Lease / licence distinction: relevance of lack of any reservation of rights in favour of the landlord

Posted on May 22, 2013 by

A tenant has a right to exclusive possession and can exclude others including the landlord. Thus, the fact that an agreement specifies certain limited rights of entry for the landlord reinforces the idea that the occupier has exclusive possession (Street v Mountford [1985] AC 809, 818 HL, (Lord Templeman)).

This can be turned on its head so that the absence of any such rights (in cases where one might have expected the licensor / landlord to have bargained for them) is an indicator that the occupier does not have exclusive possession (Essex Plan Ltd v Broadminster ((1988) 56 P & C.R. 353, 356 -7, Hoffmann, J.).

Michael Lower

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Lease / licence distinction: sham has to be proved.

Posted on May 22, 2013 by

Lord Templeman made it clear that whether an agreement creates or a licence does not depend on the label but on the substance of the agreement between the parties (Street v Mountford ([1985] A.C. 809, HL). In the same spirit, the House of Lords judgments in A.G. Securities v Vaughan and Antoniades v Villiers ([1990] 1 AC 417, HL) make it clear that sham provisions (provisions that do not reflect the true intention of the parties) are to be ignored. Thus, a provision to the effect that the ‘licensee’ did not have exclusive possession and could be asked to share possession with others (including the licensor) could be ignored.

This does not mean, however, that a clause that provides that the landlord retains possession can simply be ignored. It is for the party arguing that it is a sham to prove that this is the case. Thus, in Essex Plan Ltd v Broadminster ((1988) 56 P & C.R. 353) Hoffmann J. would have been prepared to give effect to such a clause in the absence of proof that it was a sham (at 356 – 357).

Michael Lower

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Exclusive occupation: licence granted as part of a ‘bigger picture. Lease or licence?

Posted on May 22, 2013 by

In Street v Mountford ([1985] A.C. 809, HL) Lord Templeman said:

”To constitute a tenancy the occupier must be granted exclusive possession for a fixed or periodic term certain in consideration of a premium or periodical payments.’ (818)

In two passages, however, Lord Templeman points out that there are exceptional cases where these factors are present but there is no tenancy. In the second of these, he says:

‘The intention to create a tenancy was negatived if the parties did not intend to enter into legal relationships at all, or where the relationship between the parties was that of vendor and purchaser, master and service occupier, or where the owner, a requisitioning authority, had no power to grant a tenancy.’ (821)

The ‘vendor and purchaser’ exception was explored in Essex Plan Ltd v Broadminster ((1988) 56 P & C.R. 353). In that case, the relevant agreement granted the occupier the right to call for the grant of a lease. During the option period, and until the option was exercised (if it was), the occupier had the benefit of a licence. The option was never exercised, but the occupier contended that the licence satisfied the Street criteria and was, in fact, a lease.

This argument failed. Although the Street factors were present, the licence fell within the vendor and purchaser exception. Hoffmann J. took the opportunity to explain the underlying rationale:

‘The option gave Essex Plan the right to call for the grant of the lease and therefore gave it in equity an immediate interest in the land. Its entry into occupation pending the exercise or expiry of the option was ancillary and referable to that interest. There is therefore no need to infer the creation of a tenancy which would give Essex Plan a different interest in the same land.’ (Hoffmann J, 356)

The occupation was primarily attributable to the equitable interest created by the option.

The same approach was taken in Cameron Limited v Rolls-Royce plc ([2007] EWHC 546 (Ch)). This time, the licence was contained in a conditional agreement for the grant of a lease. Here again, the occupier’s contention that the licence was actually a tenancy was unsuccessful.

