen and Sons (Billposting) Ltd (1916), and Clore v Theatrical Properties Ltd (1936). However, in the case of Errington v Errington (1952), a house was conveyed to a father, who then agreed with his son and daughter-in-law, who lived in the property, that if they paid the mortgage instalments, he would convey the property to them. The father died and the property passed to his estate, held by his widow as executrix. The widow then sought to revoke the contractual licence, saying she was a third party to the agreement and the burden could not pass to her. The Court of Appeal held that, even though she was a third party, she could not revoke, because there arose an ‘equity’, which was not registrable as a land charge, but which was enforceable because, in this case, since the land was unregistered, the doctrine of notice applied. The widow was bound by her daughter-in-law’s right, because she was not a bona fide purchaser of the legal estate without notice of the equity. The case is regarded as authority for the proposition that, in certain circumstances, a contractual licence may not be revocable when the burden passes to a third party. Nevertheless, it is open to the following criticism: (a) the widow was not a third party. As executrix of the will, she was bound by the contract. Therefore, the reference to the ‘equity’ was unnecessary; (b) it is contrary to contractual principles;
24
Leases and Licences (c) it seeks to create an ‘equity’ which, unlike that in respect of proprietary estoppel, is ill-defined; (d) it leaves open the question of whether the ‘equity’ referred to comes within s 70(1)(g) of the Land Registration Act 1925 as an interest in land. It has been suggested by the Court of Appeal, in Ashburn Anstalt v Arnold (1989), that the ‘equity’ may amount to a constructive trust. If so, the contractual principles might remain intact, and the equity would then be defined by the criteria for a constructive trust. This view would appear to have been applied in the earlier case of Binions v Evans (1972), to avoid the difficulty of imposing an irrevocable contractual licence against a third party. 2.2.4
Licence by estoppel—proprietary estoppel
A licence by estoppel may arise where an owner of land makes a representation to another which amounts to a permission to use that land, whereupon that other acts to his detriment. The owner will subsequently be estopped from denying that representation. The licence is based upon an equitable doctrine of estoppel known as ‘proprietary estoppel’, and, since Taylor Fashions Ltd v Liverpool Victoria Trustees Co Ltd (1982), applies where one party makes a representation to another intending that other to act upon it, and that other does act upon it to his or her detriment. In such circumstances, the party making the representation will be estopped from denying that representation and prevented from going back on it. The doctrine creates an ‘equity of acquiescence and encouragement’. As with contractual licences, the issue of whether or not a licence by estoppel could be revoked has arisen and, again as with contractual licences, it has been suggested that, in some cases, the ‘equity’ of proprietary estoppel which arises in relation to licences by estoppel may be enforceable not only against the original party but also against a successor. In Inwards v Baker (1965), Lord Denning submitted that the rules of estoppel enabled the ‘equity’ to be enforced to that extent. A further example of where an estoppel gives rise to an irrevocable equity can be found in ER Ives Investments Ltd v High (1967), in which a neighbour was granted a right of way over land when it was found that the owner of the adjacent land had constructed the foundations of a building on the neighbour’s property. When the owner of the adjacent property sold the land, the new owner sought to revoke the right of way as being a licence. It was held by Lord Denning MR that it was indeed a licence by estoppel, but that it could not be revoked because: (a) under the rule in Halsall v Brizell (1957), a benefit could not be taken without a burden; and
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Principles of Landlord and Tenant (b) an ‘equity arising out of acquiescence’ had arisen. This point has been criticised as being unnecessary, since the first reason was sufficient, and appears to raise the question as to whether such an ‘equity’ amounts to an interest in the land. In spite of this criticism, the case is regarded as authority for the proposition that, in certain circumstances, a licence by estoppel may not be revocable when the burden passes to a third party. 2.2.5
Conclusion
A major difference between a licence and a lease is that a licence does not give a proprietary right and is therefore revocable, whereas a lease does give a proprietary right and so cannot be revoked. The importance of considering the revocability of both contractual licences and licences by estoppel is that there is a challenge to this difference in that, in relation to both forms of licence, in certain circumstances a licence may, arguably, give a proprietary interest. The question still to be considered is whether the irrevocability of a licence creates a proprietary interest, or whether it merely provides a remedy to an unjust revocation.
2.3
Distinction between a lease and a contractual licence
A contractual licence, which does not give an interest in land, is commonly confused with a lease, which does give an interest in land. The confusion caused by the similarity between the two has sometimes been used by owners of land to claim that an occupier has only a licence and, therefore, no rights in relation to the land, and so can be required by the owner to leave the property. Conversely, an occupier might claim to have a lease, and, therefore an interest in the land, and so is entitled to the benefits of a lease. A lease gives what Lord Templeman described in Street v Mountford (1985), as a ‘stake’ in the property. The benefits that this stake gives include the right of the tenant at common law to claim or reclaim the property against those who seek to dispossess him or her, and, so far as the express terms of the lease allow, to use the property as he or she wishes and to transfer the property to another. In addition, there have been substantial benefits by virtue of statutory provisions, particularly in relation to residential tenancies, which have granted security of tenure to the tenant and imposed rent control upon the landlord. None of these benefits is afforded to a licensee under a licence. However, licensees have security of tenure in certain circumstances under the provisions of the Housing Act 1985 and the Rent (Agriculture) Act 1976, as amended by the Housing Act 1988 and as further amended by the Housing Act 1996. The confusion between contractual licences and leases, and the importance of the practical consequences to the respective parties to an agreement being
26
Leases and Licences found to be either a lease or a licence, has led to litigation, and, therefore, the distinction warrants consideration. 2.3.1
The traditional approach to distinguishing between a lease and a licence
The traditional approach to distinguishing between a lease and a licence was based upon whether or not a tenant had exclusive possession of the premises. To have a lease, it was essential that the tenant should have exclusive possession of the premises. That is not to say that wherever there was exclusive possession there was a lease, since other circumstances may mean that there was merely a licence; rather, that a lease could not exist unless there was exclusive possession. One of the most obvious examples of there being exclusive possession, but no lease, is where the possessor of the land is a freeholder. A major difficulty for both parties to the relationship and for the courts has been satisfactorily to define ‘exclusive possession’ and to give a formula whereby, in any given situation, a lease or licence could be recognised. In the 20th century, a satisfactory distinguishing test has been looked for in the significant quantity of litigation. Suggested reasons for the prominence of this search in recent years are that, in the 19th century, there was ample rented accommodation, and so the market regulated itself by supply and demand. If a landlord’s premises were unsatisfactory, or if a tenant was served with a notice to quit, or if the rent charged was excessive, then the tenant would merely move to other premises which were satisfactory, or where the rent was reasonable. The ability of the tenant to move meant that a test to demonstrate what amounted to exclusive possession, and thereby distinguish between a lease and licence, did not appear to be a matter of contention. However, following both the First and Second World Wars, there was a shortage of housing due to bomb damage, limited house construction due to a shortage of building materials, and an increase in the population. It was feared that this post-war situation would be exacerbated by property owners taking advantage of those requiring accommodation by charging excessive rents and by moving tenants out arbitrarily when the tenants would have little prospect of obtaining other premises in which to live or work. It was, therefore, found necessary to regulate rents and give tenants a right, provided they complied with the clauses of the lease, to stay in accommodation without the fear of losing their homes or business premises. This regulation came in the form of the statutory provisions, which only covered leases. The protective statutory provisions continued long after the initial post-war crisis, and landlords therefore sought to create licences rather than leases, so that they would be unfettered by the statutory rent regulation and security of tenure provisions, particularly in relation to residential property. The methods by which landlords attempted to create licences came under judicial
27
Principles of Landlord and Tenant scrutiny as tenants claimed these agreements to be leases, therefore giving entitlement to the resultant statutory protection. Traditionally, the test as to whether a person had exclusive possession was entirely an objective one, namely, ‘What did the agreement create?’. If the nature of the occupancy which the agreement created came within the definition of a licence, then that is what was created. Similarly, if it came within the definition of a lease, then it was a lease. The subjective intentions of the parties did not change the nature of the agreement they had created. Therefore, under the traditional approach, if the nature of the arrangement was a lease, then, no matter how often or adamantly the parties declared in any document that it was a licence and that there was no intention to grant exclusive possession, it would still be a lease if exclusive possession had been granted. In Addiscombe Garden Estates v Crabbe (1958), this traditional approach was expressed by Jenkins LJ. In this case, the draftsman had ‘studiously and successfully avoided the use of either the word “landlord” or the word “tenant” throughout the document’. Nevertheless, ‘The whole of the document must be looked at and, if after it has been examined, the right conclusion appears to be that, whatever label may have been attached to it, it in fact conferred and imposed on the grantee in substance the rights and obligations of the tenant and on the grantor in substance the rights and obligations of the landlord, then it must be given the appropriate effect, that is to say, it must be treated as a tenancy agreement as distinct from a mere licence’. 2.3.2
Erosion of the traditional approach
However, as the protection increased, particularly following the Rent Act 1977, attempts by landlords to avoid the effects of the protective legislation increased, and the test, although appearing to continue to be one of exclusive possession, seemed to be modified by the courts and moved from the traditional objective approach towards subjectivity, taking into account the intention of the parties as inferred from the express provisions of the agreement, rather than looking at the nature of the occupancy alone. In Burns v Barrett (1970), B had exclusive possession of three rooms of a house that was let to C. B paid no rent but looked after C. On C’s death, the landlords sought possession and B claimed a tenancy under the Rent Acts. It was held by the Court of Appeal that this was like a family arrangement: the occupation was a personal privilege, and so, only a licence. It was stated by Sachs LJ ‘that exclusive possession … is a factor which is no longer conclusive and, indeed, appears nowadays to have diminishing weight’. In Marchant v Charters (1977), a bedsit was occupied on terms that the landlord cleaned the rooms daily and provided linen each week. It was held
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Leases and Licences that a licence, not a lease, was created. Lord Denning MR stated that the distinguishing test between a lease and a licence depended on the nature and quality of the occupancy, following consideration of all the circumstances. This does not appear to contradict the traditional view. However, he went on to submit that exclusive possession alone was not the deciding factor. This change in position is highlighted by the Court of Appeal decision in Somma v Hazelhurst (1978). Mr Hazelhurst and Mrs Saveli each entered separate but identical agreements to occupy a double bedsit. Each agreement was described as a licence and stated that the licensor was not willing to grant exclusive possession and that the use of the rooms was ‘in common with the licensor and such other licensees as the licensor may permit to use the said rooms’. The Court of Appeal held that each agreement was a licence. Cumming-Bruce LJ stated that they saw ‘…no reason why an ordinary landlord should not be able to grant a licence to occupy an ordinary house if that was what both he and the licensee intended, and if they could frame a written agreement in such a way as to show that it was not really an agreement for a lease masquerading as a licence’. 2.3.3
Return to the traditional approach
However, in Street v Mountford (1985), an agreement was made giving Mrs Mountford exclusive possession of furnished rooms for £37 per week, although she signed a statement at the end of the agreement which said that it was not intended to give her a lease that was protected under the Rent Acts. It was held by the House of Lords that Mrs Mountford was a tenant. Lord Templeman, in delivering the leading speech, stated that, in assessing whether an agreement for residential occupation was a lease or a licence, whenever an occupier is granted: (a) exclusive possession of residential accommodation; (b) for a fixed or periodic term; (c) at a stated rent, then there is a lease, unless the granting of exclusive possession can be attributed to some other circumstances. He considered that, if the move away from the objective approach of looking only at the nature of the occupancy continued, the distinction between a lease and a licence would become ‘wholly unidentifiable’. The House of Lords, in Street v Mountford, disapproved of Somma v Hazelhurst, considering the wording created a sham licence merely to exclude the effect of statutory protection. To allow such sham licences to continue would, as Lord Templeman stated in AG Securities v Vaughan and Antoniades
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Principles of Landlord and Tenant v Villiers (1990), ‘…permit parties to contract out of the legislation, which they cannot do’. This marked a return to the traditional position.
2.4
Discovering whether exclusive possession is conferred
From the judgment given by Lord Templeman in Street v Mountford, a number of key points can be noted, particularly in relation to the wording of any agreement, the effect of such wording, and whether or not that wording creates a sham. 2.4.1
The wording of the agreement
The case reaffirmed that it is not the wording of the agreement that creates the lease, but the effect of that wording. To include a term stating that a licence has been created does not create a licence if the nature of the occupancy, as expressed in the other words of the agreement, creates a lease. As Lord Templeman stated: ‘If the agreement satisfied all the requirements of a tenancy, then the agreement produced a tenancy, and the parties cannot alter the effect of that agreement by insisting that they only created a licence. The manufacture of a five pronged implement for manual digging results in a fork, even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade.’ Therefore, drafting alone will not create a licence or a lease and, as summarised by Purchas LJ in Crancour Ltd v Da Silvaesa (1986), the court should not have in mind a shopping list of clauses that might be expected to be found in either a lease or licence. Although considerations such as the description of the agreement chosen by the parties, the effect of the Rent Acts and similar subsequent legislation, and the exercise or failure to exercise rights provided by the agreement by one or other of the parties are relevant, they should not be treated as decisive when determining whether an agreement for residential accommodation was a lease or a licence. 2.4.2
Shams
Following on from the above point relating to drafting, wording, such as making a specification which supposedly prevents exclusive possession and the creation of a lease, but in fact makes a pretence of granting a licence, or an arrangement, such as providing illusory services, will be treated as a sham and lead to the recognition of a lease rather than a licence. In Asian v Murphy (1990), a provision of the agreement excluded the occupier from the premises for a period of 90 minutes each day which, it was claimed, prevented him from acquiring exclusive possession.
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Leases and Licences It was held that this was clearly a pretence and, on looking at ‘the true bargain and not the apparent one’, the occupier was found to be a tenant and not a licensee. Therefore, in deciding whether there is a lease or a licence, the court is entitled to look at the surrounding circumstances. In Antoniades v Villiers (1990), the owner sought to exclude the effect of the legislation relating to security of tenure and rent control by requiring a man and a woman who wished to live together to sign two separate agreements based on the Somma v Hazelhurst precedent. Each agreement stated that the occupiers were to use the flat in common with the owner and other licensees. The owner, in fact, had no intention of allowing other licensees to the share the accommodation, which was only suitable for two persons, and, when given a choice by the owner, the occupiers chose a double bed rather than two singles. The licence was held to be a sham and was treated as being a lease.
2.5
Circumstances where exclusive possession does not create a lease
Following Street v Mountford, a lease will be constituted where there is exclusive possession of residential accommodation for a fixed or periodic term at a stated rent, unless the granting of exclusive possession can be attributed to some other circumstances. These other circumstances are: (a) lodgers: if the occupier is a lodger or the premises are serviced accommodation; (b) exceptional circumstances: if there are exceptional circumstances which cause the agreement to be attributed to a relationship other than that of landlord and tenant and which can be summarised as being: • agreements under a contract for the sale of land; • service agreements; • agreements where there is no intention to create legal relations because they are:
° family arrangements; ° acts of friendship; or ° acts of generosity, such agreements not being contracts at all, or potentially leases, but mere licences because of the lack of intention to create that legal relationship; • agreements where there is a genuine justification for being licences. The range of instances in which a licence may arise appears to be limited to being within the categories of lodger or exceptional circumstances. This view
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Principles of Landlord and Tenant seems to have been confirmed by the Court of Appeal in Asian v Murphy, and by the House of Lords in Antoniades v Villiers. However, the Court of Appeal, in both Hadjiloucas v Crean (1988) and Brooker Settled Estates v Ayres (1987), expressed the view that merely because a person was not a lodger did not mean that that person had exclusive possession and was therefore a tenant. Although exclusive possession was essential to a lease, it did not mean that wherever it existed there was a lease. Therefore, perhaps there may be room for another class of licence other than lodger, or for that class to be extended, or for there to be an extension of the classes of exceptional circumstances for genuine cases, as suggested in Antoniades v Villiers by Lord Oliver. There would certainly appear to be some room for fine tuning of the position in relation to exclusive possession, particularly in respect of the multiple occupancy cases, such as AG Securities v Vaughan, and recent cases concerning temporary accommodation, such as Westminster City Council v Clarke (1992).
2.6
Lodgers
Street v Mountford confirmed what amounted to a licence by reference to one of the most outstanding examples, namely, that of the lodger or serviced accommodation. If the landlord provides services or attendance which require the landlord or the landlord’s servants to exercise unrestricted access to, and use of, the premises, then the occupier will be a lodger, not a tenant, as he or she will not have exclusive possession. The overall supervision and control of the premises will rest with the licensor, not the licensee. In Abbeyfield (Harpenden) Homes v Woods (1968), although the occupier of a room in a residential home for the elderly paid ‘rent’ and the word ‘tenancy’ was used in the agreement, and he had exclusive possession of the room, he also had the provision of certain services and meals. It was held that, looking at the agreement as a whole, it was personal in nature, and the occupier was in the position of a lodger: so the agreement was, therefore, a licence. In Family Housing Association v Jones (1990), a homeless person was given a flat by the Association under an agreement described as a ‘licence for temporary accommodation’. The Association kept a key, in order that its staff could enter to inspect and to assist the occupier. A weekly charge was paid by the occupier. The Court of Appeal held that this was a lease.
2.7
Exceptional circumstances
Although a residential occupier may have exclusive possession of premises for a term at a rent, nevertheless it was held in Street v Mountford that there were categories of exceptional circumstances, as referred to by Lord Denning in Errington v Errington and Woods (1952), where an agreement may still be a licence. These circumstances were submitted as being that:
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Leases and Licences (a) (b) (c) (d)
the occupancy was under a contract for the sale of land; or the occupancy was pursuant to a contract of employment; or the occupancy was related to the holding of an office; or there was no intention to create legal relations.
Suggested reasons for these possible exceptions are: (a) in each of these cases, the possession of the premises may be attributable to a person other than the licensee. For example, where there is no intention to create legal relations because it is a family arrangement, it may be construed that the member of the family who owns the property is still in occupation. Likewise, where service accommodation is let to an employee to enable that employee to carry out his or her work effectively, it is submitted that the employer could be seen as still being in occupation; (b) alternatively, the occupation of the premises could be seen as being personal to that particular occupier, and therefore not granting an interest in the land itself. The above may be examined under the following headings. 2.7.1
Service occupancies
A service occupancy occurs where the occupier needs to reside in the premises in order to do his or her job. In Facchini v Bryson (1952), an employer agreed that his assistant could occupy a house for a weekly payment and on terms that gave the assistant exclusive possession of the premises. It was held that, since the assistant did not occupy the premises for the better performance of his duties, it was a service tenancy, not a service occupancy. 2.7.2
No intention to create legal relations
Lord Denning in Facchini v Bryson, stated: In all cases where an occupier has been held to be a licensee, there has been something in the circumstances, such as a family arrangement, an act of friendship or generosity or such like, to negative any intention to create a legal tenancy.’ The lack of intention to create legal relations may rebut the presumption of a lease by showing that there was no intention to create a contract at all, much less a particular kind of contractual relationship such as a lease, as in Cobb v Lane (1952), in which an owner of a house let it to her brother rent free. Alternatively, the arrangement may potentially be a lease, but the circumstances of a family arrangement or act of friendship or generosity mean that there is a lack of intention to create the particular legal relationship of a
33
Principles of Landlord and Tenant lease. In Heslop v Burns (1974), the owner of a cottage allowed a family to live there rent free. It was held that the parties did not intend any legal relationship and that the arrangement was, therefore, not a lease. In Marcroft Waggons Ltd v Smith (1951), the daughter of a deceased tenant who lived with her mother claimed a statutory lease by succession under the Rent Acts. The landlords counterclaimed that she was a trespasser. Nevertheless, they accepted rent from her while they considered the position. The Court of Appeal held there was no lease, and that their conduct was sufficient to show that they did not intend to contract with her. 2.7.3
Other exceptions
There are some recent cases which do not fit comfortably into the category of lodger or into the exceptional cases of service tenancies or arrangements where there is no intention to create legal relations. In Westminster City Council v Clarke, C, a homeless person, was given accommodation under the statutory obligations of the council in the form of a room in a hostel. The agreement under which he occupied the room was a ‘licence’, and the council reserved the right to move him to another room and to require him, in an emergency, to share. Following his disruptive behaviour, the council sought to evict him under the terms of the agreement, but he claimed to have the same security of tenure as a private sector lease, under s 79(3) of the Housing Act 1985, which grants the same status to licensees as that afforded to tenants, that is, the licensee has exclusive possession of a dwelling house. The Court of Appeal held in C’s favour, but the House of Lords held that the licence did not grant the security of tenure that C claimed. Lord Templeman distinguished the case from those where there were pretence and sham agreements by reference to the purpose of the provisions in the agreement, which were to enable the council to ‘…discharge its responsibilities to the vulnerable persons accommodated at the Cambridge Street terrace, and were not intended for the purposes of enabling the council to avoid the creation of a secure tenancy’. This case could potentially fit into the category of lodgers, except when contrasted with the case of Family Housing Association v Jones. The court appears to accept that if the owner of the property has a genuine purpose other than to avoid the effect of protective legislation, then the court may view the objective intentions of the parties as creating a licence rather than a lease. In Camden BC v Shortlife Community Housing Ltd (1992), the parties entered into an agreement, referred to as a ‘licence’, under which Shortlife Community Housing Ltd (SCH) was allowed to take over property owned by the council for an interim period prior to council refurbishment. SCH in turn let the property as accommodation, although each person who occupied the property knew of the licence with the council. SCH claimed the agreement was a lease. Millett J held that SCH was a licensee. Applying Street v Mountford, he held that they had acquired no right to exclusive possession, as it was not the parties’ true
34
Leases and Licences intention that SCH should do so when the agreement was made. It is submitted that this case does not fit within either the lodger or the existing exceptional circumstances categories referred to in Street v Mountford, yet the judge in the case said it was not a new category. A number of questions may, therefore, be posed. Are there, then, further categories of exceptional circumstance?—and if so, how are they to be classified? Are agreements for certain purposes perceived as being or creating licences?— or is the decision in Westminster City Council v Clarke to be taken together with that of Camden BC v Shortlife Housing Ltd as creating a category of exceptional circumstance of public policy?
