1
Q
Landlord Holds a Reversion Which May Be
Assigned
A
The landlord’s interest in the land is known as the ‘reversion’ and, should the landlord assign (transfer) this interest, the person who buys the reversion is called the ‘assignee’ of the reversion.
1
Q
5
Head Lease vs Underlease
A
- A tenant may grant another lease for a lesser term (an underlease, or more commonly a sublease or subtenancy).
- The main lease between the landlord and the tenant is then known as the** ‘head lease’. **In relation to the sublease, the tenant is known as the sub-landlord.
- Alternatively, assuming **the lease permits assignment (the transfer of a leasehold estate from one party to another), the lease may be assigned. If the tenant assigns the lease, they drop out of the title entirely and are replaced by their assignee.
- If a tenant grants a sub-lease, however, they remain a tenant in the headlease and become a landlord in the sublease.
- A sublease can be grant-ed only for a period shorter than the headlease; the right to occupy must revert to the tenant for a period (however short) at the end of the sublease.
2
Q
Registration of Leases in Excess of Seven
Years
A
a lease/term of years absolute will trigger first registration at HMLR if the lease is granted for a term in excess of 7 years or is an assignment of a lease with a term remaining of more than 7 years.
3
Q
Property Commonly the Subject of a Lease
A
a.Residential Property
b.Commercial Property
c.Agricultural Property
4
Q
4
THE DISTINCTION BETWEEN A LEASE AND A LICENCE
Why Is the Lease/Licence Distinction
Important—Muddling of the Distinction?
A
- If the agree-ment is a lease, the tenant has a raft of statutory protection available and potentially can leave the leasehold interest to another party or sell it.
- A tenant may also have** ‘security of tenure’**, which is the right to stay in the premises at the end of the lease term.
- Residential tenants will also have some protection in relation to the amount of rent that the landlord
can charge. - If the agreement is only a personal right in favour of the licencee, none of the above protection benefts the licencee. Landlords have sometimes attempted to avoid the protection conferred on their tenants by statute by labelling the arrangement a licence rather than a lease.
5
Q
What Is a Licence?
A
In the context of English land law, a licence is a personal right to use land in some way. A licence creates neither an estate
nor an interest in land. The person granting the right is the ‘licensor’, and the person taking the beneft of the right is the ‘licensee’. **
6
Q
What Is a Lease?
A
A lease is an estate in land. It can be either legal or equita-ble. It is referred to as a** ‘term of years absolute’**. It gives the tenant the right to occupy the land for a fxed period.
7
Q
3
ESSENTIAL CHARACTERISTICS OFA LEASE
A
*Certainty of term;
*Exclusive possession;
*Appropriate formalities.
Note that rent is not essential. The usual requirements of contract law, such as an intention to create legal relations, are also required.
8
Q
Failure to Satisfy Essential Characteristics
A
- If any of the essential characteristics of a lease are missing, there cannot be a lease, but only a licence. A licence** can-not be assigned or sublet** and, as noted above, they do not beneft from the statutory protections enjoyed with leases.
- If it is unclear whether the parties have created a lease or license, courts will consider the substance of the agreement, not the form.
9
Q
3
Certainty of Term
A
- A lease must make it clear at the date of the agreement when the term of the tenancy will begin and end.
- If the parties agree on a term which is** uncertain** (for example, if termination of the lease depends on external circumstances over which the parties have no control), the lease will be void for uncertainty.
- The lease will similarly be void for uncertainty if the length of the term is certain but the starting date is uncertain.
10
Q
3
Exclusive Possession
A
- As already noted, a lease gives the tenant the right to exclusive possession. That is, a lease gives the tenant the right to exclude all others from the premises including, crucially, the landlord.
- However, this does not mean that a lease can be to only one tenant. Multiple occupants can have exclusive possession together in the eyes of the law.
- However, for each tenant’s interest to be considered a lease interest, they all must be granted** at the same time in the same title document, and each party must be granted the same interest and right of possession **(known as the four unities: time, title, interest, and possession). This makes them joint tenants.
11
Q
2
joint tenant
Time and Title—Separate Lease Agreements
A
- With respect to time and title, a landlord might seek to avoid joint tenancy by making tenants sign separate agreements at slightly different times.
- As noted above, a court will look at the substance, rather than the form, of the agreements. If each tenant** would have entered their agreement only if **the others did too, it is likely the multiple documents will be read as one document signed at the same time.
12
Q
joint tenant
Possession by Multiple Occupants
A
The requirement that each tenant must have the same pos-sessory interest does not prevent joint tenants from having their own bedrooms, but the property must not be divided into separate units with their own locks to exclude others (think bedsits, for example).
13
Q
joint tenant
interests
A
For the multiple occupants to be joint tenants and have their interests be considered a lease, they must have the same
rights and obligations and must be jointly liable for the rent
14
Q
3
joint tenant
Commercial Leases
A
- The principles above relating to exclusive possession apply to commercial leases, as well as residential leases.
- However, the courts are much less likely to view clauses in a commercial lease as ‘sham’ clauses than in a domestic context.
- Therefore, the rental agreement is more likely to prevent exclusive possession if, for example, the landlord retains the right to move the tenant to a different unit, or to retain control over the nature and method of business.
15
Q
Service Occupancy
A
If a property is provided as a part of an employment agree-ment, the employee will have a license to occupy the prem-ises, rather than a lease. This is important, as when the employment comes to an end, the property will be needed for the replacement employee.