Mann J. said:

‘As I have said, Mr. Small accepted that if the licence did not fall to be treated as a stand-alone document, then the vendor/purchaser exception to the prima facie Street v. Mountford position would obtain. He is right to accept that. I have come to the conclusion that this is plainly a case of a licence being granted in the context of the acquisition of the larger interest and, as such, the nature of the interest granted by Cameron and obtained by Rolls-Royce under the agreement itself and pending the grant of the lease is that of a licence only.’ ([26])

Michael Lower

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Lord Neuberger on the Bruton tenancy

Posted on May 17, 2013 by

In Mexfield Housing Co-operative Ltd v Berrisford ([2012] 1 A.C. 955) Lord Neuberger said the following of Lord Hoffman’s judgment in Bruton:

‘The point being made by Lord Hoffman was that the fact that the tenant was only a licensee, and thefore could not grant a tenancy binding on its licensor, did not prevent the agreement with Mr. Bruton amounting to a tenancy as between him and the tenant. The tenancy would have been binding as such not only on Mr. Bruton and the trust, but also on any assignee of Mr. Bruton or the trust. The Bruton case was about relativity of title which is the traditional bedrock of English land law.’ ([65])

This is obiter but extremely interesting. The first sentence is a description of the principle to emerge from Bruton. The remaining two sentences contain a model as to how the Bruton tenancy fits into the leasehold world. Lord Neuberger is saying that the tenancy in Bruton was not merely a souped up contractual licence (souped up in the sense that the extra implied rights of a tenant were available to Mr. Bruton as against London Quadrant). It was a tenancy also in the sense that assignees of either party would stand in the shoes of the original parties so that there is a privity of estate.

The Bruton tenancy is placed firmly in the realm of the proprietary estate in land. Lord Neuberger explains that this is possible because it is an example of the relativity of title.

It is not clear how this idea (the final sentence of the above passage) is compatible with Lord Hoffman’s own view that Mr. Bruton did not have an estate in land (Bruton v London & Quadrant Housing Trust [2000] 1 A.C. 406, 415). It is arguable that Lord Hoffman saw Mr Bruton as having a contract with some lease-like features but that he did not necessarily see it as being a lease in the rather fuller sense described here by Lord Neuberger.

Michael Lower

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Certainty of term and periodic tenancies

Posted on May 15, 2013 by

A lease must be granted for a term that is certain (Say v Smith (1563) 1 Plowden 269, 75 E.R. 410, Lace v Chantler [1944] K.B. 368, Prudential Assurance Co Ltd v London Residuary Body [1992] 2 A.C. 386). This is equally true of periodic tenancies as the Supreme Court affirmed in Mexfield Housing Co-operative Ltd v Berrisford ([2012] 1 A.C. 955). Periodic tenancies meet the certainty of term requirement because there is certainty as to when notice to quit can be given and, once it has been given, as to when the lease will end (Mexfield Housing Co-operative Ltd v Berrisford [2012] 1 A.C. 955, [87] (Baroness Hale)).

The parties to a periodic tenancy can agree to fetter the right to serve a notice to quit by, for example, stipulating that notice will not be served for a certain period of time. So long as this time itself is for a specified period then the tenancy is valid. If, however, the fetter endures for an uncertain period then the lease is void for uncertainty (Doe d Warner v Browne (1807) 8 East 165, 103 E.R. 305, Centaploy Ltd v Matlodge Ltd [1974] Ch. 1, Mexfield Housing Co-operative Ltd v Berrisford [2012] 1 A.C. 955, [33] (Lord Neuberger M.R.)).

Where the terms of a periodic tenancy give a right to serve notice to quit at a time that is uncertain, the first question is whether, as a matter of construction, the parties intended that it should be the only mechanism for bringing the lease to an end. It may be that the parties intended that this should be in addition to the normal implied right to bring the periodic tenancy to an end by giving one period’s notice. In such a case, the tenancy is valid even though there is an additional, uncertain fetter (Attorney-General v Sun Lee Godown Ltd [1968] HKLR 116).

Where, as in Mexfield Housing Co-operative Ltd v Berrisford ([2012] 1 A.C. 955) the right of one or both of the parties is subject to an uncertain contingency then the lease cannot take effect as a periodic tenancy.

