#19931 - Licences And Leases - Land Law

Licenses and leases

Ownership and exclusion

• One aspect of land ownership is that owners are free to exclude others from use and enjoyment of their land.

• The corollary of this is that people owe a duty not to enter the land; but if you do, you commit the tort of trespass.

• But while I’m entitled to exclude you, obviously I don’t have to.

Access and consent

• So: what is the legal consequence of A consenting to B having access to her land?

  • E.g A lets B can stay in his spare room for a weekly charge. What rights does B have against A? Or against third parties?

• Note, first, that if A permits B to stay on these terms, she’s granting B a licence.

Licences

• Licence: permission to access or use someone else’s land. (Licensor = the person granting the licence. Licensee = person to whom it’s granted.)

• Licences can be divided into two main types:

  • Bare licences: non-contractual licence (no contractual terms or consideration)

    • Gratuitous permission to enter another’s land, eg when you’re invited to a friend’s for dinner.

  • Contractual licences

    • permission granted in return for some consideration (typically a money payment) – eg when you buy a ticket to the cinema.

  • (cf estoppel licences – week 8)

Bare licences

• If A gives B a bare licence to enter her land it means that B commits no trespass by doing so.

• If A does revokes the licence before B enters the land, then B can’t enter. If A revokes it after B enters, B must leave in reasonable time.

• They do not raise any legal issues

Contractual licences

• Where A grants B a contractual licence then, as with all valid contracts, A is obligated to give effect to it.

• Any attempt to revoke the licence, either before or after entry, is a breach of contract. What’s the appropriate remedy for the breach?

• The default position of the courts has been to award specific performance (requiring licensors to honour the agreement) or an injunction (stopping the licensor from removing the licensee):

  • Verrall v Great Yarmouth BC [1981](new council obliged to honour old council’s permission to National Front to use one of its halls. Composition of council changed and they opposed having the National Front, so they stopped them from doing so. Court they had to honour the terms of the licence and they are bound to honour their commitments specific performance).

• But courts will sometimes award damages (e.g., where it’s become impossible to honour the licence e.g. doctrine of frustration).

Licences and third parties

• What if A grants a licence to B but then transfers the land to C? Do B’s rights bind C?

• With bare licences, just as A can revoke at any time, C can too.

• Originally, the courts held that C likewise wouldn’t be bound by contractual licences – that they’re merely rights in personam (King v David Allen [1916] 2).

  • Rights in personam are binding between parties, not rights in rem in the property

• But in Errington v Errington [1950], the CA held that a contractual licence did bind third parties.

• Denning LJ said:

1. If A sought to revoke the licence granted to B, the court would order specific performance of the contract, meaning that B could demand access to the land.

2. Since B could demand entry to the land, B must have a proprietary right in the land.

3. Proprietary rights bind not only the original grantor but also third parties, such as C.

• This wasn’t convincing:

1. it was inconsistent with binding precedent. (HoL in 1916: contractual licences are rights in personam)

2. Wrong to say that B, because he can demand entry to the land by virtue of having been awarded specific performance, therefore has a proprietary right in the land.

   • i.e., it doesn’t follow that because B’s rights are specifically enforceable against A, they must be binding on C as well. Reason for the specific performance award is that A has broken his promise to B (who provides consideration in exchange for the promise). C hasn’t promised anything to B, and hasn’t received consideration from him(Specific performance would not apply for C )

• Orthodoxy was restored in Ashburn Anstalt v Arnold [1989]. Fox LJ observed that Errington was out of line with binding authority.

  • CA held: contractual licences bind only the parties to the contract, and so don’t affect third parties (they are personal rights)

  • But: if C, when receiving land from A, undertakes to give effect to B’s rights, then B will have a claim against C if C denies B access to the land. C is bound not by B’s rights under the original licence with A, but rather by his own undertaking which generates ‘new’ rights in B as against C. It is just a newly generated contract where C agrees to the original terms of the contract and are bound

Licences and leases

• Licences, bare or contractual, are purely personal permissions to enter another’s land. They give the licensee personal rights against the licensor.