2.8
Multiple occupation
This warrants special attention, as shared occupation could be interpreted in a variety of ways: (a) each occupier may have exclusive possession, and therefore a lease, in respect of his or her part of the premises; (b) all the occupiers together, if no more than four, hold as joint tenants, and therefore there is a single lease in respect of the whole premises held by all. Or, if there are more than four, then those who hold as tenants have some other arrangement, such as the granting of licences, with those that are not joint tenants; (c) that all the occupiers are licensees. A joint tenancy can only exist if the four unities are present: (a) unity of possession: all co-owners have equal rights to possession; (b) unity of interest: all co-owners have the same interest in extent, nature and duration; (c) unity of title: all co-owners must derive title from the same deed; and (d) unity of time: the interest of all co-owners must have begun at the same time. If one of the unities is missing, the tenants do not hold jointly. In Mikeover Ltd v Brady (1989), a flat was advertised as being for two people to share. B and G occupied the flat, each having entered a separate agreement, described as a ‘licence’, and under which each was to pay a sum of £86.66 per month. After two years, G moved out, although B continued to pay only £86.66 a month. Later, B fell into arrears, and in the course of possession proceedings by the owner, B claimed he had a lease, and so was protected under the Rent Acts. In order to be successful, he would have to show that when G and he
35
Principles of Landlord and Tenant entered the agreements, they did so as joint tenants. Although unity of possession, title and time could be shown, unity of interest could not. The unity of interest included the bundle of rights and obligations under the agreement. If B and G held jointly, then they would be liable jointly and severally for the rent. Therefore, when G left, B would be liable to pay her contribution, making a total of £173.32 per month. However, this was not the case, so it was held that there was no joint tenancy and no lease. Nevertheless, where it is apparent that one of the unities has been excluded in such a way as to amount to a pretence of a licence, the courts will treat the agreement as being a joint tenancy, and therefore a lease. In Antoniades v Villiers, the two separate agreements were entered into by a man and a woman who wished to live together and who chose a double bed rather than two singles. The agreement stated that they were to use the flat in common with the owner or other licensees. It was held that, although the unity of title was apparently missing, the two contracts were in fact interdependent: both would have been signed or neither. It was considered that the sharing term was merely a means of seeking to create a licence to get around the legislation protecting tenants. The man and woman were held to be joint tenants and the agreement was therefore a lease. It was further stated by Lord Templeman that each case had to be construed in the light of the surrounding circumstances, which would include: (a) (b) (c) (d)
the relationship between the sharers; the course of negotiations; the nature and extent of the accommodation provided; and the intended and actual mode of occupation.
However, in AG Securities v Vaughan, it was held that there was no such pretence. Four young men signed separate agreements on different dates with different payments. The documents were described as licences, denied exclusive possession of any part, and required the occupier to share with not more than three other persons. When there was a change, there was a pecking order for the best rooms. The House of Lords held that the four occupiers were licensees and not joint tenants. The arrangement seems to have been a sensible and realistic one to provide accommodation for a shifting population of individuals who were genuinely prepared to share the flat with others who were introduced from time to time who would, at least initially, be strangers to them. There was no artificiality in the contracts concluded to give effect to this arrangement’ (Lord Bridge of Harwich). A similar decision was reached in Stribling v Wickham (1989), in which a flat was occupied on a shared basis by three individuals under three separate agreements described as licences. The occupants claimed they were joint tenants under a lease, and so entitled to the protection of the Rent Act 1977. It was
36
Leases and Licences held that the agreements were licences, not leases. Parker LJ said: ‘…there is no process of “legal alchemy” by which the agreements can be placed into the mould of a tenancy…The three licences were in substance and reality just what they purported to be.’
2.9
Business tenant or licensee
The decision in Street v Mountford related to residential accommodation. However, it has also been applied to business tenancies and leases where the three criteria of exclusive possession for a term at a rent exist. It has also been used even where the criterion of rent was not present (Ashburn Anstalt v Arnold (1987)). However, in assessing whether or not a business occupier has exclusive possession, the courts have looked at the degree of control exercised by the licensor, and whether a legitimate reservation in the agreement prevents the occupier from acquiring the necessary exclusive possession to claim a lease. In Shell-Mex and BP Ltd v Manchester Garages Ltd (1971), an agreement, described as a licence, which contained a clause requiring the occupier to give the owner’s employees unimpeded access to the premises, and which prohibited assignment, was held to be a mere personal permission, and in Dresden Estates Ltd v Collinson (1987), a provision that reserved the right of the licensor to relocate the licensee to an adjoining unit in effect precluded exclusive possession and confirmed the status of the agreement as a licence. Glidewell LJ stated that he thought that the criteria put forward in Street v Mountford might be as applicable in cases of business agreements, as has been demonstrated by the case of Dellneed v Chin (1985).
2.10
Current application
Although exclusive possession is the decisive factor, what amounts to exclusive possession remains an issue, as is the extent to which the exceptional circumstances may be extended. The disadvantages of residential tenancies for landlords, which caused them to seek to create licences, have been greatly mitigated by the statutory provisions which permit the creation of shorthold tenancies.
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SUMMARY OF CHAPTER 2
LEASES AND LICENCES
Definition of a licence A licence is a mere permission to enter or use land. Most importantly, a licence does not give an interest in land, but merely prevents a person’s entry or use of the land from being a trespass (Thomas v Sorrell (1673)).
Types of licence There are four main types of licence: (a) bare licences; (b) licences coupled with a grant; (c) contractual licences: Hurst v Picture Theatres Ltd (1915); Wood v Leadbitter (1845); Tanner v Tanner (1975); Winter Garden Theatre (London) Ltd v Millennium Productions Ltd (1948); London Borough of Hounslow v Twickenham Garden Developments Ltd (1971); King v David Allen & Sons (Billposting) Ltd (1916); Clore v Theatrical Properties Ltd (1936); Errington v Errington (1952); Binions v Evans (1972). (d) licences by estoppel—proprietary estoppel: Taylor Fashions Ltd v Liverpool Victoria Trustees Co Ltd (1982); Inwards v Baker (1965); ER Ives Investments Ltd v High (1967). A major difference between a licence and a lease is that a licence does not give a proprietory right, and therefore is revocable, whereas a lease does give a proprietory right and so cannot be so easily revoked (see Chapter 7). The importance of considering the revocability of both contractual licences and licences by estoppel is that there is a challenge to this difference in that, in relation to both forms of licence and in certain circumstances, a licence may, arguably,
39
Principles of Landlord and Tenant give a proprietary interest. The question still to be considered is whether the irrevocability of a licence creates a proprietary interest, or whether it merely provides a remedy to an unjust revocation.
Distinction between a lease and a contractual licence The confusion caused by the similarity between the two has sometimes been used by owners of land to claim that an occupier only has a licence, and therefore no rights in relation to the land, and so can be required by the owner to leave the property, and conversely, by an occupier who claims he or she has a lease and an interest in land, and so is entitled to the benefits of a lease. The traditional approach to distinguishing between a lease and a licence was based upon whether or not a tenant had exclusive possession of the premises. That is not to say that wherever there was exclusive possession there was a lease, but that a lease could not exist unless there was exclusive possession. The test was entirely an objective one, namely, was the nature of the occupancy created by the agreement a lease or a licence? No matter how often or adamantly the parties declared in any document that it was a licence, if exclusive possession had been granted, it would be a lease: Addiscombe Garden Estates v Crabbe (1958). However, in the 1970s, the courts moved from the traditional objective approach towards a subjective approach, taking into account the intention of the parties as inferred from the express provisions of the agreement, rather than looking at the nature of the occupancy alone. Exclusive possession was not seen as the main criterion: Burns v Barrett (1970); Marchant v Charters (1977); Somma v Hazelhurst (1978). In Street v Mountford (1985), the House of Lords returned to the traditional approach and held that, in assessing whether an agreement for residential occupation was a lease or a licence, whenever an occupier was granted exclusive possession of residential accommodation for a fixed or periodic term at a stated rent, the result would be a lease, unless the granting of exclusive possession could be attributed to some other circumstances. In determining whether exclusive possession is conferred, it is not the wording of the agreement that creates the lease, but the effect of that wording. Wording, such as a specification which supposedly prevents exclusive possession and grants a licence, or an arrangement, such as providing illusory services, will lead to an agreement being treated as a sham licence and being recognised as a lease: Asian v Murphy (1990).
40
Leases and Licences In deciding whether there is a lease or a licence, the court is entitled to look at the surrounding circumstances: Antoniades v Villiers (1990).
Circumstances where exclusive possession does not create a lease Exclusive possession is not granted if the occupant is a lodger or if the premises are serviced accommodation: Abbeyfield (Harpenden) Homes v Woods (1968); Family Housing Association v Jones (1990), or if there are exceptional circumstances which cause the agreement to be attributed to a relationship other than that of landlord and tenant, and which can be summarised as being: (a) agreements under a contract for the sale of land; (b) service agreements; and (c) agreements where there is no intention to create legal relations because they are: • family arrangements; • acts of friendship (Heslop v Burns (1974)); or • generosity (Marcroft Waggons Ltd v Smith (1951)), such agreements not being contracts at all, or potentially leases, but licences, because of a lack of intention to create that legal relationship; (d) agreements where there is a genuine justification for being licences (Facchini v Bryson (1952)). There are some recent cases which do not fit comfortably into the category of lodger or the exceptional cases. Westminster City Council v Clarke (1992); Family Housing Association v Jones (1990); Camden BC v Shortlife Community Housing Ltd (1992).
Multiple occupation A joint tenancy can only exist if the four unities are present. If one of the unities is missing, the tenants do not hold jointly. Mikeover Ltd v Brady (1989); Antoniades v Villiers (1990);
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Principles of Landlord and Tenant AG Securities v Vaughan (1990); Stribling v Wickham (1989).
Business tenant or licensee Shell-Mex and BP Ltd v Manchester Garages Ltd (1971); Dresden Estates Ltd v Collinson (1987); Dellneed v Chin (1985).
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CHAPTER 3
CREATION OF LEASES
3.1
Introduction
A lease is an agreement that creates an interest in land. To reflect the importance and value of land, the transaction creating a lease has potentially three stages, namely: (a) negotiations for the lease; (b) contract for a lease; and (c) the lease.
3.2
Negotiations for a lease
As already mentioned, a lease is a contract that creates an interest in land, and although this gives the lease some special features, it is essentially an agreement, and, as with all agreements, there is a period of negotiation prior to its creation. The negotiations for a lease are the discussions between the parties as to what should be in the contract for a lease or in the lease itself. Matters that may be negotiated are as follows: (a) the parties to the lease. This may be very straightforward if the tenant and the landlord are single individuals, but, in some cases, there may be two or more persons wishing to take the lease together as joint tenants, or it may be in the interests of the landlord or the person or persons wishing to take the property to have it put in the name of a company as tenant; (b) the property to be leased. This is more complex than may be imagined. If the property is freestanding on an area of land, then the whole plot may be easily described. However, if it is a part of a building, such as a flat, then the landlord may wish only to let the floor area and inside walls and surfaces, while retaining control of the external and supporting walls, so as to ensure the protection of tenants in other parts of the building, for example if one tenant should jeopardise the demised property by damaging the supporting walls in the name of improvements; (c) the term of the lease. That is, the length of time for which the lease is to continue. This may be a fixed period of months or years, or it may be a periodic lease for a week, a month, a quarter, or a year at a time;
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Principles of Landlord and Tenant (d) the rental This specifies the amount and times of payment for the use of the land. The landlord has additional remedies for obtaining payment of the rent, such as distress, and often a definition of rental—which will include all other payments that may have to be paid to the landlord, such as insurance premium, taxes, rates, etc—is made in a lease. The landlord will then be able to claim the remedy of distress in order to obtain payment, not only of the periodical payment of rent, but also of these other dues. There could also, in either a fixed term or a periodic lease, be a clause that allows the rent to be reviewed. Some clauses only allow the rent to be reviewed upwards. These are obviously in the landlord’s favour. Others allow either upward or downward movement, which may be in either party’s favour, depending on prevailing market trends; (e) the premium. If any, this is a lump sum paid to the landlord or the tenant on the grant or assignment of the lease respectively (see s 205(1)(xxiii) of the Law of Property Act 1925). Such payments are most commonly made in respect of residential leases for a long term, such as 99 years, and the rent, sometimes known as ground rent, will often be low by reason of this lump sum payment. It is particularly useful where: • a person wishes to build an estate of houses; or • a person builds a block of flats, and wishes to retain some control over their use. This can be done more easily in the form of a lease than if there were a straight conveyance of the freehold (see above, pp 5–7); (f) the individual covenants or clauses of the lease. These may relate to the assignment or other disposition of the leasehold interest in the land, or to the use, alteration, repair and decoration of the property. The period of negotiation of leases varies, depending on the type of lease and its complexity. For example, a short lease of a residential property, such as an assured shorthold tenancy for a term of six months, will probably have no more negotiation than a conversation with the landlord or his or her agent before each party signs a pre-printed form which fulfils the legal requirements and sets out the terms. One of the reasons for this brevity is that the parties’ obligations are dealt with by statutory provisions; another is that the term of the lease and the sums of money involved are comparatively small, or that the tenant has no bargaining strength. However, the negotiations for a business lease of 15 years for a rental of £25,000 per annum, or a residential lease for a term of 99 years for a premium of £100,000 at a ground rent of £1,000, will involve more protracted negotiations, since the commitment in terms of time and money is greater. Such negotiations may go on for weeks, or even months.
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Creation of Leases
3.3
Contract for a lease
Contracts for leases are not commonplace. For most leases, which are short term residential or medium term business tenancies, the lease itself is drafted and approved in the course of negotiations and completed on their conclusion. However, certain business leases and long term residential leases involve such a commitment by both landlord and tenant that it is felt necessary to have a preliminary agreement before creating the interest itself in the form of the lease. Once the contract has been entered into, the parties are legally bound to complete the lease. Failure to do so will leave the party in breach liable for an action for damages or an equitable remedy, such as specific performance or rescission, as appropriate. To ensure that negotiations themselves are not construed as constituting a legally binding contract, the words ‘subject to contract’ are used throughout in the correspondence in the course of negotiations. This means that the document headed with these words will not be a part of the contract unless both the parties so agree when the contract finally is concluded. The contract to enter a lease at a future date will set out the terms negotiated for the lease and it will include any additional requirements which must be fulfilled before the lease is concluded, such as providing proof of the landlord’s title to the property to be let. The contract will also contain clauses that enable the prospective tenant to rescind the contract, that is, to end it, should the additional requirements not be carried out. Contracts for leases must comply with certain formalities. 3.3.1
Contracts for leases before 27 September 1989
All contracts for leases made before 27 September 1989 must comply with s 40 of the Law of Property Act 1925, which states that ‘no action may be brought upon a contract for the sale or other disposition of land or any interest in land unless the agreement upon which such action is brought or some memorandum or note thereof is in writing and signed by the party to be charged or by some other person thereunto by him lawfully authorised’. Therefore, a contract not in writing would be binding, but unenforceable in the courts, in the absence of some note or memorandum or act of part performance. Although the note or memorandum does not have be in any special form, it must contain all material terms such as: (a) the names of the parties; (b) a description of the property; (c) an agreed date for completion, and, in relation to a lease:
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Principles of Landlord and Tenant (d) the term of the lease and its commencement date; (e) the rent and any premium or fine; and (f) any other particular covenant agreed upon by the parties. Both parties do not have to sign: only the party claiming the existence of the agreement. Several documents may be put together (joined) to form a sufficient note or memorandum. For this to be done, the following must be proved: (a) there must be in existence a document signed by the person claiming the agreement; (b) there must be sufficient reference, express or implied, in that document to a second document; and (c) the documents, when read together, must be able to form sufficient note or memorandum. An envelope and a letter were together accepted in Pearce v Gardner (1897); a signed receipt was joined with an unsigned agreement in Long v Millar (1879); but a cheque and a receipt were not an acceptable joinder of documents in Timmins v Moreland Street Property Trust Ltd (1958), as there was insufficient reference one to the other. Under the doctrine of part performance, it is possible for a party to a contract that is either completely oral, or has limited written evidence, to enforce the contract, although, in normal circumstances, there would be insufficient note or memorandum. For the prospective landlord or tenant claiming the contract to prove a sufficient act of part performance, it must be shown: (a) (b) (c) (d)
that he or she acted to his or her detriment; and that the other party knew of this act; and that the act of part performance is referable to the lease claimed; and that there is sufficient oral or other evidence if there is insufficient evidence in writing; and (e) that the contract is one in which the court would order specific performance. It should be noted that this is an equitable doctrine affording specific performance and is therefore discretionary, and that the equitable maxims apply. For examples of the operation of the doctrine of part performance, see Maddison v Alderson (1883), Wakeham v Mackenzie (1968), and Steadman v Steadman (1976).
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Creation of Leases 3.3.2
Contracts for leases after 27 September 1989
All contracts made after 27 September 1989 must comply with s 2 of the Law of Property (Miscellaneous Provisions) Act 1989, which states: ‘A contract for the sale or other disposition of an interest in land can only be made in writing incorporating all the terms which the parties have expressly agreed in one document or where contracts are exchanged in each’—and the document or documents ‘…must be signed by or on behalf of each party to the contract’. Under this rule: (a) the whole agreement must be in writing and signed by both the parties, not just a note or memorandum. The contract must contain all the terms, and it would appear that if one were omitted, the whole contract would be void. However, clauses in other documents may be incorporated into the contract provided there is sufficient reference in the contract to those clauses and documents (s 2(2)); (b) both parties must sign the contract or, if there are two copies—that is, one held by each party with a view to an exchange of copies—then each party must sign his or her respective copy; (c) the requirement that the whole agreement must be in writing means that the doctrine of part performance may no longer apply; (d) failure to comply with the Act will mean the contract is void, not merely unenforceable. However, a range of remedies may be available to a party where the Act has not been complied with, for example, proprietary estoppel, claiming a collateral contract or even deceit. It should be noted that, where a lease exceeding three years is granted by a document other than a deed, the purported lease must correspond to the provisions of s 2 of the Law of Property (Miscellaneous Provisions) Act 1989 if it is to qualify as a contract for a lease and if the tenant is to claim an equitable lease. However, a contract made after 27 September 1989 for a lease of less than three years does not have to comply with the formalities laid down in the 1989 Act. This overcomes an anomaly under the provision of s 40 of the 1925 Act, whereby a lease for less than three years that commenced immediately (in possession—see below, p 48) did not have to comply with s 40, but a contract for a lease for less than three years did have to comply. 3.3.3
Registration
In relation to unregistered land, the contract for a lease should be registered as a class C(iv) charge at the Land Charges Department. If it is not registered, then it is void against a bona fide purchaser of a legal estate for money or money’s worth, whether or not the purchaser has notice (s 4(6) of the Land Charges Act 1972).
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Principles of Landlord and Tenant In relation to registered land, the contract for a lease should be entered on the charges register relating to the landlord’s title by notice as a minor interest. Alternatively, if the contract is not so protected, then the tenant may still be able to claim that he or she has an overriding interest, under s 70(1)(g) of the Land Registration Act 1925.
3.4
The lease
The technical terminology for a lease is a term of years absolute. This may be created: (a) as a legal lease by fulfilling the correct formalities; or (b) as an equitable lease where: • a contract for a lease has been entered but not performed, provided an order for specific performance could have been granted; or • a lease fails to comply with the formalities of a legal lease.
3.5
Legal leases
A lease created at law is a conveyance and therefore passes a legal term of years to the tenant and creates the legal relationship of landlord and tenant, either at once (if in possession) or at the agreed future date in the case of a reversionary lease. The tenant thereby acquires a proprietary interest in the land which, being legal, is enforceable against all the world. A lease exceeding three years must be by deed (s 52 of the Law of Property Act 1925). A lease which: (a) takes effect in possession; (b) is for a term not exceeding three years; and (c) is at the best rent reasonably available without taking a fine (that is, a premium), may be oral, written, or by deed (s 54(2) of the Law of Property Act 1925). A periodic lease for an indefinite period, for example, from year to year or month to month, may be validly created orally by virtue of s 54(2) of the Law of Property Act 1925. The period of the lease will depend upon the periods when the rent is paid. If no rent is paid, it will be a tenancy at will. 3.5.1
Deeds
The law relating to deeds was substantially amended by the Law of Property (Miscellaneous Provisions) Act 1989, which came into effect on 31 July 1990.
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Creation of Leases Before the Act, a deed was a document in writing which was signed, sealed and delivered. Section 1 of the Act now sets out the following requirements: (a) it must be in writing, although not necessarily on paper: some other durable substance may be used; (b) it must be made clear ‘on its face that it is intended to be a deed by the person making it or, as the case may be, by the parties to it’; (c) it must be signed. This includes rubber stamp signatures; (d) the signature must be witnessed. This is a requirement introduced by the Act. If an individual signs, then either: • the signature must be made in the presence of a witness who attests the signature by also signing the document; or • the signature is made at the direction of the person making the deed, whereupon it must be in the presence of two witnesses who must attest the signature. If a company is executing the deed, then it may be signed by the company secretary and a director, with or without the company seal being affixed; (e) it must be delivered. This means transferred to the relevant party. It used to require a physical handing over of the document, but is now usually reduced to showing an intention to deliver by dating the deed, which is then sent by post to the relevant party. The date of the deed is the date of delivery and that upon which the deed takes effect, unless there is evidence to the contrary. For example, the deed may be delivered in what is known as ‘escrow’. This means that it is executed and delivered, but will not come into effect until the happening of a specified event, such as the date of completion or the date of commencement of the lease. A seal is now no longer necessary for the validation of a lease, but will not invalidate it if used. The seal used to be a small lump of wax that was put at the foot of the document and impressed while still molten with an individual’s initials or crest. It gave authenticity to a document at a time when most of the population was illiterate; it gave some security, in that it could not easily be removed without causing damage to the document; and the act of impressing the seal impressed upon the executor the importance of the transaction being undertaken. It is this last point that caused the seal still to be a legal requirement until recently, although the seal itself had been reduced to a red wafer. In addition, deeds contain an attestation clause which confirms that the document is, in fact, a deed by reciting that it is ‘signed and delivered as a deed this [ ] day of [ ]’.