In Mexfield it was held that the common law position in England was that an uncertain lease amounted to a lease for the tenant’s life, determinable before then if the contingency arose. Section 149(6) of the Law of Property Act 1925 converts such leases into leases for 90 years determinable on the death of the original lessee.

In Mexfield, the Supreme Court was of the opinion that if a periodic tenancy is void because the right of at least one of the parties is subject to an uncertain fetter, it can nevertheless take effect as a contractual licence as between the original parties determinable in accordance with its terms Mexfield Housing Co-operative Ltd v Berrisford [2012] 1 A.C. 955, [58] – [63] (Lord Neuberger M.R.)). This was obiter but is in line with the earlier English Court of Appeal decision in Joseph v Nettleton Road Housing Co-operative Ltd ([2010] EWCA Civ 228, CA (Eng)).

Michael Lower

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Implied periodic tenancies

Posted on May 7, 2013 by

A periodic tenancy is one which continues from period to period indefinitely until determined by proper notice (see, for example, Javad v Aqil [1990] 2 EGLR 82, CA (Eng) Nicholls L.J.). Whether or not a periodic tenancy has been created depends on the intention of the parties which can be express or implied.

Implied periodic tenancies typically arise where a landowner allows another to occupy his property while accepting an obligation to pay rent at regular intervals but where the parties have failed to fully express their intentions as to the terms of the contract between them. The courts have then to consider whether they intended a periodic tenancy, some other form of tenancy (such as a tenancy at will) or a licence.

The categorisation of the arrangement can have practical consequences for the parties (concerning, for example, the way in which it is to be brought to an end). The distinction can be even more important in jurisdictions where periodic tenants have statutory rights that are not afforded to licensees or tenants at will.

Modern English authorities emphasise that, in general, whether the parties intended a periodic tenancy or some other arrangement is an open question. Where the parties have failed to express their intention with sufficient clarity, the courts seek to discover the intention from the relevant factual matrix. The question is whether it is right and proper to infer from all the circumstances of the case, including the payments, that the parties had reached an agreement for a tenancy (Longrigg, Burrough and Trounson v Smith ([1979] 2 EGLR 42, CA (Eng); Vaughan-Armatrading v Sarsah (1995) 27 H.L.R. 631, CA (Eng); Greenwich LBC v Regan (1996) 72 P & C.R. 507 at 512, CA (Eng); Burrows v Brent LBC [1996] 1 W.L.R. 1448, 1454, HL (Lord Browne-Wilkinson)).

The English courts have considered whether the only relevant intention is the objective intention of the parties (what a reasonable person would infer as to their intention from the parties’ words and actions) or whether purely subjective intentions (uncommunicated but actually harboured by one or both of the parties) might also be relevant (Brent LBC v Cronin (1998) 30 H.L.R. 43, CA (Eng). The English Court of Appeal has expressly left this question open (Dreamgate Properties Ltd v Arnot (1997) 76 P & C.R. 25, CA (Eng)).

It is for the person alleging the existence of an implied periodic tenancy to show, on the balance of probabilities, that this is what the parties intended. There is now no presumption of a periodic tenancy whenever it is established that a person was allowed into possession and pays rent at some specified interval (Javad v Aqil [1990] 2 EGLR 82).

The fact that rent is payable at certain specified intervals is an important factor and may well indicate that the parties had in mind a periodic tenancy (the period coinciding with the intervals between payment dates) (see Wing Hang Bank Ltd v Fast King Ltd [2001] HKEC 1385, [14] CFI for an example). The payment of rent at specified intervals is, however, only one factor and there may be other relevant circumstances which lead to the conclusion that no periodic tenancy was intended ((Javad v Aqil [1990] 2 EGLR 82, 84 CA (Eng) Nicholls L.J.).

Implied periodic tenancies can arise where a fixed term lease comes to an end and the tenant remains in possession and makes one or more rent payments after the end of the term (which will typically follow the arrangements for the payment of rent contained in the expired fixed term tenancy). This context forms part of the relevant factual matrix when the court seeks to discover the parties’ intentions since the terms of the expired fixed term lease provide part of the material that the court can use in its attempt to decide on the terms of an implied periodic tenancy.