• But if A grants B a lease, then B has an estate in the land, binding not just on A but prima facie on everyone.

Lease-licence distinction

• The distinction is significant for two reasons.

1. B will want a court to declare him to have a lease rather than a licence because a lease is a much stronger and more valuable right.

   • The lease is proprietary right (binds everybody) whereas the licence is at most contractual (A and B).

   • A leaseholder, unlike a licensee, can enforce her rights against third parties and can claim in trespass or nuisance against anyone who interferes with the land or her enjoyment of it.

2. The lease-licence distinction is significant because the law provides certain statutory protections to lessees but not to licensees.

• Main protections: right not to be evicted without due process and a court order (Housing Act 1988, s 8) and right to challenge rent increases on the basis that they exceed rents charged on comparable properties (HA 1988, ss 13-14).

• So: B would prefer that a court rules that he has a lease (statutory position puts B in a stronger position)

  • B can still be evicted but not straightforwardly - landlord would need a court order first.

  • As a leaseholder, if something goes wrong with the property, the landlord has a statutory duty to repair.

• But: A will prefer the court to rule that B has a licence.

• Some of the leading cases on leases concern owners who seek to frame agreements so they will be construed as licences rather than leases. If they successfully frame agreements as licences, they avoid the statutory obligations imposed on landlords.

• Judicial interpretations of these agreements, and of the requirements of a valid lease, have been significantly shaped by a desire not to make it easy for owners to ‘contract out’ of statutory obligations.

• The main case is Street v Mountford

Street v Mountford [1985](HoL decision)

• Facts:S entered into an agreement with M to give M the right to occupy two rooms for a ‘licence fee’ of 37 a week. The agreement was labelled as a ‘licence agreement’ and contained a declaration signed by M to the effect that she understood that this didn’t give her a tenancy protected under the Rent Act 1977. (The Rent Act, which was superseded by the Housing Act 1988, gave tenants protection from eviction without a court order and the right to challenge rent increases on fairness grounds.) M and her husband moved in and had sole occupation of the rooms. M sought a county court declaration that the weekly charge was a rent, an increase to which might be challenged under the Rent Act. S argued the Rent Act was inapplicable.

• HL held: the agreement granted M a lease of the property and so was subject to the Rent Act. This is because:

1. Landlords couldn’t escape the provisions of the Rent Act simply by inserting a provision into the agreement exempting the Act’s application.

• Question: whether the agreement gave M a lease or a licence: if the former, the Act applied, irrespective of any waiver provision.

2. The labeling of the agreement wasn’t determinative.

• Rather, the court looks to substance rather than form. An agreement which in substance provides the tenant with the rights and powers of a leaseholder is a lease, no matter what the parties choose to call it. And if it lacks that substance, it’s a licence. This means we need to identify the ingredients that form the substance of a lease

The substance of a lease

• In Street, the HL held that a lease has three ingredients:

1. Holders of leases (called lessees or tenants) pay rent

• This is not an essential ingredient to a lease: A lessor (A) could sell, or even give, a leasehold estate to the lessee (B), instead of requiring that B pay rent for it.

• The LPA 1925, s 205(1), also affirms that payment of rent isn’t essential (refers to leases “taking effect … whether or not at a rent”).

2. Leases are for a fixed term: i.e., they have a clearly stated maximum duration (which might be renewable)

• For each period that is renewed, there is a fixed term, then it is a lease

• A fixed term is essential. Though sometimes the fixed term is imposed by law rather than agreed by the parties. Examples:

  • LPA 1925, s 146(6): a lease is granted to the lessee for the length of her life, it is statutorily converted into a 90-year term (also Berrisford v Mexfield [2011] UKSC).

    • They don’t want to void people’s agreements

  • Prudential Assurance v London Residuary Body [1992]: lease of indeterminate duration with requirement that lessee pay an annual rent treated as a lease for the yearly rent period.

    • Treat the length of the term between rental payments as the lease

3. The lease gives the lessee exclusive possession of the relevant land

• Matter of right rather than a matter...