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Principles of Landlord and Tenant 3.5.2
Lease and counterpart
Usually, two fair or ‘engrossed’ copies of the lease are produced. One copy is signed by the landlord and held by the tenant, and is referred to as the lease itself, while the other is signed by the tenant and held by the landlord. This is referred to as the counterpart. 3.5.3
Stamp duty
A tax, known as stamp duty, is payable on the grant of any lease which is for one year or more, or which is for an indefinite period (periodic tenancy), or which is for a definite period of less than one year if it is a tenancy of a furnished premises at a rent in excess of £500. The duty payable is assessed ad valorem. That is, it is assessed according to the value of the lease, based upon the amount of the rent and any fine, and increases according to the length of the term. The duty is substantial, especially for business leases when, in calculating the amount of the rent and any premium, these sums are increased by the amount of value added tax that would be charged, whether or not it is in fact charged. The duty on the counterpart of the lease is a nominal fixed sum. The duty is also payable on agreements for leases. A lease will be unenforceable in the courts unless the appropriate duty is paid, and a penalty may be charged if the duty is not paid within 28 days of the date of execution of the lease. 3.5.4
Costs
By virtue of s 1 of the Costs of Leases Act 1958, each party to a lease pays his or her own costs unless otherwise agreed. Since landlords draft the lease initially, which is then negotiated between the parties, a clause is usually inserted stating that the tenant pays the landlord’s costs including all disbursements and stamp duty. However, because of market forces in recent years, tenants have been successful in having such clauses deleted in the course of negotiations.
3.6
Equitable leases
Because a contract for a lease may set out all the terms of the lease—indeed it will often have the draft lease annexed to the contract—it might be thought that this is enough to create the interest in land that the prospective tenant seeks, and the final formality of executing the lease is not necessary. This is not so, since, with a few marked exceptions referred to below, an interest in land can only be passed at common law by a deed of conveyance. A contract for a lease is not a conveyance, and so does not give any interest in the land and only binds the parties to enter a lease at some future date.
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Creation of Leases If a lease for a term exceeding three years is granted by a document other than a deed, and without an express contract beforehand, the purported lease will be treated as a contract for a lease until a deed granting the lease is executed, and, until such a time, an equitable lease shall exist. Nevertheless, the document must comply with the statutory formalities applicable to contracts for leases (see the note below). However, this could lead to injustice, for example: (a) where a prospective tenant, following the entering of a contract for a lease, moves into the property, sets up in business, and perhaps makes some improvements, only to find that the landlord refuses to execute the lease at common law, there would be no lease and the tenant’s only remedy would be for breach of contract; or (b) where a tenant has apparently entered a legal lease, but, in fact, the formalities have not been complied with, at law the lease would be void (note the need to comply with formalities for a contract for a lease if for a term over three years). In either of these situations, an equitable term of years will be created and will be treated in equity as if it were a properly constituted lease, because ‘… equity will presume to be done what ought to be done’. This maxim was applied to create what is known as an equitable lease, in the case of Walsh v Lonsdale (1882). This has led to it being said that a contract for a lease is as good as a lease. However, this is not entirely true: (a) such an equitable lease will only be effective if specific performance of the contract may be granted. As an equitable remedy, this is discretionary, and all the general principles of equity apply, such as the maxim that ‘those that come to equity must do equity’. In Coatsworth v Johnson (1885), the tenant entered into possession in accordance with an imperfect draft lease. The tenant, in breach of one of the covenants contained in the draft lease, failed to cultivate the farm properly and, before any rent had become payable, the landlord served a notice to quit and later repossessed the property. The tenant claimed damages for trespass. It was held that, at law, there was only a tenancy at will, because no rent had become payable and the lease had been lawfully terminated by the notice to quit. In equity, there was no lease, since the imperfect lease would not be treated as an equitable lease because specific performance would not be granted. The tenant’s failure to cultivate meant that he could not fulfil the maxim that ‘those who come to equity must come with clean hands’; (b) under s 62 of the Law of Property Act 1925, a right may be converted into an easement where an estate in land passes to another by virtue of a conveyance. However, a contract for a lease is not a ‘conveyance’ within
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Principles of Landlord and Tenant the meaning of s 205(1)(ii) of the Law of Property Act, and, therefore, no easements can be implied through the wording of s 62 in respect of a contract alone, unless it is converted to a full legal lease; (c) there is no privity of estate between the landlord and the assignee of a contract, because the benefit of a contract is assignable but not the burden. Therefore, an assignee can sue the landlord, but the landlord can only sue the original tenant, not the assignee. However, in respect of a legal lease, there is privity of estate between the landlord and the assignee, so that the assignee becomes entitled to the benefit and subject to the burden of the covenants in the lease; (d) an agreement for a lease is merely equitable. Therefore, if the land is unregistered, the doctrine of notice will apply and the tenant will be obliged to find out what unregistrable equitable interests the land is subject to, since the tenant will not be able to claim to be a bona fide purchaser for value of a legal estate without notice, and such a purchaser will always take precedence under the rules of priority. The tenant will also take subject to all prior equitable interests within classes C(iv) and D, whether or not they have been registered at the Land Charges Department, because these are only void against a bona fide purchaser for money or money’s worth of a legal estate without notice when unregistered; (e) perhaps the most important difference between a lease and a contract for a lease is the lack of protection that the tenant under a contract for a lease receives from the rights of third parties, as compared with the tenant under a lease. A legal lease of unregistered land is not, indeed cannot be, protected by registration at the Land Charges Department. It is enforceable in rem. An equitable lease must be so protected. Likewise, with registered land— except in the case of a legal lease for over 21 years, which must be registered under its own title at HM Land Registry—it is an overriding interest under s 70(1)(k) of the Land Registration Act 1925 and does not need to be registered; whereas an equitable lease should be protected on the charges register by way of notice or caution, although reliance may be placed upon it being an overriding interest under s 70(1)(g) of the Land Registration Act 1925. In Walsh v Lonsdale, it was held that, since an equitable lease is almost as good as a lease, then even legal remedies such as distress may be ordered, even if an order has not been made for specific performance, provided such an order could be made. The principle was further extended in Industrial Properties Ltd v Associated Electrical Industries Ltd (1977), in which it was held that, when A contracts to sell a freehold to B, who then contracts to grant a lease to C, equity will regard both contracts as if they had been performed. C will therefore be treated as having been granted a lease on the same terms as those agreed in the contract, and as if the freehold had already been conveyed to B.
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Creation of Leases In some cases, a prospective tenant may be allowed to take possession of premises while negotiations are continuing, or when a contract has been made, whether for more or less than three years. Provided that such an arrangement is not construed as a licence or a tenancy at will, it may be possible for a prospective tenant to claim a legal, rather than an equitable lease, by stating that he or she has a periodic lease of less than three years, the term of the lease being determined by the periodic payment of any rent (see note on legal leases). Although this may be terminated by notice, the tenant may be able effectively to defeat this termination by claiming security of tenure through statutory protection. It is, therefore, very important that a tenant is not allowed to take possession before a lease is completed, either prior to the execution of a full formal lease or before a tenancy at will, as a temporary expedient made prior to the full formal lease.
3.7
The essentials of a lease (a term of years absolute)
For a leasehold interest of a term of years absolute to be created, and for the relationship of landlord and tenant to be created, the person called ‘the landlord’ must confer upon another, called ‘the tenant’, the right to the exclusive possession of certain land for a period of time that is definite, or is capable of definition, corresponding to the definition in s 205(1)(xxvii) of the Law of Property Act 1925, and for a period less than that of the grantor. The landlord retains an interest, which is called a reversion.
3.8
The right to exclusive possession
This means that the tenant must be given the right to exclude all other persons from the land, including the landlord. However, mere exclusive possession does not necessarily create a lease. Instead, a person may only be given a personal right of user in the form of a licence. 3.8.1
Distinction between a lease and a licence
The distinction between a lease and a licence is of particular importance in connection with the statutory provisions relating to both rent and security of tenure. These statutory provisions apply only to leases or tenancies, and not to licences. It is therefore in the landlord’s interests to claim a licence, and in the tenant’s interests to claim a lease (see Chapter 2).
3.9
The period must be definite
There must be certainty as to the date of commencement and the duration of the term under the lease.
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Principles of Landlord and Tenant 3.9.1
Commencement: leases in possession and reversionary leases
A lease must commence either from a fixed date or upon the occurrence of an event, whether certain or not, for example, upon the declaration of war. A lease that commences from a past date or from the date of the lease is said to be ‘in possession’. A lease that commences at some future date is said to be ‘reversionary’. Reversionary leases may commence up to 21 years from the date of execution of the lease. However, s 149 of the Law of Property Act 1925 states that a reversionary lease that takes effect more than 21 years after the date of execution shall be void, and any contract for a lease that is to commence 21 years after the execution of the lease shall be void. 3.9.2
Duration
Provided the duration of the term is known, it does not matter if it may come to an end at an earlier date by notice to quit or the happening of an event. A lease may even be for a discontinuous period, for example, one week each year for 80 years. 3.9.3
Termination
The date of termination of a lease must be certain and cannot rely upon the occurrence of some uncertain event that may happen after the lease has commenced. Thus, in Lace v Chantler (1944), it was held that a lease for the duration of the war was void as being of uncertain duration. Lord Greene MR stated: ‘A term created by a leasehold tenancy agreement must be expressed either with certainty and specifically or by reference to something which can, at the time when the lease takes effect, be looked to as an ascertainment of what the term is meant to be.’ However, a periodic lease, such as a weekly tenancy, is certain in that it may be terminated upon giving the appropriate period of notice, although it is uncertain as to its maximum possible duration. Nevertheless, this does not invalidate such leases. In subsequent cases, though, the strictness of this rule was questioned. The purpose of the rule would appear to be to ensure that a lease was not perpetual. The parties to an agreement should know clearly the terms of that agreement, especially in respect of a commodity as important as land. The strictness of the rule appears to ensure that, should the parties inadvertently create a perpetual lease, or a lease where the wording leaves it uncertain as to how long it is to continue, they will not be bound by it to their detriment. However, in respect of certain business leases, the parties may have carefully worded the agreement which, although giving a degree of uncertainty as to the termination of the lease, nevertheless, that uncertainty
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Creation of Leases is within defined limitations which the parties, at least when they made the agreement, found acceptable. In Re Midland Rly Co’s Agreement (1971), a periodic lease was granted that could be terminated by three months’ notice by either party, but with the proviso that the landlord could not so end the lease unless it required the premises for its business. It was argued that this made the lease of uncertain duration, but the Court of Appeal held the clause valid. It distinguished Lace v Chantler by stating that that case only applied to circumstances where it was purported to create a single uncertain period; whereas in this case, the period was certain: it was merely that one party, namely the landlord, had limited its right to issue a notice to quit, save in a specified circumstance. Also, in Ashburn Anstalt v Arnold (1989), a tenant took a rent-free lease of a property which could be terminated by the tenant at any time, or by the landlord giving three months’ notice when it was ready to redevelop. It was held by the Court of Appeal that the lease was valid and not void for uncertainty. Lace v Chantler was distinguished by Fox LJ in that ‘…there would be no doubt as to whether the determining event had occurred’. The power of termination lay in the hands of the parties, unlike in Lace v Chantler, where the determining event could not be either predicted or controlled by the parties. It appeared, therefore, that the strict rule in Lace v Chantler had been modified, that is, that it was not necessary to know the specific length of a lease when it was created, provided the determining event was clear and in the control of the parties. However, in Prudential Assurance Co Ltd v London Residuary Body (1992), this development was brought to an end by the House of Lords. A lease had been purported to be granted for a term, and to terminate upon the land being required by the landlord for road widening. The landlord had assigned the reversion, and the new landlord served a notice to quit, even though the land was not required for road widening. The Court of Appeal held that the lease was void because the terminating event was not within the control of the parties, in that it related to the original landlord’s statutory obligations. The House of Lords agreed that the lease was void, but returned to the strict rule in Lace v Chantler and so overruled both Ashburn and Midland Rly. Lord Templeman stated that a term of a lease must be certain at its outset whether it was for a periodic term, such as year to year, or a fixed term, such as five years. It would appear from his judgment that the parties may agree to determine the lease earlier, but that there must always be a certain maximum term.
3.10
Perpetually renewable leases
There is no limit to the period for which a lease may be granted. However, leases cannot exist for an unspecified or indeterminate period. Nevertheless, it has been possible to create what are purported to be ‘perpetually renewable’
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Principles of Landlord and Tenant leases. Such leases are inconvenient, and, therefore, s 145 of the Law of Property Act 1922 provided that perpetually renewable leases are converted into leases of 2,000 years, calculated from the date that the existing leases began. There is a danger, here, that landlords may inadvertently create perpetually renewable leases, which, therefore, may be converted into leases of 2,000 years by reason of the language used in drafting a covenant to renew a lease. In Caerphilly Concrete Products Ltd v Owen (1972), a lease, in 1963, granted the tenant a five year term at a rent of £10 per annum, provided that ‘…the landlord will on the written request of the tenant…grant to him a lease of the demised land a further term of years from the expiration of the term hereby granted at the same rent and containing the like covenants and provisions that are herein contained (including an option to renew such lease for the further term of five years on the expiration thereof)…’. The Court of Appeal held that the covenant made the lease self-perpetuating and that, therefore, it would be converted into a lease of 2,000 years by reason of the statutory provisions. In Marjorie Burnett Ltd v Barclay (1980), there was a grant in 1971 of a seven year lease of a shop at a rent of £750 per annum, the lease containing a covenant by the landlord, at the tenant’s request, to ‘grant to the tenant a new lease of the premises…for a further term of seven years, to commence from and after the expiration of the term hereby granted at a rent to be agreed between the parties…and such lease shall contain a like covenant for renewal for a further seven years’. Nourse J noted that the courts leaned against perpetual renewals and stated that the wording of the lease was construed not to create a 2,000 year lease for the following reasons: (a) the provision giving an option for a new lease at the tenant’s request was separate from the provision that stated that the provision for renewal was for a further seven years. This meant that the original lease could be renewed for seven years, and that the new lease would contain a provision allowing for renewal for seven years, but the further new lease would not. Therefore the original lease could only be renewed twice; (b) a provision for a rent review every seven years was completely contrary to a 2,000 year lease. Therefore, leases, or contracts for leases, may contain provisions for renewal, but not for perpetual renewal. However, to keep periods of renewal within reasonable bounds, Sched 15, para 7(2) of the Law of Property Act 1922 states that an agreement to renew a lease for a longer period than 60 years from the end of the lease in question shall be void. A lease of 2,000 years that arises as a result of the Law of Property Act 1922 is subject to the same covenants, conditions and provisions as the original lease, together with the following statutory provisions:
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Creation of Leases (a) the tenant or his or her successor in title may terminate the lease by giving at least 10 days’ notice in writing before the date at which, but for this conversion, no renewal had taken place; (b) the tenant is bound to register with the landlord every assignment or devolution of the term within six months of it taking place; (c) a tenant who assigns the term to another ceases, after the assignment, to be liable on the covenants contained in the lease. This applies even to the original tenant, and is therefore an exception to the rule that, despite an assignment, the tenant remains liable on his contractual obligations (Sched 15 of the Law of Property Act 1922).
3.11
Leases for lives or until marriage
By virtue of s 149(6) of the Law of Property Act 1925, a lease at a rent or in consideration of a fine or premium, for life or lives, or for any term of years determinable with a life or lives, or for any term of years determinable on the marriage of the tenant, now takes effect as a lease of 90 years. The lease may be terminated upon one of the usual quarter days by either party giving the other one month’s notice in writing (Skipton Building Society v Clayton (1993)).
3.12
Registration
Unregistered land Where the land is unregistered, a legal lease is unregistrable and the doctrine of notice does not apply. The legal lease is enforceable against the whole world. However, equitable leases do need to be registered as contracts for leases at the Land Charges Department. Registered land The leasehold title for a term of more than 21 years that is a legal estate must be registered at HM Land Registry under the Land Registration Act 1925, with its own title number and its own land certificate if the property is unmortgaged, or with a charge certificate if mortgaged. Notice of the lease will be registered against the landlord’s title if the lessor’s title is registered. Assignments for an unexpired period of more than 21 years must also be registered, as must subleases for a term of more than 21 years. Notice of the sublease will be registered against the sublandlord’s title if registered. Title should be registered within 40 working days of the grant of the lease, sublease or assignment, although the Chief Land Registrar has discretionary power to extend the period within which registration may take place. A charge
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Principles of Landlord and Tenant is made for registration although, currently, the period has been extended without financial penalty; but this may not necessarily continue. The penalty for failing to register is that the tenant will not obtain a legal estate, and so will, at best, have an equitable interest. Legal leases for a term not exceeding 21 years cannot be registered and are treated as overriding interests under s 70(1)(k) of the Land Registration Act 1925. There are four grades of leasehold title: (a) absolute leasehold title: this title indicates that not only the proprietor’s right to the lease, but also the landlord’s freehold title, have been investigated. A purchaser will take subject to all entries on the register, overriding interests, and the implied and express covenants of the lease; (b) good leasehold title: this title indicates that, although the registrar approves of the lease, the registrar cannot guarantee that it was validly granted; (c) qualified leasehold title: this indicates that there is a specified defect on the title which, at the time of registration, could not be overcome; (d) possessory leasehold title: this indicates that the proprietor’s title to a term of years absolute is not free from doubt, and that the applicant cannot produce satisfactory documentary evidence of title. The purchaser takes subject to all adverse interests in respect of the land at the time of registration. Title may be upgraded. For example, good leasehold title may be upgraded to absolute when the freehold landlord registers the fee simple absolute title to the land, since it will be possible for the registrar to investigate the landlord’s title. Qualified leasehold title may be upgraded to good leasehold or absolute, if it can be shown that the defect is removed. Possessory title may be upgraded to good leasehold, if it can be shown that the proprietor has been in possession for 12 years.
3.13
Assignment of leases
If a tenant wishes to pass a leasehold interest to another, this may be done by assignment. After the original tenant has assigned, the new tenant may also assign, and so on, until the term of the lease has expired. At common law, a tenant is free to assign at will. However, it is usual for a landlord to include a clause in a lease which may prohibit the tenant from assigning at all or, more likely, only to allow an assignment with the landlord’s consent. The enforceability of covenants following an assignment, and the effectiveness of clauses which restrict assignments to which the landlord consents, are examined in later chapters. Here, it is sought merely to explain some of the formalities of an assignment.
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Creation of Leases For there to be an assignment of the legal estate, the whole of the unexpired term must be transferred to the assignee, and since the assignment is a conveyance, it must be by deed, irrespective of the length of the lease. Therefore, even leases for less than three years must be assigned by deed if a legal estate is to be passed. If the lease is equitable, then, as a contract for a lease that is specifically enforceable, the lease should be enforced and then assigned by deed. It will have been noted that, where the unexpired term is for more than 21 years, it must be registered at HM Land Registry for the legal estate to pass. If the lease requires the landlord’s consent prior to an assignment, then this may be given in the form of a document known as a ‘licence to assign’. Following the receipt of the licence by the assignor, the assignor and assignee will execute a deed of assignment. Alternatively, instead of issuing a separate licence to assign, the landlord may be joined as a party to the assignment deed. A reason for this is that, in the lease, the landlord may require the tenant to ensure that any assignee enters direct covenants with the landlord. This means that an assignee will not only take on the responsibility of the covenants from the tenant through the assignment, but will directly promise the landlord to fulfil certain covenants, such as to pay rent. The landlord can only require an assignee to enter a direct covenant if he or she has already made provision in the lease. The advantage of this is that the landlord may find it easier to enforce direct covenants against the assignee than enforcing the same covenants, the responsibility for which are passed on by the assignor, through the assignment. The reasons for this may be seen in Chapter 4. At any time during the term of the lease, although particularly on an assignment, the tenant or subsequent assignee may request an amendment of a term of the lease from the landlord, such as a change of use. The effect of such changes is also discussed later.
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SUMMARY OF CHAPTER 3
CREATION OF LEASES
A lease has, potentially, three stages.
Negotiations for the lease The negotiations for a lease are the discussions between the parties as to what should be either in the contract for a lease or in the lease itself. Matters that may be negotiated are the parties to the lease, the property to be leased, the term of the lease, the rental, the premium, and the individual covenants of the lease.