If the tenant holds over and pays rent at the same intervals as before, the court might be persuaded that the parties intended to create a periodic tenancy and that the relevant period is to mirror the arrangements for payment of the rent contained in the defunct fixed term tenancy (Ladies Hosiery and Underwear Ltd v Parker [1930] 1 Ch. 304; Adler v Blackman ([1953] 1 Q.B. 146, 150 CA (Eng), Somervell L.J; Ford Chung v Ho Kwai Man [1959] HKLR 12, 16 (Gregg J.)).

Michael Lower

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Service occupiers: who is in possession?

Posted on March 27, 2013 by

Introduction

Street v Mountford ([1985] A,C. 809, 826 – 7) decided that a person who had exclusive possession of property for a certain term is a tenant. Lord Templeman referred, however, to cases in which an occupier had (or appeared to have) exclusive possession but in which there was no lease. One of these exceptional cases was ‘occupancy pursuant to a contract of employment or occupancy referable to the holding of an office.’ (Street v Mountford [1985] A.C. 809, 826 – 7). In such cases, the employee is in possession in a representative capacity; the employer is in possession through the occupation of the employee (see Commissioners of Valuation for Northern Ireland v Fermanagh Protestant Board of Education [1969] 1 W.L.R. 1708, 1729 – 30 (per Lord Diplock). The employee is a licensee rather than a tenant.

For an employee to occupy property as the employer’s representative, it is not enough that a landowner employs the person who lives in the landowner’s property (Commissioners of Valuation for Northern Ireland v Fermanagh Protestant Board of Education [1969] 1 W.L.R. 1708, 1730 (per Lord Diplock). This article looks at the tests that have been developed to settle the question as to whether the employee is in possession on his own account or on behalf of the employer.

The cases dealing with this question occur in a range of contexts. Some are landlord and tenant cases (Norris v Checksfield [1991] 1 W.L.R. 1241, CA (Eng); Wragg v Surrey County Council ([2008] EWCA Civ 19, CA (Eng)). The question can also be relevant, however, in other contexts such as income tax (Langley v Appleby [1976] 3 All E.R. 391), rating (Glasgow Corporation v Johnstone [1965] A.C. 609, HL; Commissioners of Valuation for Northern Ireland v Fermanagh Protestant Board of Education [1969] 1 W.L.R. 1708, HL) or electoral registration (Fox v Dalby (1874 – 75) L.R. 10 C.P. 285). The content and application of the tests described below are consistently applied across these contexts.

The tests

Where an employee occupies property of the employer, it is the employer, rather than the employee, who is in possession where either (i) the occupation is necessary for the performance of the employee’s duties or (ii) the employer requires the employee to occupy the property and the occupation materially assists the employee in the performance of his duties (is for the better performance of those duties) (see, for example, Commissioners of Valuation for Northern Ireland v Fermanagh Protestant Board of Education [1969] 1 W.L.R. 1708, 1722 (per Lord Upjohn). In either event, the question is one of the true contract between the parties. The ultimate question is whether the provision of the accommodation is part of the employee’s remuneration (in which case the employee is in possession) or whether occupation of the property is part of the consideration given by the employee to the employer (in which case the employer is in possession).

The rationale

Lord Diplock explained how it is that the occupation of the employee can be treated as that of the employer:

 ‘Because the relationship of master and servant entitles the master to control the way in which his servants perform their duties on the premises, the power of control of the day to day use of the premises which is the legal characteristic of “occupation” of premises remains in the master.’ (Commissioners of Valuation for Northern Ireland v Fermanagh Protestant Board of Education [1969] 1 W.L.R. 1708, 1730)

The employee’s seeming control of the property is subordinated to, or inextricably connected with, the employer’s right to control or give directions. Thus:

 ‘[T]he general right of control by the master of the way in which the servant shall perform his duties as a servant which is implicit in the legal relationship of master and servant is sufficient in law to retain in the master the “occupation” even of a dwelling-house if his servant’s use of it as such is a duty which he has undertaken to perform under his contract of service.’ (Commissioners of Valuation for Northern Ireland v Fermanagh Protestant Board of Education [1969] 1 W.L.R. 1708, 1732 (per Lord Diplock).