Contract for a lease The contract to enter a lease at a future date will set out the terms negotiated for the lease and include any additional requirements which must be fulfilled before the lease is entered. All contracts made before 27 September 1989 must comply with s 40 of the Law of Property Act 1925, which effectively states that a contract not in writing would be binding, but unenforceable in the courts, in the absence of: (a) some note or memorandum: Pearce v Gardner (1897); Long v Millar (1879); Timmins v Moreland Street Property Trust Ltd (1958); (b) or act of part performance: Maddison v Alderson (1883); Wakeham v Mackenzie (1968); Steadman v Steadman (1974). All contracts made after 27 September 1989 must comply with s 2 of the Law of Property (Miscellaneous Provisions) Act 1989, which effectively states that: (a) the whole agreement must be in writing and signed by both the parties, not just a note or memorandum; (b) both parties must sign the contract; (c) the doctrine of part performance no longer applies; and
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Principles of Landlord and Tenant (d) failure to comply with the Act will mean the contract is void, not merely unenforceable. The formalities of s 40 of the Law of Property Act 1925 applied to all contracts for leases, whereas the formalities of s 2 of the Law of Property (Miscellaneous Provisions) Act 1989 apply only to contracts for leases over three years. Contracts for leases of less than three years made after 27 September 1989 are exempted. A contract for a lease of unregistered land must be registered as a class C(iv) charge at the Land Charges Department. A contract for a lease of registered land must be entered on the charges register relating to the landlord’s title by notice as a minor interest. If the contract is not so protected, the tenant may still be able to claim an overriding interest, under s 70(1)(g).
Legal and equitable leases Legal lease A term of years absolute may be created as a legal lease by fulfilling the correct formalities. A lease exceeding three years must be by deed, but a lease which takes effect in possession for a term not exceeding three years at the best rent reasonably available without taking a fine (premium) may be oral, written or by deed. A periodic tenancy for an indefinite period, for example, from year to year or month to month, may be validly created orally by virtue of s 54(2) of the Law of Property Act 1925. The period of the tenancy will depend on the periods when the rent is paid. Equitable lease A term of years absolute may be created as an equitable lease where: (a) a contract for a lease has been entered, but not performed, provided an order for specific performance could have been granted; or (b) a lease fails to comply with the formalities of a legal lease. An equitable lease differs form a legal lease as follows: (a) an equitable lease will only be effective if specific performance of the contract may be granted (Coatsworth v Johnson (1886)); (b) a contract for a lease is not a ‘conveyance’ within the meaning of s 205(1)(ii) of the Law of Property Act 1925, and therefore, no easements can be implied through the wording of s 62 in respect of a contract alone, unless it is converted to a full legal lease;
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Creation of Leases (c) there is no privity of estate between the landlord and the assignee of a contract for a lease, because only the benefit of a contract is assignable, not the burden; (d) if the land is unregistered, the doctrine of notice will apply and the tenant will be obliged to find out what unregistrable equitable interests the land is subject to, since the tenant will not be able to claim to be a bona fide purchaser for value of a legal estate without notice. The tenant will also take subject to all prior equitable interests within classes C(iv) and D, whether or not they have been registered (s 4(6) of the Land Charges Act 1972); (e) an equitable lease, but not a legal lease of unregistered land, must be protected by registration at the Land Charges Department. An equitable lease of registered land must be protected on the charges register at HM Land Registry by way of notice or caution, although reliance may be placed upon it being an overriding interest under s 70(1)(g) of the Land Registration Act 1925. A legal lease for 21 years or less is an overriding interest under s 70(1)(k) of the Land Registration Act 1925 and does not need to be registered, but a legal lease of more than 21 years must be registered under its own title: Walsh v Lonsdale (1882); Industrial Properties Ltd v Associated Electrical Industries Ltd (1977).
The essentials of a lease (a term of years absolute) The landlord must confer upon another, called the tenant: (a) the right to the exclusive possession of certain land; (b) for a period that is definite or is capable of definition (s 205(1)(xxvii) of the Law of Property Act 1925); and (c) which is less than that of the grantor. A lease that takes effect immediately is said to be ‘in possession’. A lease that commences at some future date is said to be ‘reversionary’, and may commence up to 21 years from the date of execution of the lease. However, if it takes effect more than 21 years after the date of execution, it shall be void, and any contract for a lease that is to commence 21 years after the execution of the lease shall be void (s 149 of the Law of Property Act 1925). The date of termination of a lease must be certain and cannot rely upon the occurrence of some uncertain event that may happen after the lease has commenced: Lace v Chantler (1944); Re Midland Rly Co’s Agreement (1971); Prudential Assurance Co Ltd v London Residuary Body (1992).
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Perpetually renewable leases Leases that purport to be perpetually renewable are inconvenient and therefore, converted into leases of 2,000 years under s 145 of the Law of Property Act 1922: Caerphilly Concrete Products Ltd v Owen (1972); Marjorie Burnett Ltd v Barclay (1980).
Leases for lives or until marriage A lease at a rent or for a premium for life or lives, or for any term of years determinable with a life or lives, or for any term of years determinable on the marriage of the lessee, now takes effect as a lease of 90 years under s 149(6) of the Law of Property Act 1925 (Skipton Building Society v Clayton (1993)).
Registration Where the land is unregistered, a legal lease is unregistrable and the doctrine of notice does not apply. The legal lease is enforceable against the whole world. However, equitable leases do need to be registered as contracts for leases at the Land Charges Department. Under the Land Registration Act 1925, the leasehold title for a term of more than 21 years that is a legal estate must be registered at HM Land Registry with its own title number. Legal leases for a term not exceeding 21 years cannot be registered, and are treated as overriding interests under s 70(1)(k).
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SECTION I CREATION OF LEASES
PART B CONTENTS
CHAPTER 4
COVENANTS AND ENFORCEABILITY
4.1
Covenants
As stated, a lease is a form of contract and so will contain a series of undertakings by the parties. In an ordinary contract, such undertakings may be referred to as terms, conditions, warranties, clauses, etc, and may be written or oral. However, the terminology in leases is distinctive in that if, as is usual, a lease is legal and is for a term of over three years, then it must be by deed, and undertakings in deeds are called ‘covenants’. The term is now commonly used for all promises which the landlord and the tenant make to each other, whether in a deed or not, as to what they are prepared to do or not to do during the term of the lease in relation to the demised property. As mentioned in Chapter 1 in relation to the versatility of leases, an advantage of the covenant in a lease, as compared with a covenant in a conveyance of freehold land, is that the leasehold covenant can potentially be enforced by landlord, by tenant and by their successors. The Landlord and Tenant (Covenants) Act 1995 was an important development in the way a lease may be enforced. All leases granted on or after 1 January 1996, the date when the Act came into force, are enforced in accordance with the Act’s provisions. However, all leases granted before that date continue to be enforced under the pre-Act law. As there are very many leases, some for long terms, made before that date it will be necessary to know and apply the pre-Act law for many years to come. The provisions of the 1995 Act mainly deal with the liability of the original tenant and the assignees of the lease, and the original landlord and the assignees of the reversion. The chapter is therefore divided between the pre-1995 Act provisions and the post-1995 Act provisions. The Act also makes a number of incidental amendments, which affect both the pre- and post-1995 Act law, and these are referred to as the chapter develops.
4.2
Leases granted before 1 January 1996
Covenants of leases granted before 1 January 1996 are enforced through three main sets of enforcement rules: privity of contract, privity of estate, and by common law rules under which the benefit and burden of covenants may pass and be enforced.
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4.3
Pre-1995 Act enforcement doctrines— privity of contract
This is the relationship between the original landlord and the original tenant, that is, the two parties who made the contract initially. Both parties are liable upon the contract for its duration, however long the lease lasts. 4.3.1
Common law privity of contract
All covenants are enforceable between the landlord and the tenant and between the tenant and the subtenant because, in each case, there is a contract, and so privity of contract between the parties. However, covenants are not enforceable between the landlord and the subtenant, or between the landlord and assignee, because there is no contract, and therefore no privity of contract between them. This is unless there are direct covenants between these parties which would create a contract, and thereby privity of contract between them. Such direct covenants are usually found in the assignment or sublease, which would then be executed by both the landlord and the assignee or subtenant as well as the tenant. 4.3.2
Statutory privity of contract
As early as 1540, it was recognised that there was a problem in relation to privity of contract in that, because it only operates between the direct parties to a contract, when the landlord sold the reversion of his or her lease, there would be no privity of contract between the new landlord and the tenant, and so no principle under which the new landlord could enforce a covenant under the lease against the tenant. Today, this situation would, in the vast majority of cases, be saved by the concept of privity of estate (see below, p 69). However, to fill this gap in the law, in 1540, the Grantees of Reversions Act was passed, which created a relationship of privity of contract between the new landlord and the original tenant when the original landlord assigned the reversion. The statutory provision still exists in the form of s 141 of the Law of Property Act 1925, and, from the case of Arlesford Trading v Servansingh (1971), it can be seen that it still has a useful application when neither common law privity of contract nor privity of estate are effective. In this case, an original tenant assigned a lease, and later, the original landlord assigned the reversion. The original tenant had been in arrears with rent, and the new landlord wished to recover the outstanding sums. There was no common law privity of contract between the new landlord and the original tenant, and no privity of estate, because the new landlord received the reversion after the original tenant had assigned the lease. So there had never been a relationship of landlord and tenant between them (see below, p 69) but the new landlord could sue the original tenant on the basis of s 141.
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Covenants and Enforceability Under the common law privity of contract, all covenants are enforceable, including those that are personal to the parties. However, under the statutory privity of contract only those covenants ‘having reference to the subject matter of the lease’ are enforceable. The meaning of ‘having reference to the subject matter of the lease’ is taken to be the same as the phrase at common law of ‘touching and concerning the land’ and is explained in the next section on privity of estate.
4.4
Pre-1995 Act enforcement doctrines— privity of estate
Privity of estate in respect of a lease is the relationship that exists between the current landlord and the current tenant. Initially, it exists between the original landlord and tenant, but as each assigns his or her estate (that is, the landlord assigns the reversion and the tenant assigns the lease), the privity moves to the assignee(s). The assignee of the lease becomes the tenant, the assignee of the reversion becomes the landlord, and privity of estate exists between them. Privity of estate therefore ceases between the assignors, as they no longer hold the relevant estate. 4.4.1
Purpose of privity of estate
First, because of the continuing nature of an estate in land, there is a special relationship between those who hold estates that are related by reason of a covenant that imposes a burden on one estate that benefits another. The purpose of privity of estate in this context is to ensure that the covenant continues to be enforceable for as long as the respective estates continue and are related. The estates could cease by the term of the lease coming to an end, or the relationship could cease by the person who holds the estate that carries the benefit releasing the estate that carries the burden from the obligations of the covenant. However, it will be noted that only those covenants that ‘touch and concern the land’ or, as it is phrased in the Law of Property Act 1925, ‘have reference to the land’ are enforceable under privity of estate. This restriction is imposed to try to ensure that only covenants that effect the land and so warrant being enforced throughout the duration of the estate are included. Covenants personal to the original parties are not enforceable under privity of estate. 4.4.2
Effect of privity of estate
The effect of the common law principle of privity of estate is that the parties to the relationship are liable for all breaches of covenants that ‘touch and concern’ the land during the period that they are within the relationship of privity of estate.
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Principles of Landlord and Tenant An important effect of this is that, under privity of estate, a landlord or tenant will not be liable for breaches before the lease was granted or assigned to him or her, nor for breaches after he or she has assigned it. So, liability under privity of estate is limited to the period the estate is held. Because of this limitation on the liability under privity of estate, landlords seek to obtain direct express covenants with assignees to perform the covenants of the lease for the remainder of the term. A landlord can only require an assignee to enter an express covenant in this way if provision is made in the lease for such covenants to be entered on assignment. The benefit to the landlord of obtaining such a direct covenant is that there will then exist the relationship of privity of contract between the assignee and the landlord, with the assignee being liable for any breaches not merely for the period when the assignee holds the lease, but for the rest of the term. To obtain this benefit, it is essential that the words ‘for the remainder of the term’, or such similar phrase, be inserted. If they are not, the landlord will be in no better a position than in the relationship of privity of estate. In the case of Estates Gazette Ltd v Benjamin Restaurants (1995), a first assignee directly covenanted with the landlord on assignment to pay ‘the rent reserved by the lease at the time and in the manner therein provided’, but the words ‘for the remainder of the term’ were omitted. As a result, when a second assignee defaulted some 10 years later, the first assignee was not liable either under privity of estate, as might be expected, or under privity of contract created by virtue of the direct covenant, because the wording of the covenant did not extend the liability that far. 4.4.3
The passing of privity of estate
There are two aspects to every covenant. First, there is the burden or obligation to perform the covenant by one party, and secondly, there is the benefit of that performance received by the other party. In relation to privity of contract, the benefit and burden are rarely considered separately, because privity of contract does not usually move from the original parties. However, a feature of privity of estate is that it does move. So, as the leasehold or reversionary interest passes on assignment from one person to another, it is important to ensure that both the benefit and burden of the covenants pass. When this movement takes place, the covenant is said to ‘run’ with the land. The way in which the benefit and burden of a covenant passes varies, depending on whether it is the lease or the reversion that is being assigned. 4.4.4
Assignment of the reversion
On the assignment of the reversion of the lease, the benefit and burden of a covenant do not pass at common law, but by virtue of statute.
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Covenants and Enforceability Section 141(1) of the Law of Property Act 1925 automatically transfers the benefit of all covenants, and s 142(1) of the Act automatically transfers the burden of all covenants, to the new landlord, provided the covenants ‘have reference to the subject matter of the lease’. This is interpreted as having the same meaning as touching and concerning the land at common law. The transfer takes place under the statutory provisions, and therefore will occur irrespective of the relationship of the doctrine of privity of estate. However, privity of estate still has to be proved under common law principles. 4.4.5
Assignment of the lease
The benefit and burden of a covenant will pass or run on an assignment of a lease at common law if: (a) there is a relationship of landlord and tenant between the parties to the covenant; (b) the covenant touches and concerns the land; and (c) there is a legal assignment of the lease. The authority for this is Spencer’s case (1583), and, in addition, s 79(1) of the Law of Property Act 1925 (a provision which assists the drafter) enables the landlord to enforce the covenants relating to the land against the assignee without the need for the original tenant to covenant for him or herself and his or her assigns. Before this provision, if these words were not used, only the original tenant could be sued. 4.4.6
Assignment of the lease—relationship of landlord and tenant
In relation to leasehold, privity of estate only exists between persons who are in the direct relationship of landlord and tenant, or, to put it another way, the two parties who presently hold the same estates as those created by the lease, that is, landlord and tenant. It therefore does not operate between a head landlord and a subtenant, only between the immediate landlord and tenant. Privity of estate exists only while a party holds the estate. That is, the original landlord and the original tenant will have both relationships of privity of contract and privity of estate while each holds his or her interest in the property. When the original tenant assigns the lease, the relationship of privity of contract will still exist between the original landlord and the original tenant, but the relationship of privity of estate will have moved, and will now be between the original landlord and the assignee of the lease. This movement will continue during the course of the term of the lease. When the assignee in turn further assigns, the privity of estate will cease between the original landlord and the first assignee, and will now be between the original landlord and the second assignee.
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Principles of Landlord and Tenant The effect is the same in relation to the landlord. If, in the above example, the original landlord now sells the reversion, privity of estate would exist between the new landlord and the second assignee. However, as will have been noted, the benefits and burdens of covenants pass to the new landlord on a reversion, irrespective of privity of estate, because of the statutory provisions of ss 141 and 142 of the Law of Property Act 1925, which automatically transfers these benefits and burdens. 4.4.7
Assignment of the lease—touch and concern
There is a dual test as to what is meant by ‘touch and concern’ the land: (a) in Congleton Corporation v Pattison (1808), the test was expressed in a positive way, in that a covenant must ‘affect the nature quality or value of the thing demised independently of collateral circumstances’ in order to touch and concern the land; (b) in Vernon v Smith (1821), the test was expressed in a negative way, in that if a covenant ‘does not go on benefiting land after the reversion has been assigned (sold) or after the lease has been assigned, then it does not touch and concern the land, only the person’. This test was further considered and explained in P and A Swift Investments v Combined English Stores (1989), where Lord Oliver said: Formulations of definite tests are always dangerous, but it seems to me that, without claiming to expand an exhaustive guide, the following provides a satisfactory test for whether, in any given case, a covenant touches and concerns the land: (a) the covenant benefits only the reversioner for the time being, and if separated from the reversion, ceases to be of benefit to the covenantee; (b) the covenant affects the nature, quality, mode of user or value of the land of the reversioner; (c) the covenant is not expressed to be personal (that is to say, neither being given only to a specific reversioner nor in respect of the obligations only of a specific tenant); (d) the fact that a covenant is to pay a sum of money will not prevent it from touching and concerning the land so long as the three foregoing conditions are satisfied and the covenant is connected with something to be done on, to or in relation to the land. Examples of covenants that have been held to touch and concern the land include:
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Covenants and Enforceability (a) covenants by the tenant: • to pay the rent (Parker v Webb (1693), Kumar v Dunning (1989)); • to repair the premises (Windsor (Dean and Chapter) v Hyde (1601)); • to insure against fire (Vernon v Smith); (b) covenants by the landlord: • for quiet enjoyment (Campbell v Lewis (1820)); • for title (Williams v Burrell (1845)). Examples of covenants which do not touch and concern the land include: (a) covenants by the tenant: • to pay a sum of money in relation to land that is not the subject of the lease (Gower v Postmaster General (1887)); • to repair chattels on the land that are not fixtures (Williams v Earle (1868)); • any covenant that creates a personal obligation between the original parties; (b) covenants by the landlord: • to grant an option to purchase the property (Woodall v Clifton (1905)); • to return a deposit at the expiry of the lease (Hua Chia Commercial Bank v Chiaphua Investment Corpn (1987)). A covenant which grants an option is of particular note. Where a lease contains an option to buy, as in Woodall v Clifton, it has been held not to touch and concern the land, and, therefore, not enforceable by a successor to the tenant. However, an option to extend the existing lease has been held to touch and concern the land. The reason for this distinction may be justified on the basis that a right to purchase property or be granted a lease is not peculiar to a tenant and may be granted as much to a third party as to a tenant, whereas the right to extend the existing lease can only be granted to an existing tenant. For an option to be enforceable against a landlord, it must be registered as a class C(iv) charge in relation to unregistered land, or as a notice in relation to registered land, or it may be an overriding interest under s 70(1)(g) of the Land Registration Act 1925. Before 1960, it was believed that if an option touched and concerned the land, then it would not be necessary to register it. It was believed that the covenant creating the option was annexed to the land in relation to both the benefit to the tenant and the burden to the landlord. However, since Buckley J’s decision in Beesly v Hallwood Estates Ltd (1960), it would appear necessary to register an option, whether or not it touches and concerns the land.
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Principles of Landlord and Tenant Criticism The requirement that the covenant must touch and concern the land has been heavily criticised, and the Law Commission, in its report in 1988 (Law Com No 174 (1988), para 2.23), recommended its abolition. It will be noted that the Landlord and Tenant (Covenants) Act 1995 has gone a long way to effecting the Law Commission’s recommendations, at least in relation to leases granted after the Act. Much of the criticism seems to stem from decisions that appear to cause injustice or create anomalies. The case of Hua Chia Commercial Bank v Chiaphua Investment Corpn is particularly illustrative. A tenant paid a deposit, and the original landlord covenanted to return the deposit at the end of the term if there were no breaches. The original landlord assigned the reversion, and, at the end of the lease, the tenant requested the return of the deposit. The new landlord refused, because he had not received the deposit from the original landlord. It was held that the covenant relating to the deposit did not touch and concern the land. The Privy Council considered that the original landlord received the deposit as a payee, and so covenanted in a personal contractual capacity, not as landlord. This decision is difficult to reconcile with the test put forward in P and A Swift Investments v Combined English Stores. 4.4.8
Assignment of the lease—must be a legal assignment
An assignee at common law will only have privity of estate if the assignment is of a legal lease or reversion of a legal lease, and the assignee is in the identical position of the tenant or landlord respectively. This will only be achieved if there is a legal assignment of the legal lease or reversion of a legal lease for the whole term remaining. This means that an assignment must be by deed, even if the lease is for less than three years and so does not itself have to be by deed (Crago v Julian (1992)). There are two problems: (a) there might be an assignment of an equitable lease, and therefore privity of estate will not apply, either between the original parties or their successors, whether it is assigned by deed or not; (b) there may be an equitable assignment (that is, otherwise than by deed) of either the reversion or leasehold interest of a legal or equitable lease. 4.4.9
Assignment of the lease—assignments of equitable leases and equitable assignments
(a) Position of original parties: where there is an equitable lease, since it will have arisen from a contract for a lease in respect of which specific performance
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Covenants and Enforceability can be awarded, the original parties to the contract can enforce that contract, so the difficulty of lack of privity of estate may be avoided by privity of contract in respect of the original parties. (b) Position of the assignee of the reversion: where the landlord has assigned the reversion of an equitable lease, or if a legal reversion is assigned otherwise than by deed, the difficulty of lack of privity of estate is avoided by the statutory provisions of s 141 of the Law of Property Act 1925, which enables the benefit of all the landlord’s covenants to pass, and s 142 of the Act, which enables the burdens of all the landlord’s covenants to pass to the new landlord, irrespective of the equitable nature of the lease or the assignment. However, although the new landlord may potentially be able to sue and be sued, this will only be effective if the tenant or assignee is in the same position. Otherwise, the respective parties will have nobody against whom they can take action; (c) Position of the original tenant: by virtue of s 141 and statutory privity of contract, the original tenant will continue to be entitled to the benefit of the lease, and obliged to comply with the obligations under the lease, in respect of any new landlord; (d) Position of the assignee of the lease: where a tenant has assigned an equitable lease, or if a legal lease is assigned otherwise than by deed, then, in considering the difficulty of lack of privity, a distinction has to be drawn between the benefits and the burdens of any covenants that effect the assignee under the lease, whether the original landlord holds the reversion or whether it is held by an assignee of the reversion, that is, a new landlord. The benefit of covenants under a lease will only pass automatically at common law by virtue of Spencer’s case if there is privity of estate. If there is no privity of estate due to an equitable lease or equitable assignment, then, unlike with the assignment of the reversion, there are no statutory provisions to assist. Nevertheless, the benefit of any covenants can be expressly assigned. This may be done under the normal rules of simple contracts, and so does not have to be done by deed. Therefore, whether it is an assignment of an equitable lease, or a legal lease that is being assigned by a document other than a deed, the benefits of the covenants of either can be expressly transferred in an assignment in the form of a simple contract. The standard wording of any assignment will usually include such an express transfer, so the assignees will therefore be able to enforce the benefit of the covenants under the lease against the landlord, whether original or reversioner. The burden of the covenants, unlike the benefit, cannot be expressly assigned at common law, as seen in the case of Purchase v Lichfield Brewery (1915). Therefore, it would appear that, whereas the tenant’s assignee may enforce the landlord’s obligations against the landlord or the landlord’s assignee, the landlord cannot enforce the tenant’s obligations against the tenant’s assignee.
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Principles of Landlord and Tenant A number of attempts have been made to overcome the hardship that this may cause the landlord: (a) in Boyer v Warbey (1953), a legal lease was created for a term of less than three years without a deed. The lease was subsequently assigned by a document other than a deed. It was held by the Court of Appeal that, even though the assignment was not by deed, both the benefit and the burden of the tenant’s covenants under the lease would pass to the tenant’s assignee. This appears logical, in that it is anomalous that such a lease may be created without a deed, but that it must be assigned by deed. However, Lord Denning went on to submit that, since the Judicature Acts 1873 fused common law and equity, there was effectively no distinction between the two, so that a legal lease generally no longer had to be assigned by deed for both burden and benefit of the tenant’s covenants to pass. This, however, would be a very wide principle to deduce from the narrow facts of the case, and it is suggested that the principle should be limited to the circumstances of the case; (b) in Shiloh Spinners v Harding (1973), it was held that a landlord could enforce a right of re-entry for breach of a covenant, even though the tenant was not bound by the covenant. A right of re-entry entitles the landlord to forfeit the lease (see Chapter 7). It is a right usually expressly reserved by a landlord in the lease, but, in any event, it would appear to be implied as a usual covenant in an equitable lease. In Shiloh Spinners v Harding, it was further held that the right does not have to be registered as a land charge in respect of unregistered land and is an overriding interest under s 70(1)(g) of the Land Registration Act 1925, so does not have to be entered on the register in relation to registered land; (c) restrictive covenants are enforceable against tenants whether they hold under a legal or an equitable lease, and against subtenants under common law principles of benefit and burden. Restrictive covenants normally have to be registered as D(ii) land charges in relation to unregistered land if they are they to be effective against any person who is the purchaser of a legal estate for money or money’s worth. However, any person who is not within that category will be outside the registration provisions, and so the doctrine of notice applies. An unregistered restrictive covenant would therefore be effective against a purchaser (the assignee or sublessee) of an equitable lease if he or she had notice of it. In respect of registered land, restrictive covenants under a lease may be treated as overriding interests; (d) it is suggested through comments by Lush J in Purchase v Lichfield Brewery, that in the event of an equitable assignment, it may be possible to imply a contract between the tenant’s assignee and the landlord when the assignee takes possession and pays rent and so is acknowledged by the landlord as
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Covenants and Enforceability the new tenant. Therefore, this would appear to be a new equitable lease by virtue of the contract. However, if this were the case, then all the principles in relation to equitable leases would apply, including the requirement that the contract would need to be specifically enforceable and so could be converted to a legal lease; (e) another suggestion is that a periodic legal tenancy may arise between the assignee and the landlord when the assignee takes possession, pays rent and is accepted as the new tenant.
4.5
Pre-1995 Act enforcement doctrines—rules relating to benefit and burden
There are certain covenants which, although there is no privity of contract or estate between the parties, are nevertheless enforceable through the general common law rules relating to the enforcement of the benefit and burden of covenants, for example, restrictive covenants in relation to subtenants, and covenants between a landlord and a surety where the landlord has assigned the reversion. 4.5.1
Restrictive covenants
There is no privity of contract or estate between the landlord and a subtenant, unless the landlord has obtained direct covenants from the subtenant on the granting of the subtenancy. Nevertheless, a head landlord may enforce a restrictive covenant contained in the headlease against a subtenant under the principles set out in Tulk v Moxhay (1848), which made restrictive covenants equitable proprietary interests. 4.5.2
Sureties
Sometimes, a landlord requires a tenant to obtain a surety before the landlord is prepared to grant the lease. A surety guarantees the performance of a lease by the tenant, that is, if the tenant fails to pay the rent or comply with the terms, then the surety will make payment or compensate the landlord for the non-performance. Such a guarantee would be contained in a covenant in the lease, and so would be an agreement between the landlord and the surety. The landlord would, therefore, be able to enforce the covenant through privity of contract. However, if the landlord assigns the reversion, then the new landlord would not be privy to the contract between the original landlord and the surety, and so could not enforce the agreement through privity of contract unless the landlord expressly assigned the benefit of the covenant to the new landlord. If this were not done, there would be no privity of contract.
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Principles of Landlord and Tenant Although the same principle would apply to the tenant, the problem could be overcome, as has been seen above, by the doctrine of privity of estate. However, this doctrine would not apply to sureties, because they are not in the relationship of landlord and tenant. Therefore, neither privity of contract nor privity of estate would exist between an original tenant’s surety and a new landlord, to whom the original landlord had assigned the reversion. Nevertheless, under the general principles of common law, the benefit of the surety’s covenant may pass to the new landlord provided the following conditions exist: (a) (b) (c) (d)
the covenant must touch and concern the land; the covenantee must have a legal estate in the land benefited; the assignee must have a legal estate in the land benefited; there must have been an intention at the date of the covenant that the benefit should run with the land.
It was held in Kumar v Dunning (1987) that a surety covenant touches and concerns the land demised. The reasoning was that the tenant’s covenant to pay rent clearly touched and concerned the land, because it affected the value of the reversion, and the surety’s covenant buttressed that covenant to pay rent. This decision was affirmed in P and A Swift Investments v Combined English Stores (1989), in which a surety was described as a ‘12th man’ for the tenant’s team. In Coronation Street Properties v Ingall Industries Ltd (1989), the surety also promised that, if the tenant became insolvent, the surety would take a new lease. This also touched and concerned the land, in that it affected the landlord’s reversion. In Ex p Tredegar Enterprises Ltd (1992), the question arose that, if a surety entered such a covenant, at what point did the surety become liable under a new lease. The surety argued that he did not become liable until he actually took the new lease. However, it was held that the surety was under a duty to take the lease as soon as the tenant was declared insolvent, so there was an immediate equitable lease which was capable of specific performance, and, therefore, the surety was liable immediately.
4.6
Pre-1995 Act—liability of an original landlord
By reason of privity of contract, the original landlord is liable to the original tenant throughout the term in respect of all covenants, unless otherwise agreed in the lease. By reason of privity of estate, the original landlord is liable to assignees of the lease so long as both parties remain in the relationship of landlord and tenant,
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Covenants and Enforceability because the benefit of the landlord’s covenants in the lease passes to the assignee. However, it was held in Re King (1963) that the original landlord loses the right to enforce covenants once the reversion has been assigned.
4.7
Pre-1995 Act—liability of a reversioner
The landlord may pass the reversion of the lease to another. That other will then become the landlord and may be referred to as the reversioner, since this is the party to whom the land will revert when the lease determines. The reversioner is liable to the original tenant under privity of estate while they remain in the relationship of landlord and tenant. The reversioner is liable to assignees of the lease for breach of covenants that have reference to the land— treated as being synonymous with ‘touch and concern’—since, under s 142 of the Law of Property Act 1925, the benefit of such covenant will have passed to the assignee under privity of estate.
4.8
Pre-1995 Act—liability of an original tenant
Under privity of estate, the parties’ liability only continues for the period during which they are in the relationship of landlord and tenant, and so privity of estate between landlord and tenant ceases on assignment. However, under privity of contract, the parties’ liability continues for as long as the contract continues, which, in the case of a lease, is for the whole term. The effect of this is that an original tenant is liable for breaches of the lease committed not only by the first assignee, but also by subsequent assignees. It should be noted that, under the same principle, the tenant is liable for breaches committed by subtenants, whether such subtenant was granted a sublease by the tenant or by an assignee. However, whereas the original landlord or reversioner may sue an assignee for breach under privity of estate, the landlord or reversioner cannot sue a subtenant. The landlord or reversioner will have to sue either the assignee or the original tenant, or both, under the respective enforcement principles. Therefore, under privity of contract, it matters not who committed the breach of covenant: the original tenant, as the contracting party, will be liable. Under common law privity of contract, this liability is to the original landlord, all the covenants under the lease, and, under statutory privity of contract under s 141 of the Law of Property Act 1925, to the reversioner for the covenants that have reference to the subject matter of the lease (that touch and concern the land). This continuing liability of the original lessee is not as a surety, but as a primary debtor. In other words, in the event of breach, the original lessee can be sued in preference to the assignee, whereas a secondary debtor or surety only agrees to pay if the primary debtor fails.
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Principles of Landlord and Tenant The justice of such liability has been questioned, since it means that an original tenant is held liable for breaches committed by persons over whom he or she has no control. The Law Commission published both a Working Paper—No 95 on Privity of Contract and Estate: Duration of Liability of Parties to Leases— and subsequently a Report—No 174 (1988)—recommending reforms, and these have largely been put into effect in the Landlord and Tenant (Covenants) Act 1995. Various arguments have been put forward by tenants over the years to attempt to mitigate this liability. In Baynton v Morgan (1888), it was unsuccessfully contended that, on an assignment, the original lessee becomes a surety. In Norwich Union Life Insurance Co v Low Profile Fashions (1992), it was unsuccessfully submitted that an assignment with the landlord’s consent releases the tenant. The basis of the argument was that the landlord, in giving a first assignee a licence to assign to a second assignee, was negligent. However, this was rejected, because there was no duty of care between the parties. Even the variation of a lease after assignment does not discharge the original tenant, even though it might discharge a surety (see below). Indeed, such a variation not only does not discharge the original tenant from his or her liability, but might increase it. There are three possible justifications for this: (a) it was suggested that the subsequent assignee was the original tenant’s agent. However, this view was rejected in Centrovincial in that there was no actual agency and no agency by estoppel; (b) it was submitted that the original tenant was bound under the principles of contract. If this were applied, then the original tenant would only be liable if the original lease impliedly or expressly provided for the original tenant being bound by a variation. This has been referred to as ‘the contractual approach’; (c) it has been put forward that, when the original tenant held the leasehold interest, he or she could have effected the variations and ‘…by putting the assignee into the shoes, he authorises him to do what he himself might have done’ (Lopez J in Baynton v Morgan). This has been referred to as ‘the property approach’. 4.8.1
The original tenant’s liability under the ‘contract approach’
The courts have not held the original tenant liable for all variations upon the basis of one principle alone, but have distinguished between variations that occur as a result of the original lease being extended or renewed and variations that occur during the initial term of the lease.
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Covenants and Enforceability The contract approach is adopted with reference to variations that occur during a period of extension or renewal, for example, in relation to business leases. The extent to which an original tenant is liable for variations during a renewal or extension period of a lease, or indeed the extent to which the original tenant is liable at all during an extension or renewal period, is dependant upon the contract contained in the lease. Generally, where an option to renew or extend the lease is contained in the original lease between the original landlord and the original tenant the liability of the original tenant continues into the option period. However, if the option to renew or extend came about between original landlord or reversioner and assignee, the original tenant will not be liable during the renewal or extension period. Business leases have a statutory form of security of tenure which operates by enabling the tenant to demand a further lease from the landlord, under s 25 of the Landlord and Tenant Act 1954. The landlord may refuse such a demand only in specified circumstances. Business leases and security of tenure are dealt with below, p 293. However, two questions have arisen which must be dealt with here. On the expiry of the contractual lease between the parties, there is a period of ‘holding over’, during which time the covenants of the contractual lease continue to have effect while the parties negotiate a new contractual lease. So: (a) is the original tenant liable for breaches during the ‘hold over’ period and, if so, will the original tenant be liable for any increased liability as a result of a variation agreed during that period, for example, a higher rent?; (b) is the original tenant liable for breaches during the term of the contractual lease negotiated and granted by reason of the statutory provisions? It appears from the decisions in City of London v Fell (1992) and Herbert Duncan v Cluttons (1993) that the contractual approach applies, and, therefore, the liability of the original tenant during the hold over period or extended lease depends upon the covenants in the lease. In Fell, the landlord sued the original tenant for arrears that had arisen as a result of the assignee’s default during the statutory hold over period following the expiry of the original term of the lease. The landlord argued that the original tenant was liable for the term, that the statutory provisions continued the term, and that the hold over period was a part of that continued term. The Court of Appeal held that the original lease had made no particular mention of the hold over period, and the 1954 Act gave no indication that the obligation of anyone should be extended beyond the original term other than the landlord and the current tenant who, in this case, was the assignee. Therefore, the original tenant’s liability did not extend into the hold over period beyond the original 10 year term. However, it is still open to a landlord to introduce a covenant in the original
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Principles of Landlord and Tenant lease to make the original tenant liable for the defaults of an assignee during the hold over period, for example, ‘for the term and any period of any statutory extension or holding over’. In Herbert Duncan, the term was defined in the original lease as including a hold over period. During the hold over period, the assignee agreed an increase of rent from £70,000 to £200,000. The assignee paid the rent of £70,000 as required under the contractual lease, but defaulted on the increased rent agreed during the hold over period. The landlord sued the original tenant for the shortfall, and claimed that the original tenant was liable at the higher rate throughout the statutory extension. It was held that, under the covenants of the contractual lease, the original tenant had only agreed to be responsible throughout the extended period of the lease in respect of the contractual rent. 4.8.2
The original tenant’s liability under the ‘property approach’
The property approach is adopted with reference to variations that occur during the initial term of the lease, for example, in relation to rent reviews. Most leases contain rent review clauses which enable the rent to be increased at set times during the term of the lease. This enables the landlord to grant the tenant a long lease and yet maintain a market rent. Therefore, the tenant has the advantage of a long lease, and the landlord has the advantage of being able to receive a reasonable return throughout the term. The original tenant agrees the wording of the rent review clause when the lease is agreed. Therefore, when the rent is increased under the terms of the covenant, whether it is while the original tenant is in possession or after the lease has been assigned, the original tenant will be liable. This would be so under the contract approach. However, unless there were special provisions in the lease, an original tenant would not be liable under the contract approach if, following an assignment, the assignee agreed with the landlord to undertake certain alterations which were prohibited by the terms of the original lease, and which would increase the rent on review beyond what would be expected under the original lease. Under the property approach, though, the original tenant would be liable because, if the assignee can obtain a waiver of the prohibition from the landlord, then the original tenant could have done so too. The assignee is standing in the shoes of the original tenant and, therefore, the original tenant must expect that the assignee can do anything that the original tenant could have done. Therefore, there is a substantial difference in respect of the original tenant’s liability between the application of the contract, and the property approaches, and it is the property approach which has been held to apply in relation to rent reviews. In Centrovincial Estates plc v Bulk Storage Ltd (1983), the lease provided for a rent of £17,000 per annum with a rent review clause. The lease was assigned, and the assignee, on review, agreed a £40,000 increase and defaulted. The original
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Covenants and Enforceability tenant was held to be liable. Since the original contract had made provision for a rent review, it might be expected that the contract principle would be applied, but, in this case, the property principle was applied, as propounded in Baynton v Morgan. The assignee was now wearing the shoes of the original tenant, and so could agree the rent. However, the case of Selous Street Properties v Oronel Fabrics Ltd (1984) shows how the property principle exposes the original tenant to a wider liability. In this case, the rent was originally set at £20,000, with a rent review clause and an absolute prohibition against alteration. The lease was assigned, and the landlord authorised the assignee to carry out alterations by executing a supplemental deed. The alterations were taken into account when conducting the rent review. Although it was not established that the alterations led to a higher rent than would have been expected under the original lease, nevertheless, the judge held that, even if they did increase the rent, the original tenant, under the property principle, would have been liable for the whole amount. However, the tenant had only agreed to be bound by the rent review in the lease he had executed. The contract principle would appear fairer, in that, if the tenant was to be liable for any increased rental due to alterations following an agreement between an assignee and the landlord, this would have to be contained in the lease, and the original tenant would therefore have agreed to it. It is submitted that such an alteration means that the assignee is not in exactly the same shoes as the original tenant. In GUS Property Management v Texas Home Care Ltd (1993), the lease contained a rent review clause. The lease was assigned, and the assignee and landlord agreed a rent review within the terms of the lease, but with the additional arrangement of a stepped rent from £210,000 to £220,000. The assignee defaulted, and the original tenant was held liable. It was reasoned that the assignment was for the benefit of the original tenant, who, therefore, had to accept some loss of control, but, in any event, it was submitted that the original tenant might recover from the assignee by way of indemnity. 4.8.3
Discharge of the original tenant’s liability
Performance Tenants’ assignees and subtenants must perform the lease in the same way as any other contract, that is completely and precisely. In Matthey v Curling (1922), the covenant was to insure the property in the landlord’s name. The lease had been assigned and the assignee had insured, but in the assignee’s name. The assignee was, therefore, in breach. Where the original tenant is in breach of a covenant, it is clearly up to the original tenant to remedy the breach. Even when the breach is committed by an assignee or subtenant, the original tenant may still wish to remedy the breach, because ultimately, he or she is liable and will want to limit that liability by
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Principles of Landlord and Tenant prompt action. If the breach is non-payment of rent, then the breach may be remedied easily by payment by the original tenant. The original tenant may then seek an indemnity from the assignee or subtenant (see below, p 95). However, it will not be possible for the original tenant to undertake repairs, since the original tenant will not have a right to enter the premises without the assignee’s or subtenant’s permission. Nevertheless, the original tenant is still liable. If the original tenant or the assignee in breach partly performs a contract to avoid further breach, or partly remedies a breach, the landlord may still sue either the assignee or the original tenant, or both, but cannot recover more than is due. It is said that he or she can have but one satisfaction. It may be that a landlord agrees with an assignee to accept part performance of a covenant as full satisfaction. This may be done in relation to arrears of rent, where a landlord waives payment of part of the arrears in the hope of receiving at least some of the arrears and the current rent in full and on time. It was held, in Deanplan v Mahmoud (1992), that if a landlord agreed to accept part performance from an assignee as full satisfaction, both the assignee and the original tenant would be released from the outstanding obligation which the landlord had waived in the agreement. The landlord would have had his one satisfaction, and, thereafter, cannot recover the balance from the tenant, who is fully discharged. This is referred to as an ‘accord and satisfaction’. The accord is the agreement, and the satisfaction is the carrying out of the obligation, such as payment of rent. If the obligation is only to be partly performed, then there must be a binding agreement releasing the assignee and the original tenant from performing the remainder of the obligation. A landlord may seek to include in the agreement a clause reserving a right to claim for any shortfall from the original tenant. However, such a clause is unlikely to be agreed to by the assignee, because if the landlord sues the original tenant for the shortfall, the original tenant will seek an indemnity from the assignee; whereas the landlord, having agreed to accept part performance, could not sue the assignee, the original tenant would not be a party to that agreement, and so could sue the assignee. It is a question of construction of the contract between the assignee and the landlord as to whether the landlord has expressly reserved the right to sue the original tenant. If such a clause is not included, the landlord will have accepted the part performance in full satisfaction, and will not be able to sue the original tenant for the balance. Surrender A surrender of the lease is where the tenant or assignee gives the lease of the premises back to the landlord. This must be done with the landlord’s agreement, and a landlord may not accept the lease back without some payment for the loss of rent. If a landlord does agree to the original tenant or an assignee
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Covenants and Enforceability surrendering the lease of the whole premises, then such a surrender extinguishes the term unexpired, and so extinguishes both the original tenant’s and any assignee’s future liability. However, in Baynton v Morgan (1888), and more recently, in Allied London Investments Ltd v Hambro Life Assurance Ltd (1984), it was held that the surrender of the lease of part of the premises does not extinguish the term. Clearly, an original tenant who is still in possession or an assignee, will be liable for the rent of the part retained. If part of the premises have been surrendered by an assignee, and the assignee defaults, it was held obiter in Baynton v Morgan that, since the term is not extinguished, the original tenant will still be liable, not only for the rent of the part of the property retained, but for the whole property. In that case, though, the landlord only sued for the rent of the retained part of the premises. Disclaimer If either the original tenant or an assignee becomes insolvent, then the trustee in bankruptcy in the case of an individual, or the liquidator in the case of a corporation, may disclaim the lease. An insolvent party will be liable for all liabilities up to the disclaimer, but the disclaimer will extinguish the future liability of the insolvent party. However, only the future liabilities of the insolvent party will be extinguished: all other parties will still be liable, not only for liabilities before the disclaimer, but also for future liabilities. A disclaimer, therefore, only benefits the insolvent party. It was held in Warnford Investments Ltd v Duckworth (1979) that, where an assignee is insolvent, a solvent original tenant will still be liable. Forfeiture Forfeiture is where the landlord retakes possession of the premises, usually by court order due to a breach of the lease. Forfeiture terminates the term, and, therefore, the future liability of the original tenant and of any assignee. See Chapter 7. Death Death does not discharge the continuing liability of the original tenant to the value of the estate, presuming it has not been wound up.
4.9
Pre-1995 Act—liability of an assignee
An assignee is liable under privity of estate to be sued by the landlord and the reversioner for breaches of covenants that touch and concern the land while he or she is in the position of tenant. The benefit of covenants that have reference to the land (treated as being synonymous with ‘touch and concern’) will have passed to the reversioner under s 142 of the Law of Property Act 1925.