Necessity (test 1)

The employee’s occupation will be treated as being that of the employer where an obligation to occupy the property can be implied on the basis that such an implied term is necessary to give business efficacy to the contract. Such an implied term will not be found where it is merely advantageous that the employee should occupy the property (Commissioners of Valuation for Northern Ireland v Fermanagh Protestant Board of Education [1969] 1 W.L.R. 1708, 1722 (per Lord Upjohn) and 1733 (per Lord Diplock).

 The requirement to occupy the property (test 2)

For an employee to occupy property as the employer’s representative it is not enough that there is an express term of the contract of employment requiring the employee to live in the property; if the obligation to live in the property is separate from (collateral to) the performance of the employee’s other duties to the employer  (Commissioners of Valuation for Northern Ireland v Fermanagh Protestant Board of Education [1969] 1 W.L.R. 1708, 1731 (per Lord Diplock). The fact that only employees are allowed to live in the employer’s property (that the occupier was chosen because he was an employee is also irrelevant (Commissioners of Valuation for Northern Ireland v Fermanagh Protestant Board of Education [1969] 1 W.L.R. 1708, 1732 (per Lord Diplock).

 The second test can be satisfied even in the absence of an express contract term requiring the employee to live in the property if the requirement is the result of the exercise of a power given to the employer under the terms of the contract or the employee’s general terms of service (Langley v Appleby [1976] 3 All E.R. 391, 411 (per Fox J.)

 The requirement to occupy and the agreement as to the employee’s duties that are materially assisted by such occupation can arise after the commencement of the employment relationship (Norris v Checksfield [1991] 1 W.L.R. 1241, CA (Eng)).

Better performance of the employee’s duties (test 2)

Where there is an express requirement that the employee occupy the property, there is no test of necessity: the fact that the duties can still be performed without the occupation does not settle the matter. The requirement must, however, be imposed for the better performance of the employee’s duties. It must materially assist the employee in the performance of the duties imposed by the contract of employment. As Lord Diplock explained:

‘[T]he servant’s obligation to reside must be attributable to and form an integral part of the relationship of master and servant created by a contract of employment because it is only by virtue of that relationship that the master retains sufficient control of the day to day use of the premises to amount to “occupation” of them by him in law.’ (Commissioners of Valuation for Northern Ireland v Fermanagh Protestant Board of Education [1969] 1 W.L.R. 1708, 1731)

 The phrase, ‘for the better performance of his duties’  invites a consideration of the parties’ intentions when including the express term in the contract. The intention is an objective intention: there is a need for a real, objective link between the requirement and the better performance of the duties (Wragg v Surrey County Council ([2008] EWCA Civ. 19, CA (Eng)), [40] (per Richards L.J)). That is, the contractual requirement to occupy the property must not be capricious (Glasgow Corporation v Johnstone [1965] A.C. 609, 629 (per Lord Guest)). There must be ‘a sufficient factual nexus between the commencement of the occupation of the premises and the employment which would benefit from that occupation.’ (Norris v Checksfield 1 W.L.R. 1241, 1245 (per Woolf L.J.).

‘Better’ does not mean ‘efficient’. It is a true comparative. The question is whether the inclusion of the term rests on a reasonable judgment that performance of the duties would be materially assisted by the occupation (better with the occupation than without it) (Wragg v Surrey County Council ([2008] EWCA Civ. 19, CA (Eng)), [48] (per Richards L.J)). Richards L.J. gives guidance on relevant considerations (Wragg v Surrey County Council ([2008] EWCA Civ. 19, CA (Eng)), [46] (per Richards L.J)).

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