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Principles of Landlord and Tenant An assignee is not liable to the landlord for breaches before assignment, nor for breaches after assignment. However, if a breach began before the assignment, but is continuing after the assignment, then the assignee will be liable, for example, breach of a repairing covenant or breach of a covenant not to use the property for a specific purpose (Middlegate Properties Ltd v Bilbao Caroline Co Ltd (1972)). The landlord’s right to reenter and forfeit continues after an assignment. Therefore, if the right of forfeiture has arisen due to a pre-assignment breach, the right of forfeiture can be exercised against even a subsequent assignee, although the assignee is not liable for the breach. Therefore the assignee may have to remedy the breach to avoid forfeiture. Because an assignee is not liable for breaches occurring after further assignment, the assignee can assign the lease to get rid of future liability if he or she finds a covenant is onerous. A method of doing this is to form a limited company with no assets to take the lease. The assignor may then fail to comply with the term with impunity, in that the landlord will not be able to recover from the assignee, since it will have no assets. In Valiant v Dodemede (1742), it was held that an assignment may be made to a beggar. However, the assignee may still find him or herself liable, should the original tenant be sued, and then seek indemnity from the assignor. To obtain greater control over those to whom the lease is assigned than the doctrine of privity of estate allows, the landlord may insert restrictions in the lease or require direct covenants to be entered into by an assignee. A commonly imposed restriction is that the lease is ‘not to be assigned without the landlord’s consent’. However, if the assignor chooses to ignore the restrictions, the assignment will still be valid, even though it is in breach of the covenant. The effect of the assignee entering direct covenants with the landlord is that the relationship of privity of contract will arise, enabling the landlord to make the assignor liable for the remainder of the term and not just for the period during which the assignee is the tenant. Therefore, the liability will not end when the assignee assigns. However, it is imperative that the landlord makes it clear in the direct covenant that the assignee is to be liable for the remainder of the term. In Estates Gazette v Benjamin (1995), the assignee entered direct covenants with the landlord, but the words ‘for residue of term’ were omitted. The landlord argued that such words should be implied because they were so common, but the court would not do so. The covenant would be construed strictly. On appeal, the landlord was permitted to recover, because the lease contained the words ‘during the said term hereby granted’, and the assignee had also covenanted to observe and perform all the covenants on the lessee’s part and the word ‘lessee’ included the person in whom the term was vested from time to time. The court was, therefore, able to interpret the words used as imposing the liability on the assignee for a later assignee’s breach. Where words are included, it is necessary to look
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Covenants and Enforceability at what they relate to, that is, ‘all covenants of lease’ or ‘such covenants as touch and concern the land’. An assignee’s liability is discharged by performance, surrender, disclaimer and forfeiture in the same ways as that of the original tenant.
4.10
The Landlord and Tenant (Covenants) Act 1995
4.10.1 The Law Commission’s recommendations The Law Commission published Working Paper No 95 on Privity of Contract and Estate: Duration of Liability of Parties to Leases. It was the opinion of the Law Commission that the continuing liability of original tenants throughout the term should be abolished or curtailed. The main effect would be that the tenant would not be liable for the breaches of subsequent assignees. The Law Commission’s recommendations, set out in Report No 178 (1988), favoured making leases to continue liability void unless such liability was reasonable. The working paper stated that there was a need for reform for the following reasons: (a) there was a lack of understanding among tenants as to the extent of their liability when entering a lease. Even when the liability was explained to them by a legal practitioner, they either still did not appreciate, or, at the commencement of the lease, were not prepared to consider the implications of continuing liability; (b) where an individual or corporation had assigned a business lease, perhaps with many years unexpired, it would be necessary to take account of the contingent liability until the term had expired, and perhaps beyond, if the contract allowed for further liability, which was a great inconvenience and restriction on business; (c) an original tenant receives no warning of an impending liability. A landlord is under no obligation to inform an original tenant that an assignee has defaulted; (d) if prompt action is not taken to reduce liability, then very substantial sums may be incurred in rental dilapidations and interest; (e) in theory it is possible for an original tenant to have recourse to the defaulting assignee by way of indemnity. In practice, the defaulting assignee will probably not be worth suing, if he or she had been in funds, then he or she would not have defaulted, or the landlord would already have taken action against him or her; (f) the landlord was in a more favoured position than the tenant. The continuing liability of a tenant is not apparent from the lease, that is, it is not a covenant. Although, in theory, tenants could negotiate for the inclusion of a covenant
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Principles of Landlord and Tenant releasing them from their liability on assignment, few were in a position to be able to do so. In addition to continuing liability, landlords often include covenants requiring assignees to enter a direct covenant. Since landlords draft the leases in the first place, they are in a strong position to be able to protect themselves in this way; (g) original tenants have no control over the assignees once they have assigned. The first assignee may, in turn, assign to a person who is likely to default, but If the landlord has a financially strong original tenant, he or she may not be so anxious to use the requirement of consent to ensure that he has an equally financially strong subsequent assignee than if he did not have that safeguard; (h) the landlord may enforce a breach by suing the assignee in breach, the original tenant, and any intermediate assignees with whom he or she has a direct covenant. The original tenant may then sue the next assignee in line, who may sue the next intermediate assignee, and so on, until the assignee in breach is sued by way of indemnity. It is submitted that there are too many parties involved in such actions. The Commission did hear from some who considered that no change was required, in that there had been few complaints in relation to the number of leases, that any change would be disruptive, and that the benefits derived from such a change did not warrant the disruption caused. However, the Commission considered that privity of contract could effectively be changed, allowing the original tenant to be released from the continuing liability, because the landlord would still have a remedy by reason of privity of estate against the assignees who were in breach. Nevertheless, to be successful any reform should: (a) (b) (c) (d)
alleviate hardship; make leasehold more satisfactory; maintain the attractiveness of leasehold; make transfer of leases easier.
A range of possible reforms were considered; however, the Law Commission in its Report No 174 (1988), Landlord and Tenant: Privity of Contract and Estate based its recommendations on two principles: First, a landlord or tenant of property should not continue to enjoy rights nor be under any obligation arising from a lease once he has parted with an interest in the property. Secondly, all terms of the lease should be regarded as a single bargain for letting the property. When the interest of one of the parties changes hands,
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Covenants and Enforceability the successor should fully take his predecessor’s place as landlord or tenant, without distinguishing between different categories of covenant. Its recommendations were put into effect in the Landlord and Tenant (Covenants) Act 1995. The Act’s two main provisions are, first, when an original tenant assigns, he or she should be released from all liability for future breaches of covenants except, where an assignment is conditional on the landlord’s consent, the landlord can impose a condition that the original tenant would guarantee performance of the covenants in the lease by the immediate assignee only. Secondly, the principle that privity of estate shall only apply to covenants that ‘touch and concern the land’ or ‘have reference to the land’ was abolished in favour of a statutory rule that included all landlord and tenant covenants of a tenancy’. 4.10.2 Liability of Tenants and Assignees under leases granted after the 1995 Act Sections 3–16 and 21 of the Landlord and Tenant (Covenants) Act 1995 only apply to new leases but ss 17–20 apply to both old and new tenancies. By virtue of s 28(1), ‘tenancy’ is defined as including an ‘agreement for a tenancy’ and the Act applies to equitable tenancies as well legal tenancies and thereby the new law avoids the complexities of the old law in this area. New tenancies are defined in s 1 as those granted on or after 1 January 1996, which is the date the Act came into force. However agreements, court orders and options for tenancies which were entered into before that date are treated as old tenancies. If the terms of a tenancy are varied in such a way that it is deemed to be a surrender and regrant, then that tenancy will be treated as a new tenancy Since the case of Friends Provident Life Office v British Railways Board (1995), the variation would have to involve the grant of a larger area of demised land or an extension of the term. Section 2 abolishes the distinction between covenants that ‘touch and concern’ the land or ‘have reference to the subject matter’ and other covenants under the lease. Covenants under the lease are referred to as being either ‘landlord covenants’ or ‘tenant covenants’ and these expressions apply to covenants whether express implied or imposed by law. By virtue of s 3 of the Act, both the existing common law and statutory (ss 141 and 142 of the Law of Property Act 1925) rules of privity of estate are replaced by a statutory formula. The benefit and burden of all the tenant’s and landlord’s covenants that fall to be complied with shall be annexed to the demised premises (leased property) and both the landlord’s and tenant’s assignees shall be liable to perform them for as long as he or she holds the lease. In addition, the Act specifically states that an assignee will not be bound by covenants which did not bind the assignor immediately before the assignment (except waivers or releases which are personal to the assignor). Also, the assignee will not receive
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Principles of Landlord and Tenant the benefit or suffer the burden of covenants in relation to any demised premises not comprised in the assignment. The right of the landlord to re-enter is not a landlord’s covenant and so would not pass under s 3; therefore, s 4 specifically enables the benefit to pass to the landlord’s assignor. Where a covenant (in whatever terms) is expressed to be personal to any person, it shall not be enforceable against any other person. By virtue of s 5 of the Act, a tenant shall be automatically released from liability in relation to his or her covenants under the lease on an assignment. The tenant shall only be liable under the lease while he or she holds the lease and will not be liable after assignment, nor will the tenant be entitled to benefit from the landlord’s covenants. A tenant’s surety or guarantor will also be released to the same extent as the tenant. Any release from liability will not affect any liability arising from a breach occurring before the breach in relation to either the tenant or the surety or guarantor (s 24). This section reduces the landlord’s rights quite considerably from the pre-1995 Act position; therefore, the harshness of these rules is mitigated by a number of provisions: (a) There is an exception to the release of liability by virtue of s 16 of the Act. Where an assignment is conditional on the landlord’s consent, by reason of an absolute or qualified covenant to assign, the landlord may require a tenant to enter an authorised guarantee agreement. Under the agreement, the tenant guarantees the performance of the ‘tenant covenants’ in the lease by the tenant’s assignee. The tenant may enter the agreement either as a principal debtor or as a guarantor. As a guarantor, it would mean that the landlord would have to seek redress from the assignee first before turning to the assignor. The tenant only guarantees the performance of the immediate assignee. The effect of this is that, on each assignment, the current tenant will be liable for the breaches of the tenant covenants of the new assignees but not for any subsequent assignee by virtue of the agreement which the current tenant entered when he or she assigned. As a condition of the assignment, the new assignee will, in turn, sign an authorised guarantee agreement under which he or she will be liable, should he or she assign, for the breaches of tenant covenants of the next assignee, but no further. The authorised guarantee agreement will not extend further than the immediate assignee even if it purports to do so (s 16(4)). (b) If a tenant assigns without the landlord’s consent, contrary to a qualified covenant, or an assignment takes place by operation of law, for example, due to the bankruptcy of the tenant (the assignee will be the tenant’s trustee in bankruptcy), or the death of a joint tenant, by virtue of s 11 of the Act, such an assignment will be an excluded assignment. In the event of an excluded assignment, the tenant’s release from liability will be deferred until the next assignment which is not an excluded assignment.
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Covenants and Enforceability (c) A further provision, which amends s 19 of the Landlord and Tenant Act 1927, is that landlords can specify circumstances in a lease as to when they may withhold consent to an assignment. By informing the tenant at such an early stage, and thereby giving the tenant an opportunity to negotiate the matter, a subsequent refusal on the specified ground will be treated as reasonable. However, there must be no subjective element to the circumstance. Section 18 of the Act protects a former tenant or guarantor from increases in their liability due to variations of the terms of lease effected after the assignment by the former tenant. It should be noted that this provision only relates to changes in the covenants which increase liability of the former tenant or guarantor. The variation must be one that the landlord had an absolute right to refuse if he or she so wished. An example of a variation that the section would not cover is an increase in the rent under the application of the rent review clause, because the former tenant or guarantor agreed to such a covenant and the covenant itself has not been altered. A relevant variation that might increase the former tenant’s or guarantor’s liability, as it could lead to an increase in rent payable, would be the permitting of subletting when, before the variation, it was prohibited. This provision applies to both old and new tenancies. Where a former tenant, or his or her guarantor, remedies a breach of covenant, he or she may claim an overriding lease by virtue of ss 19 and 20. This means that the former tenant may require the landlord to grant a lease for the remainder of the term of the original lease, and on the same covenants. The overriding lease will come between the landlord and the assignee in breach. The former tenant will then be liable on the overriding lease to the landlord, but will, in turn, be the assignee’s landlord, and so will be able to enforce the breach. In addition, by virtue of s 17, for both new and existing leases, landlords will be required to notify both former tenants and guarantors that an assignee is in breach of certain covenants within six months of the liability falling due. If the landlord fails to do so, he or she loses the right to claim for the breach from the tenant. The landlord will only be able to claim the amount specified in the notice if it is stated that the liability may be more, and notice of any increases in liability must be given to the former tenant or guarantor within three months of the liability being known. 4.10.3 Liability of landlords and landlords’ assignees under the leases granted after the 1995 Act By virtue of s 3, all the landlord’s covenants that fall to be complied with shall be annexed to the demised property (leased property) and an assignee of the landlord, who will be the new landlord, shall, just like the old landlord, be liable to perform them for as long as he or she holds the reversion to the lease. In addition, s 4
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Principles of Landlord and Tenant transmits the rights of re-entry, which would not otherwise pass, as they are not annexed to the property. However, unlike a tenant, a landlord is not automatically released from his or her liability under the lease on assignment to another landlord, but he or she may apply by notice to the tenant, within four weeks of the date of the assignment, to be released. If the tenant fails to respond within four weeks of the service of the notice, the landlord will be released. The tenant may feel the new landlord is likely to comply with the covenants under the lease and will expressly agree to release the old landlord. However, if the tenant objects, he or she must serve a counter-notice objecting to the release within four weeks of the service of the landlord’s notice. If not, the tenant may refuse, and the old landlord will then have to apply to the court to be released. The reason for this is that the tenant cannot require that the landlord obtains his or her consent before assigning to a reversioner. This, therefore, gives the landlord some incentive to assign to a reversioner who will comply with the landlord’s covenants, or a reversioner of whom the tenant will approve, and agree to release the landlord from his or her obligations under the lease on assignment of the reversion. As mentioned in respect of tenants, landlords of leases that have been granted both before and after the commencement of the 1995 Act will be required to notify both former tenants and guarantors that an assignee is in breach of certain covenants within six months. Where a former tenant or guarantor remedies the covenant, then he or she may claim an overriding lease (see above, p 91).
4.11
Liability of a surety
As mentioned, to guarantee the performance of a lease by the original tenant, a surety may be required by the landlord. A landlord may also require, by making a provision in the lease, for an assignee to obtain a surety. The surety may agree to one of two sorts of liability: primary liability, like that of the original tenant, in which case the landlord may sue the surety in preference to the original tenant in breach; or as a secondary debtor, in which case the surety agrees to pay only if the primary debtor fails. Whether or not he or she is a primary or secondary debtor is a question of construction of the lease. It will be presumed that a surety is a secondary debtor, unless there is clear evidence to show otherwise. 4.11.1 Discharge of a surety’s liability A surety’s liability is discharged by performance, surrender and forfeiture in the same way as that of the original tenant. However, there are particular considerations to be noted in relation to variation and disclaimer.
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Covenants and Enforceability As mentioned in respect of tenants and landlords, by virtue of s 17 of the Landlord and Tenant (Covenants) Act 1995, sureties of leases that have been granted both before and after the commencement of the Act will be required to notify both ‘former tenants and guarantors’ (sureties) that an assignee is in breach of certain covenants, within six months of when the date fell due. Where a former tenant or surety remedies the covenant then he or she may claim an overriding lease (see above, p 91). Unlike in the case of an original tenant, changes in the lease affecting the liability of the surety, and made without the surety’s consent, discharge the surety’s liability unless the contract provides otherwise. Examples of changes which will discharge the sureties liability are: (a) surrender of part of the property, as in Holme v Brunskill (1877); (b) structural alteration otherwise than in accordance with the lease as in Selous Street Properties Ltd v Oronel Fabrics Ltd (1984); (c) relaxation of user restriction, as in Apus Properties Ltd v Douglas Farrow and Co Ltd (1989); (d) rent review otherwise than in accordance with the rent review clause; (e) acts of indulgence by the landlord to the principal debtor, for example, if the landlord agrees to give a longer time to pay the rent, as in Overend v Oriental Finance Corporation (1874). However, there is usually a provision in the lease relating to this which requires a definite agreement specifying a new time limit. There will be no discharge if the landlord merely lets things run on. Where a surety does agree, as in Selous Street Properties Ltd v Oronel Fabrics Ltd, to be liable for a breach of covenant even if there was a variation of the lease without his or her consent, the court will want very clear evidence that the surety has, in fact, agreed, as this reduces the surety’s right and protection. In Apus Properties Ltd v Douglas Farrow and Co Ltd, it was held that there needs to be an express agreement. Disclaimer Where the tenant or an assignee as primary debtor becomes insolvent, then under s 315 of the Insolvency Act 1986, the trustee in bankruptcy may disclaim the lease, whereupon the primary debtor will be discharged from all future liability, and, therefore, the surety will be similarly discharged, although both will remain liable for all debts and obligations under the lease up to the date of disclaimer. Under s 178(4) of the Insolvency Act 1986, a liquidator may disclaim the lease of an insolvent company in much the same way. However, the disclaimer does not terminate the liability of any other person except so far as it is necessary
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Principles of Landlord and Tenant for the purpose of releasing the company. In Stacey v Hill (1901), it was held that a disclaimer discharged both the tenant company’s and the surety’s liability. The discharge was said to be necessary for the purpose of releasing the company because, if the surety was not discharged, the landlord would sue the surety for rent, and the surety, having paid the rent, would seek indemnity from the company, which would therefore not be released. The case has been criticised, since it means that the landlord will be deprived of a remedy when he or she needed it most, that is, when the principal debtor was insolvent. In Murphy v Sawyer-Hoare (1993), where the insolvent company was an assignee and the liquidator disclaimed the lease, it was held that this released both the assignee and the assignee’s surety. The judge considered how the landlord could get more protection by extending the obligations of the surety, which depended on the terms of the surety’s covenant. For example, the covenant could make it clear that the surety was to take on a primary obligation which survived the destruction of the liability of the principal debtor. This is commonly done by a requirement in the surety’s covenant in the lease that the surety should take a substitute lease on the insolvency of the tenant or assignee. Although the lease in Murphy v Sawyer-Hoare contained this clause, it was so badly drafted that it was of little help to the landlord. It should be noted that any disclaimer as a result of an assignee’s insolvency will discharge the assignee and his surety, but it will not discharge the original tenant and his or her surety. It was held, in Warnford Investments v Duckworth (1979), that third parties are not to be released except for the purpose of releasing the insolvent. It is not necessary for the original tenant and surety to be released in order to release an assignee. The discharge will make no difference to the level of the assignee’s liability if the landlord sues the original tenant and the original tenant then claims against the insolvent assignee’s estate. This will also make no difference to the creditors. Before the Insolvency Act 1986, the position of the landlord was mitigated by requirement that the liquidator had to obtain leave of the court to disclaim. In relation to the liquidator’s request for leave to disclaim, it was held, in Katherine et Cie (1932), that if, at the hearing, the landlord was able to show that the disadvantage of a disclaimer would far outweigh any advantage to the tenant or assignee, then the court would not permit the disclaimer. However, the procedure for disclaiming was altered by s 178(2) of the Insolvency Act 1986. The court is no longer required to give leave. Under the Act, notice is served by the liquidator and an application is made to the court for relief. This is not merely a change in procedure, but also is a substantive change. In Re Hans Place (1992), the lease was disclaimed by the liquidator and the landlord applied for relief. The landlord thought that the court would reverse the liquidator’s disclaimer. It was held that the discretion as to whether the lease should be disclaimed rested with the liquidator, and the court could only interfere if it could be shown that the liquidator acted mala fides or perversely.
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Covenants and Enforceability It was further stated obiter that, even if the court could interfere more widely, the court should not do so on the basis of the Katherine et Cie case. The court had to take into account the interests of the creditors as a body and not just the interests of the landlord. If there is no disclaimer, the interests of the creditors may suffer. The surety’s own insolvency discharges his or her liability. The landlord will then be left to prove in the insolvency of the surety for any losses that he or she has suffered up to the date of the disclaimer as well as any potential loss, that is, that the reversion is now worth less. But what if the business lease has been extended under the 1954 Act? Generally, the surety’s obligation lasts for the length of the lease and does not go into the statutory extension, but the terms of the surety covenant may make it clear that it does. The death of the surety makes no difference to his or her liability, and his or her estate is bound; the death of the principal debtor does not discharge the surety.
4.12
Indemnity
Where an original tenant has been held liable for the breach of an assignee, whether under the pre- or post-1995 Act law, or where an intermediate assignee has been held liable for such a breach under privity of contract, having directly covenanted with the landlord under the post 1995 Act law, then the original tenant or the intermediate assignee may seek repayment from the assignee in breach by way of indemnity. However, a right of indemnity operates through a chain. This means that, where an original tenant has been held liable for the breach of an assignee, the tenant will have to claim from the first assignee, who will then have to claim from the next assignee, and so on until the assignee in breach is sued. A chain of indemnities can be created by contract, either expressly or impliedly, or based on common law restitutionary principles under the rule in Moule v Garrett (1872). 4.12.1 Contractual Express An assignee may enter an assignment which contains an express clause, making the assignee liable to indemnify the assignor in respect of any claim under the lease as a result of a breach by the assignee or any subsequent assignee. The wording of an indemnity clause is important. The terms of the clause must be examined to see if the clause relates to breaches of all covenants, or just those that touch and concern the land. The wording of the indemnity covenant may allow an assignor to take preemptive action and not have to wait for the landlord to sue, where an assignee is allowing the property to fall into a state of disrepair or there is a threat of a
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Principles of Landlord and Tenant breach of a user covenant. If the covenant is only an indemnity covenant, the assignor will have to wait until the landlord takes action. However, if the indemnity covenant goes on to make the assignee primarily liable to the assignor for any breaches, the assignor will be able to obtain an injunction to stop the breach without waiting for the landlord to sue the assignor for damages. In Butler Estates Co Ltd v Bean (1942), the words ‘to observe and perform the covenants in the lease’ were sufficient to impose primary liability. Where an indemnity clause is implied under s 77 of the Law of Property Act 1925, the implied wording is that an assignee covenants only to observe and perform the covenants in the lease. This wording has been found, in the case of RPH Ltd v Mirror Group (Holdings) Ltd (1993), to be too limited, and shows that there are advantages to a well drafted express provision. In that case, there was a chain of indemnity, but an assignee ‘link’ in that chain was not worth suing, because he was insolvent. However, there was a subsequent assignee who was solvent. The claimant, therefore, asked the administrator of the insolvent party to ease the claimant’s position by assigning the insolvent party’s indemnity clause to the claimant, in order that the solvent assignee might be sued. The administrator refused to do so, and it was held that he was under no obligation to do so. The assignee had only covenanted to observe and perform the covenants in the lease and indemnify the assignor, not to assign the benefits of an indemnity clause. Implied If the assignment does not contain an express indemnity clause, then one may be implied under s 77 of the Law of Property Act 1925 in relation to unregistered land, and under s 24 of the Land Registration Act 1925 in relation to registered land, unless there is a contrary intention expressed in the assignment. However, even if there is a contrary intention, it was held, in Re Healing Research Trustee Co Ltd (1992), that an action for indemnity may still lie under the common law restitutionary principles of the rule in Moule v Garrett. Section 24 makes the implication whenever there is an assignment, irrespective of consideration: s 77 makes the implication whenever there is an assignment for valuable consideration, but not otherwise. In Johnsey Estates Ltd v Lewis and Manley (Engineering) Ltd (1987), it was held that an assignment of a lease for £1 was for an illusory consideration, but the covenant in the assignment that the assignee should observe and perform all the covenants in the lease was sufficient consideration. An indemnity covenant was therefore implied under s 77. 4.12.2 Common law principle of restitution The rule in Moule v Garrett states that Where the plaintiff has been compelled by law to pay, or, being compellable by law, has paid money which the defendant was ultimately liable to pay, so that the latter obtains the benefit of the payment
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Covenants and Enforceability by the discharge of his liability, under such circumstances the defendant is indebted to the plaintiff in the amount’ (Cockburn J). Where an original tenant or an earlier assignee has been held liable for a breach by a subsequent assignee, or a surety has been held liable for another’s breach under the lease and there is no contractual indemnity, then the common law principle of restitution will have to be relied upon. Under a contractual indemnity, the assignor can recover money paid and the costs. Under Moule this is not certain. It seems that the Moule indemnity can be used not only against the assignee but also the assignee’s surety, if the assignee is insolvent. In Becton Dickinson UK Ltd v Zwebner (1989), an assignee’s surety contracted directly with the landlord to pay the assignee’s rent should the assignee default. There was no contractual indemnity between the assignee’s surety and the original tenant. The assignee defaulted and the landlord sued the original tenant, who paid the outstanding rent. The original tenant then sought an indemnity from the assignee’s surety. There was no contractual indemnity, but the original tenant was successful in relying on the rule in Moule v Garrett.
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SUMMARY OF CHAPTER 4
COVENANTS AND ENFORCEABILITY
The Landlord and Tenant (Covenants) Act 1995 By virtue of the Landlord and Tenant (Covenants) Act 1995, all leases granted on or after 1 January 1996, the date when the Act came into force, are enforced in accordance with the Act’s provisions. However, all leases granted before that date continue to be enforced under the pre-Act law. As there are very many leases, some for long terms, made before that date it will be necessary to know and apply the pre-Act law for many years to come.
Leases granted before 1 January 1996 Covenants of leases granted before 1 January 1996 (the commencement date of the Landlord and Tenant Covenants) Act 1995) are enforced through three main sets of enforcement rules: privity of contract, privity of estate, and by common law rules under which the benefit and burden of covenants may pass and be enforced.
Pre-1995 Act enforcement doctrine—privity of contract Common law privity of contract This is the relationship between the original landlord and the original tenant. Both parties are liable upon all the covenants in the lease for its duration, however long the lease lasts. The lease may require assignees to enter direct covenants with the landlord on assignment whereupon they will be liable to the landlord under privity of contract (Estates Gazette Ltd v Benjamin Restaurants (1993)). Statutory privity of contract When the landlord assigns the reversion of the lease, the new landlord can enforce a covenant that has ‘reference to the subject matter of the lease’, that is, ‘touches and concerns’ the land under the lease against the original tenant under s 141 of the Law of Property Act 1925. This is in addition to privity of estate (Arlesford Trading v Servansingh (1971)).
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Principles of Landlord and Tenant
Pre-1995 Act enforcement doctrine—privity of estate Privity of estate in respect of a lease is the relationship that exists between the current landlord and the current tenant. The parties to the relationship are liable for all breaches of covenants that ‘touch and concern’ the land during the period that they are within the relationship of privity of estate. On the assignment of the reversion of the lease, the benefit of covenants passes to the new landlord under s 141 of the Law Property Act 1925 and the burden passes under s 142 of the Law of Property Act 1925. On the assignment of the lease, the benefit and burden of covenants pass to the assignee (new tenant) under common law (Spencer’s case (1583)), provided: (a) there is a relationship of landlord and tenant between the parties to the covenant; (b) the covenant touches and concerns the land (P and A Swift Investments v Combined English Stores (1989)). Examples of covenants that touch and concern the land: (a) covenants by the tenant: • to pay the rent (Parker v Webb (1693); Kumar v Dunning (1989)); • to repair the premises (Windsor (Dean and Chapter) v Hyde (1601)); • to insure against fire (Vernon v Smith (1821)); (b) covenants by the landlord: • for quiet enjoyment (Campbell v Lewis (1820)); • for title (Williams v Burrell (1845)). Examples of covenants that do not touch and concern the land: (a) covenants by the tenant: • to pay a sum of money in relation to land that is not the subject of the lease (Gower v Postmaster General (1887)); • to repair chattels on the land that are not fixtures (Williams v Earle (1868)); • any covenant that creates a personal obligation between the original parties; (b) covenants by the landlord: • to grant an option to purchase the property (Woodall v Clifton (1905)); • to return a deposit at the expiry of the lease (Hua Chia Commercial Bank v Chiaphua Investment Corpn (1987));
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Covenants and Enforceability • option to buy (Woodall v Clifton (1905)), however, an option to extend the existing lease has been held to touch and concern the land; (c) there is a legal assignment of the lease. The benefit of any covenants under an equitable assignment can be expressly assigned under the normal rules of simple contracts, but the burden cannot. Attempts have been made to mitigate the hardship of this rule: (a) (b) (c) (d)
so that it may not apply to leases under three years (Boyer v Warbey (1953)); rights of re-entry may still apply (Shiloh Spinners v Harding (1973)); restrictive covenants are still enforceable; so that the assignment creates a contract for a lease and so a fresh lease (Purchase v Lichfield Brewery (1915)); (e) the assignment creates a periodic lease.
Pre-1995 Act enforcement doctrine—rules relating to benefit and burden The benefit of the surety’s covenant may pass to the new landlord, provided the following conditions exist: (a) (b) (c) (d)
the covenant must ‘touch and concern’ the land; the covenantee must have a legal estate in the land benefited; the assignee must have a legal estate in the land benefited; there must have been an intention that the benefit should run with the land at the date of the covenant.
Kumar v Dunning (1987); Coronation Street Properties v Ingall Industries Ltd (1989); Ex p Tredegar Enterprises Ltd (1992).
Pre-1995 Act—original landlord’s liability The original landlord is liable to the original tenant throughout the term in respect of all covenants, but cannot sue the original tenant or assignees of the lease for breach once the reversion has been assigned (Re King (1963)). The landlord is also liable to the assignees while the relationship of landlord and tenant subsists.
Pre-1995 Act -reversioner’s liability The reversioner is liable to the original tenant under privity of estate while they are in the relationship of landlord and tenant.
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Principles of Landlord and Tenant The reversioner is liable to assignees of the lease for breach of covenants that have reference to the land (treated as being synonymous with ‘touch and concern’) under s 142 of the Law of Property Act 1925, the benefit of such covenant having passed to the assignee under privity of estate.
Pre-1995 Act—original tenant’s liability The tenant is liable to the original landlord throughout the lease even if, by reason of the property approach, that liability is increased due to variations to the lease made by assignees during the initial period of the lease (Centrovincial Estates plc v Bulk Storage Ltd (1983); Baynton v Morgan (1888); Selous Street Properties v Oronel Fabrics Ltd (1984); GUS Property Management v Texas Home Care Ltd (1993)). Also, a tenant may be further liable, by reason of the contract approach, during a period of extension or renewal, if the lease so provides (City of London v Fell (1992) and Herbert Duncan v Cluttons (1992)).
Discharge of the original tenant’s liability A tenant may discharge liability as follows: (a) performance must be complete and precise (Matthey v Curling (1922)). An agreement by the landlord to accept part performance in full satisfaction releases an assignee and the original tenant, unless the landlord expressly reserves the right to sue the tenant for outstanding sum; but he cannot recover more than is due (Deanplan v Mahmoud (1992)); (b) surrender extinguishes the term for the original tenant and any assignee, unless it only relates to part of the premises (Allied London Investments Ltd v Hambro Life Assurance Ltd (1984)); (c) disclaimer on insolvency only discharges the insolvent (Warnford Investments Ltd v Duckworth (1978)); (d) forfeiture of the lease by the landlord ends the lease and discharges the tenant. Reform of continuing liability of tenants: the Law Commission proposals, in Working Paper No 95, on Privity of Contract and Estate: Duration of Liability of Parties to Leases and recommendations in Report No 178 (1988).
Pre-1995 Act—assignee’s liability An assignee is liable, under privity of estate, to be sued by the landlord and the reversioner for breaches of covenants that touch and concern the land while he or she is in the position of tenant (Middlegate Properties Ltd v Bilbao Caroline Co Ltd (1972); Valiant v Dodemede (1742)). The assignee may also have entered
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Covenants and Enforceability direct covenants, and so be be liable under privity of contract (Estates Gazette v Benjamin (1994)).
The Landlord and Tenant (Covenants) Act 1995 Liability of tenants and assignees under leases granted after the 1995 Act (a) Section 2 effectively abolishes the distinction between covenants that ‘touch and concern’ the land or ‘have reference to the subject matter’ and other covenants under the lease. Covenants under the lease are referred to as being either ‘landlord covenants’ or ‘tenant covenants’, and these expressions apply to covenants whether expressly implied or imposed by law. (b) Section 3: all the tenant’s covenants shall be annexed to the demised property and an assignee, just like the tenant, shall be liable to perform them for as long as he or she holds the lease. (c) Section 5: a tenant shall be automatically released from liability in relation to his or her covenants under the lease on an assignment; the tenant shall only be liable under the lease while he or she holds the lease and will not be liable after assignment, with the exception that where an assignment is conditional on the landlord’s consent by reason of an absolute or qualified covenant to assign, the landlord may require a tenant to enter an authorised guarantee agreement (s 16): • if a tenant assigns without the landlord’s consent it will be an excluded assignment and the tenant’s release from liability will be deferred until the next assignment which is not an excluded assignment; • the landlord can specify circumstances in a lease as to when they may withhold consent to an assignment. However, there must be no subjective element to the circumstance. (d) Section 18 protects a former tenant or guarantor from increases in their liability due to variations of the terms of lease effected after the assignment by the former tenant. (e) Where a former tenant or his or her guarantor remedies a breach of covenant, he or she may claim an overriding lease by virtue of ss 19 and 20; (f) Section 17: for both new and existing leases, landlords will be required to notify both former tenants and guarantors that an assignee is in breach of certain covenants within six months of the liability falling due.
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Principles of Landlord and Tenant Liability of landlords and landlords’ assignees under the leases granted after the 1995 Act (a) Section 3: all the landlord’s covenants that fall to be complied with shall be annexed to the demised property. (b) A landlord is not automatically released from his or her liability under the lease on assignment to another landlord, but he or she may apply by notice to the tenant, within four weeks of the date of the assignment, to be released. If the tenant refuses, the landlord may apply to the court to be released.
Surety’s liability A surety may be required by the landlord before he or she will grant a lease to guarantee the performance of a lease by the original tenant.
Discharge of a surety’s liability Variation Changes in the lease affecting the liability of the surety and made without the surety’s consent discharges the surety, for example, a surrender (Holme v Brunskill (1877)); structural alteration otherwise than in accordance with the lease, as in Selous Street Properties Ltd v Oronel Fabrics Ltd (1984); relaxation of user restriction, as in Apus Properties Ltd v Douglas Farrow and Co Ltd (1989); indulgence by the landlord to the principal debtor, for example, if the landlord agrees to give a longer time to pay the rent, as in Overend v Oriental Finance Corporation (1874). Section 17: for both new and existing leases, landlords will be required to notify both former tenants and guarantors that an assignee is in breach of certain covenants within six months of the liability falling due. Where a lease is disclaimed, under s 315 of the Insolvency Act 1986 for bankrupts, and s 178 for insolvent companies, then both the primary debtor and his or her surety are discharged. However, no other party or surety is discharged, save in so far as it is necessary to discharge the insolvent (Stacey v Hill (1901); Murphy v Sawyer-Hoare (1993)). The disclaimer under the Act is at the discretion of the liquidator, not the court (Re Hans Place (1992)). Indemnity Contractual—express (Butler Estates Co Ltd v Bean (1942); RPH Ltd v Mirror Group (Holdings) Ltd (1993)).
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Covenants and Enforceability Implied—s 24 of the Land Registration Act 1925 makes the implication whenever there is an assignment, irrespective of consideration. Section 77 of the Law of Property Act 1925 makes the implication whenever there is an assignment for valuable consideration, but not otherwise (Johnsey Estates Ltd v Lewis and Manley (Engineering) Ltd (1987)).
Common law principle of restitution The rule in Moule v Garrett states that ‘Where the plaintiff…has paid money which the defendant was ultimately liable to pay…the defendant is indebted to the plaintiff in the amount’, per Cockburn J (Re Healing Research Trustee Co Ltd (1992); Becton Dickinson UK Ltd v Zwebner (1986)).
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CHAPTER 5
IMPLIED AND USUAL COVENANTS
5.1
Implied covenants
Implied covenants are those that are incorporated within a legal lease unless otherwise agreed. They may be implied by virtue of a statutory or a common law provision. Covenants that are implied by statute or common law may be implied because the parties intended them, but did not express them, or because the law requires them to be implied whether the parties intended them to be implied or not, but are needed to give the contract ‘business efficacy’.
5.2
Implied by intention
Some covenants that are implied because, from the facts of the individual case, the parties can be seen to have intended them, are incorporated into a lease by virtue of a common law principle established in The Moorcock (1889). However, the test for deciding whether the parties intended a term to be implied was expressed by Mackinnon LJ in Shirlaw v Southern Foundries (1926) Ltd (1939) as ‘…prima facie that which in any contract is left to be implied and need not be expressed is something that is so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common “Oh, of course!”’. This has become known as ‘the officious bystander test’.
5.3
Implied by law
Covenants that are implied by law are incorporated into a lease by virtue of statute, such as under the Landlord and Tenant Act 1985, or of common law. In relation to case law, the implication will be made where it is a necessary incident to that type of lease. Once the common law implication is made, it applies to all contracts of that type unless the parties expressly exclude it.
5.4
Implied obligations of the landlord— quiet enjoyment
This covenant is a promise by the landlord not to interfere with the tenant’s physical possession of the property. It does not protect the tenant from noise. The tenant
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Principles of Landlord and Tenant would have to take action in the tort of nuisance for such disturbance. The covenant gives the tenant a right of action for breach against the landlord where the landlord interferes with the tenant’s access to the property, as in Owen v Gadd (1956), or interferes with the tenant’s supply of services, as in Perera v Vandiyar (1953). Perhaps the most obvious breach of the covenant is the landlord’s harassment or eviction of the tenant. In the case of residential leases, there is further protection for the tenant in the Protection From Eviction Act 1977, which makes harassment and unlawful eviction a criminal offence.
5.5
Implied obligations of the landlord—fitness for habitation and repair
As already suggested in relation to obligations generally, a landlord’s obligations in respect of repair and fitness for habitation can be implied by common law or statute. 5.5.1
Common law obligations as to fitness for habitation
There is no common law implied undertaking that premises will be fit for habitation, except where a furnished house or flat is the subject of a lease, in which case there is an implied covenant that the premises shall be fit for human habitation at the commencement of the lease. However, the landlord is not required to maintain the premises in that state throughout the term. If the landlord is in breach of the covenant, the tenant may either repudiate the lease or continue and sue for damages. Infestation and defective drainage are examples of breach. Fitness for human habitation is defined by s 604 of the Housing Act 1985 and, although the definition is strictly only applicable to the Act, nevertheless it may be used by analogy in common law instances. In Wilson v Finch Hatton (1877), it was held that most people would not expect to carry out repairs on a furnished house, and therefore a landlord guarantees repairs to this extent. 5.5.2
Statutory obligations as to fitness for habitation
Section 8(1) of the Landlord and Tenant Act 1985 imposes an obligation upon the landlord in respect of houses leased after July 1957 at a rent not exceeding £80 per annum in London, and £52 per annum elsewhere, by imposing a condition to ensure that such houses will be fit for human habitation at the commencement of the lease and an undertaking that they will be kept in that condition for the duration of the lease. Under s 8(2), this provision may not be excluded by the parties except where the lease is for a term of three years or more (there being no right by either party within the terms of the lease to terminate within three years), and there
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Implied and Usual Covenants is an express term requiring the tenant to put the house in a state reasonably fit for human habitation. Section 8(2) also reserves a right for the landlord to view the state and condition of the house at reasonable times of the day on giving 24 hours’ notice. In determining whether a house is fit for human habitation for the purposes of these statutory provisions, s 10 states that regard is to be had to the following matters: repair, stability, freedom from damp, internal arrangement, natural lighting, ventilation, water supply, drainage, sanitary conveniences, and facilities for the preparation and cooking of food and for the disposal of waste water. It will only be considered unfit for human habitation if it is defective in one or more of these matters to the point of being not reasonably suitable for occupation. However, the standard is generally low, and in Dinefwr Borough Council v Jones (1987), it was held that the landlord will not be liable unless he receives notice of the disrepair from the tenant or the landlord’s agent, or from a third party, such as the environmental health officer, and fails to repair the premises within a reasonable time. In Buswell v Goodwin (1971), it was held that the landlord will not be liable if the property cannot be made fit for habitation at reasonable expense. In O’Brien v Robinson (1973), the ceiling fell in, but the landlord was not liable, as he was not put on notice. 5.5.3
Common law obligations as to repair
As a general principle, the common law does not impose any implied repairing obligations upon the landlord, either at the commencement or during the term of the lease. It was held, in Hart v Windsor (1844), that the principle of caveat emptor (buyer beware) applies, so that a tenant takes property as he or she finds it. Merely because there is no repairing obligation upon either party implied in the lease does not mean that the landlord is liable. However, there are exceptions to this general principle, and certain covenants will be implied by law: (a) where a dwelling house in the course of being built is the subject of the lease, then there is an implied covenant that it will be constructed with proper materials in a workmanlike manner and be fit for human habitation (Perry v Sharon Development Co Ltd (1937)). (b) where not to imply a repairing covenant would make the lease unworkable, the courts have imposed such a covenant. In Barrett v Lounova (1982) Ltd (1989), the tenant was under an express obligation to repair the interior of the premises, but this was found to be impossible, due to the penetration of damp as a result of the need to repair the exterior of the premises. It was therefore held that the tenant’s covenant was dependent upon an implied covenant that the landlord should repair the exterior, and so, such a covenant was imposed. Kerr LJ held that there was no rule of law
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Principles of Landlord and Tenant preventing the court from implying against either party an obligation to repair where business efficacy required it. However, in Demetriou v Poolaction Ltd (1991), no repairing obligation was implied against the landlord in a business lease as the tenant’s obligations were not dependent upon such a term being present, and so it was not required for the business efficacy of the lease. In Hafton Properties v Camp (1993), the court was asked to imply a covenant into the lease of a flat to the effect that the landlord be obliged personally to carry out repairs not carried out by the management company. It was held that the covenant was not essential to make the lease effective. There was no need to impose a repairing obligation since the tenant had a satisfactory remedy by applying to the court (but now the Leasehold Valuation Tribunal would have this jurisdiction, by virtue of the Housing Act 1996) for a manager, under Part II of the Landlord and Tenant Act 1987. The court was not prepared to fill in gaps where the law provided remedies already. In Duke of Westminster v Guild (1985), it was held that the landlord was not responsible for the repair of a drain that passed over the landlord’s adjacent land, although it served the tenant’s demised property, because such an implication was not necessary for the effective working of the lease. The tenant could enter the landlord’s land to carry out repairs, but at his own expense. The tenant could now apply under the Access to Neighbouring Land Act 1992. Covenants relating to the maintenance of common and retained parts may be implied. It was held, in Liverpool CC v Irwin (1977), applying The Moorcock (1884), that, if the landlord retains control of the means of access—such as stairs, lifts, and common facilities—to multistorey blocks of flats, then the landlord has an obligation to repair and maintain these parts so far as was reasonable in the circumstances. In King v South Northamptonshire DC (1992), a covenant was implied that the landlord was under an obligation to maintain a retained path because it was an essential means of access. In Hargroves Aronson and Co v Hartopp (1905), it was held that the landlord had an implied obligation to maintain in a safe condition property owned by the landlord that was adjacent to the demised property, and to take reasonable care that the adjacent property was kept in such a condition that no damage was caused to the demised property. In Rimmer v Liverpool CC (1985) and Targett v Torfaen BC (1992), it was held that there was a general obligation to ensure that the premises let are reasonably safe from personal injury due to defects in the premises when the landlord is responsible for the design and construction of a dwelling house. The obligation is unaffected by the tenant’s knowledge of the defect unless it would be reasonable for the tenant to avoid or remove such defect.
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Implied and Usual Covenants The landlord may be liable in contract under estoppel or misrepresentation for statements relating to repairs prior to entering the lease if the tenant is liable for such repairs under the lease. In Brikom Investments v Carr (1979), tenants were persuaded to enter leases for further terms following a representation by the landlord that the roof would be repaired at the landlord’s expense and that the cost would not be apportioned as stated in the lease. The landlord was estopped from going back on the representation. In De Lassalle v Guildford (1901), the landlord told the tenant prior to entering the lease that the drains were in good condition. The tenant would not have signed the lease if he had known that they were defective. The Court of Appeal held there was a collateral warranty that the drains were in good order. The representation had induced the tenant to enter the contract, and the tenant was therefore entitled to rescission, not merely damages. The landlord will be liable in nuisance or under the Rylands v Fletcher rule, if premises adjacent are in a dangerous condition and cause the tenant injury. 5.5.4
Statutory obligations as to repair
Section 11 of the Landlord and Tenant Act 1985 applies to dwelling houses (NB: a flat is a ‘dwelling house’ for these purposes) let after October 1961 for a term of less than seven years (Brikom Investments v Seaford (1981) and Parker v O’Connor (1974)), and implies a covenant by the landlord: (a) to keep in repair the structure and exterior of the dwelling house (including drains, gutters and external pipes); and (b) to keep in repair and proper working order the installations in the house for the supply of water, gas and electricity and for sanitation (including basins, sinks, baths and sanitary conveniences), but not other fixtures, fittings and appliances for making use of the supply of water, gas and electricity; and (c) installations for space heating and heating water (s 11(1)). The responsibility of the landlord in relation to flats or dwelling houses that form part only of a building was extended by s 116(1) of the Housing Act 1988 (becoming s 11(1A)(a) of the Landlord and Tenant Act 1985), but only in relation to properties within the Act let after 15 January 1989. This provision requires landlords to keep in repair and working order any installation which directly or indirectly serves the flat if the installation is situated in a part of the building in which the landlord has an interest or estate, or which is owned or controlled by the landlord. The responsibility of the landlord was further extended by this provision (becoming s 11(1A)(b) of the 1985 Act), but still only in relation to properties let after 15 January 1989, in the case of flats or dwelling houses that form part only of a building, to cover all parts of the structure and exterior of the building
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Principles of Landlord and Tenant in respect of which the landlord retains and has an estate or interest. Therefore, the common parts of a block of flats, such as corridors, stairways and roof, which are retained by the landlord, and which are not let as a part of any demise, are, as from 15 January 1989, within s 11 and must, therefore, be kept in repair by the landlord. However, the additional obligations imposed on the landlord relating to flats only apply if such lack of repair or maintenance affects the tenant’s enjoyment of the flat or the common parts of the building, and provided the landlord has an interest or estate in, or owns or controls, the part of the building enabling him or her to carry out repairs. It is a defence for a landlord to show that, despite all reasonable endeavours to obtain access to carry out the repairs, it has not been possible to do so. The structure and exterior of a dwelling house have been held to include steps and pathways required for access, as in Brown v Liverpool Corpn (1969); so, too, external windows, as in Quick v Taff Ely BC (1986). The term ‘installations’ includes pipes, radiators and boilers (Sheldon v West Bromwich Corpn (1973)). In deciding the standard of repair required, regard is to be had to the age, character, and prospective life of the house, and to the locality in which it is situated (s 11(3), Murray v Birmingham CC (1987)). As with s 8, s 11(6) reserves a right for the landlord to view the state and condition of the house at reasonable times of the day on giving 24 hours’ notice. Any covenant imposing on the tenant a liability for repairs required to be undertaken by the landlord under the Act (s 11(4)), or seeking to obtain payment for such repairs by way of service charge or similar (s 11(5)), will be void. The tenant can either sue for breach of the implied covenant or invoke action by the local authority, which has wide powers to enforce a landlord to effect substantial repairs to bring the house to a reasonable standard, having regard to its age, character and locality. The landlord cannot contract out of these obligations (s 12(1)), except by way of a joint application being made to the court under s 12(2), before the granting of the lease, for an order by consent of both parties authorising an agreement excluding or modifying the statutory covenants, the court considering it reasonable to do so having regard to all the circumstances of the case and the terms of the lease. However, a landlord is specifically stated in the Act as not being liable for: (a) repairs attributable to the tenant’s failure to use the premises in a tenantlike manner; or (b) rebuilding or reinstatement of the premises as a result of damage by fire, tempest, flood or other inevitable accident; or (c) repair or maintenance of any tenant’s fixtures (s 11(2)).
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Implied and Usual Covenants The landlord is not impliedly liable for dangerous defects. In McNerny v London Borough of Lambeth (1989), the tenant was not able to found an action because there was no disrepair to the property or physical damage, merely damp due to condensation. In Cavalier v Pope (1906), the landlord let unfurnished premises in a dangerous condition, and the tenant’s wife was injured as a result. She could not recover, because there was no contract and no liability in tort. The landlord will, however, be liable under the Defective Premises Act 1972 if there is a breach of the lease. The Act was designed to put the landlord under a liability to carry out repairs where the tenancy puts the landlord under an obligation to repair, either expressly within the terms of the lease or by virtue of s 11 of the Landlord and Tenant Act 1985. Under the 1977 Act, the landlord owes a duty of care to any person whom he or she should foresee might suffer damage through a failure to repair. Proof of fault is necessary. Also, the existence of an express right of entry to repair tacitly imposes an obligation upon the landlord to repair dangerous defects. Section 4(1) puts the landlord under a duty to take such care as is necessary in all the circumstances to see that the tenant and all persons who might be expected to be affected by the defects are reasonably safe from personal injury and from damage to their property where damage is caused by a relevant defect, for example, a rotten floorboard (s 4(3)). In McAuley v Bristol CC (1991), a person was injured due to a step in the back garden being in a dangerous condition: this was held to be a relevant defect. The landlord had a right of access implied at common law to carry out repairs, and was, therefore, liable to the extent that he should have done such work as was necessary to prevent the defect being dangerous.
5.6
Implied obligations of the landlord— non-derogation of grant
The landlord impliedly covenants not to engage in activities which will frustrate the use of the land for the purpose for which it is let. The interference must make the premises less fit, or materially less fit, for the purpose for which they were let. The landlord must have known the purpose for which the tenant was to use the premises, or must have let the premises specifically for that use. In Aldin v Latimer Clark, Muirhead and Co (1894), the landlord let a timber yard to the tenant and was held to have derogated from the grant when he prevented the free flow of air to the tenant’s timber drying sheds.
5.7
Implied obligations of the tenant
The following covenants are implied by common law into all leases:
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Principles of Landlord and Tenant (a) to pay a reasonable sum by way of rent in arrear, if that is reserved and there is no express term to the contrary; (b) to pay rates; (c) to carry out certain repairs. A tenant is under an implied obligation to use the premises in a tenant-like manner. In Warren v Keen (1954), Lord Denning stated that the tenant was not to cause deliberate damage to premises and was not required to undertake major repair work, or go beyond replacing breakages, etc. In Wycombe Health Authority v Barnett (1982), the tenant was held not liable for damage caused as a result of a burst pipe, and was not required to lag the hot water pipes or turn off the water and drain the system when leaving the premises for a short period. The tenant is under an obligation to yield up the premises at the end of the lease in the same condition as when he or she took the premises, fair wear and tear excepted (Marsden v Edward Heyes Ltd (1927)). The tenant is under an implied duty not to commit waste. Voluntary waste is committed if a tenant deliberately or negligently causes damage, for example, by altering or converting premises or damaging the property. Ameliorating waste and meliorating waste are forms of voluntary waste that improve the land and are not, therefore, actionable. Permissive waste is committed by negligence and omission, for example, allowing a building to fall down. A periodic tenant is liable for voluntary but not permissive waste. A weekly tenant is only liable for voluntary waste. In Mancetter Development Ltd v Garmanston Ltd (1986), the tenant company, at the end of the lease, removed fixtures and fittings which had been installed at an earlier stage. It was held to be an appropriate action in waste, since the lease had expired, and, therefore, the tenant company was held liable for the cost of the resulting damage to the building. The Law Commission recommended, in its Report No 123, that the doctrine of waste should be abolished.
5.8
Usual covenants
Where a lease is equitable because it has been granted by contract only, or by merely granting possession instead of by deed, then it is said that the ‘usual covenants’ will apply, provided the contract is what is known as an ‘open contract’, in that there is certainty at least as to the identity of the parties, the description of the property, the price or other consideration (usually rent), the date of commencement and the duration of the term. These are automatically incorporated into an equitable lease unless otherwise agreed. Although rare, it is possible for the usual covenants to be incorporated expressly by the parties.
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Implied and Usual Covenants 5.8.1
Existing usual covenants
The phrase now encompasses the following: (a) tenant’s obligations: • • • •
to pay the rent; to pay rates and taxes; to keep the premises in repair; to allow the landlord to enter and view the state of repair;
Landlord’s obligation: • to grant the tenant quiet enjoyment; (b) landlord’s right: • re-entry on non-payment of rent. 5.8.2
New usual covenants
The cases which develop the principles upon which new usual covenants have been founded are split between: (a) a wide approach, which states that a usual covenant will be imposed when it is commonly found; and (b) a narrow approach, which states that a usual covenant will be imposed only when it is necessary. The narrow approach was applied in Henderson v Hay (1792), where it was held that the fact that it is common does not make it usual: it must be incidental to the lease. In Blacksey v Whieldon (1841), it was held that, for a covenant to be usual, it must be essential to perfect the contract between the parties. The wide approach was applied in Flexman v Corbett (1930), where it was stated that if the particular provision is found in nine-tenths of leases of that nature, for that purpose, and in that district, then the court is bound to hold that it is usual. In Chester v Buckingham Travel Ltd (1986), a 14 year lease was granted for a garage in a residential location, forming part of a complex of flats, a garage and a yard. The wide approach was applied, and the test put forward by the court was: what terms were occurring in ordinary use in these circumstances? The courts looked at the precedent books and heard expert witnesses: five covenants were allowed:
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Principles of Landlord and Tenant (a) (b) (c) (d) (e)
the tenant was not allowed to alter without the landlord’s consent; the tenant was not to permit easements; the tenant was not to commit a nuisance; a use restriction would be applied; and there was a right of forfeiture for all covenants, not just rent.
The following covenants were not allowed: (a) prohibition of auctions; (b) prohibition of dispositions; and (c) payment of the landlord’s costs.
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SUMMARY OF CHAPTER 5
IMPLIED AND USUAL COVENANTS
Implied covenants Covenants that are implied by statute or common law may be implied because the parties intended them, but did not express them (‘the officious bystander’ test (The Moorcock (1889); Shirlaw v Southern Foundries (1926) Ltd (1939)), or because the law requires them to be implied whether the parties intended them to be implied or not. Implied obligations of the landlord Implied obligations of the landlord: (a) quiet enjoyment (Owen v Gadd (1956); Perera v Vandiyar (1953)); (b) fitness for habitation and repair. Common law obligations as to fitness for habitation: There is no common law implied undertaking that premises will be fit for habitation except in the case of a furnished house or flat (s 604 of the Housing Act 1985; Wilson v Finch Hatton (1877)). Statutory obligations as to fitness for habitation: Section 8(1) of the Landlord and Tenant Act 1985 imposes an obligation upon the landlord in respect of houses leased after July 1957 at a rent not exceeding £80 per annum in London and £52 per annum elsewhere. Regard is to be had to the following matters: repair, stability, freedom from damp, internal arrangement, natural lighting, ventilation, water supply, drainage and sanitary conveniences, and facilities for the preparation and cooking of food and for the disposal of waste water (Dinefwr BC v Jones (1987); Buswell v Goodwin (1971); O’Brien v Robinson (1973)). Common law obligations as to repair: Hart v Windsor (1844) (caveat emptor (buyer beware) applies): (a) there is an implied covenant that a dwelling house will be constructed with proper materials in a workmanlike manner and be fit for human habitation (Perry v Sharon Development Co Ltd (1937));
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Principles of Landlord and Tenant (b) the courts have imposed a repairing covenant where not to do so would make the lease unworkable (Barrett v Lounova (1982) Ltd (1989); Hafton Properties v Camp (1993); Duke of Westminster v Guild (1985)); (c) covenants relating to the maintenance of common and retained parts may be implied (Liverpool CC v Irwin (1977); King v South Northamptonshire DC (1992); Hargroves Aronson and Co v Hartopp (1905)); (e) there is a general obligation in tort to ensure that the premises let are reasonably safe from personal injury due to defects in the premises (Rimmer v Liverpool CC (1985); Targett v Torfaen BC (1992)). (f) the landlord may be liable in contract under estoppel or misrepresentation for statements relating to repairs (Brikom Investments v Carr (1979); De Lassalle v Guildford (1901)). Statutory obligations as to repair: Section 11 of the Landlord and Tenant Act 1985 applies to dwelling houses including flats let after October 1961 for a term of less than seven years: (a) to keep in repair the structure and exterior of the dwelling house (including drains, gutters and external pipes); and (b) to keep in repair and proper working order the installations in the house for the supply of water, gas and electricity, and for sanitation (including basins, sinks, baths and sanitary conveniences), but not other fixtures, fittings and appliances for making use of the supply of water, gas and electricity; and installations for space heating and heating water (s 11(1)). A landlord is specifically stated in the Act as not being liable: (a) for repairs attributable to the tenant’s failure to use the premises in a tenantlike manner; or (b) to rebuild or reinstate the premises as a result of damage by fire, tempest, flood or other inevitable accident; or (c) to repair or maintain any tenant’s fixtures (s 11(2)). The landlord will, however, be liable if there is a breach of the lease under the Defective Premises Act 1972. Implied obligations of the landlord: Non-derogation of grant (Aldin v Latimer Clark, Muirhead and Co (1894)). Implied obligations of the tenant The following covenants are implied by common law into all leases:
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Implied and Usual Covenants (a) to pay a reasonable sum by way of rent in arrear, if there is no express term to the contrary; (b) to pay rates; (c) to carry out certain repairs. A tenant is under an implied obligation to use the premises in a tenant-like manner (Warren v Keen (1954), Wycombe Health Authority v Barnett (1982)). The tenant is under an implied duty not to commit voluntary, ameliorating, meliorating or permissive waste (Mancetter Development Ltd v Garmanston Ltd (1986)). The Law Commission recommended, in its Report No 123 that the doctrine of waste should be abolished.
Usual covenants If a lease has not been granted by deed it is equitable, except if for three years or less, and the ‘usual covenants’ will automatically be incorporated unless otherwise agreed. Existing usual covenants include: tenant’s obligations: (a) (b) (c) (d)
to pay the rent; to pay rates and taxes; to keep the premises in repair; and to allow the landlord to enter and view the state of repair;
landlord’s obligation: to grant the tenant quiet enjoyment; landlord’s right: re-entry on non-payment of rent.
New usual covenants The cases which develop the principles upon which new usual covenants have been founded are split between: (a) a wide approach, which states that a usual covenant will be imposed when it is commonly found (Flexman v Corbett (1930); Chester v Buckingham Travel Ltd (1986)); and (b) a narrow approach, which states that a usual covenant will be imposed only when it is necessary (Liverpool CC v Irwin; Henderson v Hay (1792); Blacksey v Whieldon (1841)).
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CHAPTER 6
EXPRESS COVENANTS
Covenants are usually expressed in a lease. The parties will have a document drawn up, or will purchase a standard form lease, which will set out the covenants between them. The following are the most common covenants found in leases together with explanations of their effect.
6.1
Covenant by tenant to pay rent
Rent is a contractual sum which the landlord is entitled to receive from the tenant in return for the tenant’s use and occupation of the land. It both pays for the use of the land by the tenant and declares the landlord’s title to the land (CH Bailey Ltd v Memorial Enterprises Ltd (1974)). The covenant should be certain as to the amount of rent and state precisely the interval at which rent is payable. If no term of the lease is expressed, then the term will be periodic in accordance with the periods at which rent is paid. Weekly payment will create a weekly periodic term, monthly payments a monthly periodic term, and quarterly, half yearly or annual payments a yearly periodic term. 6.1.1
Rent review clauses
Allied to a covenant stating the amount of rent at the commencement of the lease is a provision for review of the rent. The clause will state the periods and date of review. For example, it may state that the review will take place every three years from the date of commencement of the lease. The clause will also stipulate the procedure for the introduction of the reviewed rent. This may be by the landlord serving a notice on the tenant at a time stated in the lease before, or on, the review date, informing the tenant of the amount of rent the landlord considers should be charged. This is known as a ‘trigger notice’. The tenant may then have an opportunity to serve a counter-notice, giving the tenant’s view of the expected rental. There are usually time limits specified in the lease for serving notices. However, it was held by the House of Lords in United Scientific Holdings Ltd v Burnley BC (1977) and Cheapside Land Development Co Ltd v Messels Service Co (1977), that there is a general presumption that time is not to be of the essence, unless there was a clearly expressed or implied term in the lease that time was to be of the essence. Therefore if a landlord serves a late rent review notice, then, unless there is a contrary intention, the review may still take place. There will then be a period of negotiation to arrive at an agreed rent.
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Principles of Landlord and Tenant If the parties cannot agree, there is usually a provision in the clause for arbitration or for determination of the rent by an expert. The clause will also normally give a basis for evaluating the rent. A common starting point is the market rent for that property were it to be let at the review date to a reasonable tenant by a reasonable landlord (described as a willing tenant and a willing landlord) for a term which is equal to the remainder of the lease. The purpose of describing the landlord and tenant as ‘willing’ is to bring in an element of objectivity. This is taken further by the landlord and tenant then introducing into the clause a series of assumptions and disregards. The idea of these is that the parties try to create an artificial situation within which the rent may be reviewed, which each hopes will be beneficial at the date of review. This artificial situation is referred to as the ‘hypothetical lease’. A typical disregard is that tenant’s improvements will not be taken into account when assessing rent. If this disregard were not inserted, tenants would rarely, if ever, make improvements. 6.1.2
Remedies for non-payment of rent
(a) An action for arrears of rent through the court If a tenant fails to pay rent, the landlord may sue in the same way as for any outstanding debt. Under s 19 of the Limitation Act 1980, any action must be taken within six years of the debt arising. (b) Distress Distress is an ancient self-help remedy whereby the landlord can seize and sell the chattels found on the land and thus procure the rent without the necessity of taking legal proceedings. Both the Payne Committee, in 1969, and the Law Commission, in its interim report in 1966 and full report in 1975, and in its 1986 working paper on distress for rent, recommended the abolition of this remedy. Distress cannot be made until the rent is in arrear, and cannot be levied between sunset and sunrise. The right to seizure is confined to chattels found on the land in respect of which the rent is payable. All chattels found upon the land can be distrained, whether they belong to the tenant or not, although there are certain articles which are privileged, and therefore cannot be distrained, for example, the tenant’s trade tools, clothes and bedding belonging to the tenant, and, in certain circumstances, items belonging to third parties. No person can distrain for rent unless he or she is a certificated bailiff. Following seizure, the tenant must be given a notice of distress and told where the goods are being kept. The landlord must not sell the goods for five days, and, therefore, the tenant is allowed five days within which to
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Express Covenants pay what is due. This time limit may be extended to 15 days if the tenant makes a written request to the landlord. (c) Forfeiture This is described in Chapter 7.
6.2
Covenants not to assign or underlet or part with possession
At common law, the tenant is free to dispose of his or her leasehold interest by way of assignment or underlease of the whole or part of the premises or to charge the premises by way of mortgage. However, this power is usually controlled by express provision in the lease, and there are some statutory provisions relating to it. 6.2.1
Statutory provisions
The Housing Act 1985 makes secure tenures incapable of assignment except in specified circumstances. Under s 15 of the Housing Act 1988, a term is implied in every periodic assured tenancy prohibiting an assignment or subletting without the landlord’s consent where there is no express provision in the lease dealing with assignments or subletting. The landlord may, under the provision, refuse consent whether the reason for refusal is reasonable or not, since s 19 of the Landlord and Tenant Act 1927 is excluded (see below). Section 19(1)(b) of the Landlord and Tenant Act 1927 provides that where a lease granted for 40 years for a consideration wholly or partly of the erection of buildings, or the substantial improvement, addition or alteration of buildings, contains either qualified or fully qualified covenants not to assign, then no consent or licence to assign from the landlord will be required where the assignment is made more than seven years before the end of the term, provided notice of the transaction is given to the landlord within six months after it is effected. This provision does not apply to government departments or local authorities, and a guarantor may still be required. A landlord may sometimes provide in the lease that the tenant should make a payment on assignment, subletting or charge. Such a payment might be a premium, that is, a payment to the landlord for granting a permission to assign. Under s 120 of the Rent Act 1977, it is an offence to require or receive such a payment in relation to the assignment of a protected tenancy (a form of residential lease). However, in relation to other forms of lease, the situation is not so clear. In particular, there appears to be a conflict with s 144 of the Law of Property Act 1925, which provides that no fine or sum of money is to be payable for the landlord’s consent unless there is an express provision to the contrary in the
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Principles of Landlord and Tenant lease. If there is no provision in the lease, and a payment is made, then, as was held in Andrews v Bridgeman (1908), it would be irrecoverable. However, s 19(1)(a) of the Landlord and Tenant Act 1927, a similar provision, refers only to payments being made for reasonable legal and other expenses, and no provision is made for any other payment, such as a premium. These sections are interpreted so that, in all