16
Q
4
COMMON TYPES OF LEASE
A
- Fixed Term Tenancies
- Reversionary Leases
- Periodic Tenancies
- Tenancies at Will and Contractual Periodic Tenancies
17
Q
3
Fixed Term Tenancies
A
a.Fixed Term May Include Break Clause Allowing Early Termination
1. A long lease might include** a break clause **allowing one or both parties to terminate the lease before the full term has expired.
- This is common in commercial leases but not in residential leases. In the absence of such a clause, the term must generally be allowed to run its course. Such a clause will not affect certainty of the term.
3.Rent Review Clause Required to Increase Rent in a Long Lease
In a long-term lease, rent cannot be adjusted unless the lease so provides.
18
Q
3
Reversionary Leases
A
- In most cases, leases take effect immediately with the tenant taking possession of the property straight away.
- A lease providing that the tenant is not to take possession until some date in the future is known as a reversionary lease.
- A reversionary lease is valid unless the period between the lease being entered into and the tenant taking possession exceeds** 21 year**s (because the law prevents the creation of interests so far into the future).
19
Q
2
Periodic Tenancies
A
- Instead of entering a fixed-term tenancy, the parties may expressly agree to enter a tenancy defined by a period of time such as a ‘yearly tenancy’ or a ‘tenancy from year-to-year’.
- In either case, this will create a yearly ‘periodic tenancy’. The tenancy will last initially for a fixed period of a year, and when this has expired it will continue for another year, and then for another year, and so on,** until one or the other party brings it to an end by serving the appropriate notice**. The period can be any length of the parties’ choosing.
20
Q
3
Implied Periodic Tenancies
A
- If the parties have not entered into a written agreement, a court may imply a periodic tenancy, provided the tenant has gone into possession and started to pay rent.
- The relevant period of the tenancy will depend upon the period by which the rent is calculated. If the tenant pays a yearly rent, then the courts will normally infer a yearly tenancy, even if rent is actually paid weekly or monthly. If the rent is expressed to be paid weekly or monthly, then the tenancy will be a weekly or monthly tenancy as the case may be.
- The courts may also imply a periodic tenancy if the parties attempted to enter into a legal lease but the lease is void for some reason
21
Q
3
Tenancies at Will and Contractual Periodic Tenancies
A
- The owner of land may allow a buyer to take possession of the land before entering into any written agreement to sell. This may create a tenancy at will. It does not create any estate in the land, but rather is** a personal arrangement between the landowner and the prospective buyer which can be terminated at will by either part**y.
- If the tenant attempts to assign the tenancy, this will operate as a notice to terminate the tenancy as soon as the tenant notifes the landlord of the fact.
- Contractual Periodic Tenancies
If the prospective buyer in possession begins to pay rent, **the court may treat this as creating a periodic tenancy unless there is very clear evidence that the parties intend the tenan-cy at will to continue.
22
Q
2
formalities to create a legal lease
A
- Legal leases usually must be** created by deed.** This is known as an ‘express grant’. All legal leases over three years must be created by deed.
- However, a short legal lease for three years or less may be created orally, without any formalities if:
*The tenant takes possession of the leased premises immediately; and
*It is at the best rent which can be reasonably obtained without a fine (which means the lease is at market price and the tenant does not have to pay any upfront lump sum or premium).
Note: Even though a short lease may be created without a deed or any formality at all, it can be assigned only by deed.
23
Q
3
Registration of legal lease
A
- In registered land, all legal leases over seven years must be substantively registered.
- Leases of seven years or less are overriding interests and are binding without registration.
- In unregistered land, all legal interests (including legal leases) bind the world.
24
Equitable Leases
A lease that has not been created by deed and that is not within the provision for short-term leases might still be enforced through equity if the lease is in a writing incorporating all the terms expressly agreed and signed by both parties (complying with the requirements for a contract for land).
25
registration of equitable lease
1. In unregistered land, an equitable lease can be protected by the registration of a Class C(iv) land charge. In registered land, it can be protected by a notice on the Charges Register.
2. Without this protection, a purchaser of the landlord’s interest for value would not be bound by the equitable tenancy (unless the holder of this interest is also in actual occupation, making it an overriding interest).
26
# 2
Failure to Complywith Formalities
1. mIf a lease has not been created by deed, is not within the provision for short-term leases, and also fails to comply with the requirements for a contract for land, it cannot be a lease
and the occupier will have only a licence.
2. This means their agreement is not binding on third parties, as it is not an inter-est in land.
27
THE CONTENTS OFA LEASE—
LANDLORD AND TENANTCOVENANTS
A covenant is a promise to do or not to do something. A lease will typically impose a number of covenants on both the landlord and the tenant to regulate the relationship be-tween them.
28
# 9
Express Covenants Contained in a Lease
**a.Term**
The term is the length that the lease is going to run.
**b.Payment of Rent**
The lease will specify the amount of rent payable by the tenant and when it is payable.
**c.Quiet Enjoyment**
The covenant of quiet enjoyment is an obligation imposed on the landlord such that the landlord must not interfere physi-cally or in any other way with the tenant’s enjoyment of the
property, nor allow the lawful activities of his other tenants to do so.
**d.Repair**
It is essential for the lease to contain clear provisions as to whether the landlord or the tenant is responsible for the repair of the demised premises.
**e.Use of the Premises**
A covenant imposed on the tenant will specify what the tenant can use the premises for. A residential lease might prohibit any business use at the premises and a commercial lease might specify the type of business use.
**f.Alteration of the Premises**
The terms of the lease will govern how the landlord will control alterations;
**g.Insurance**
It is important to ensure that the lease covers the obligation to insure the premises. If the lease is for the whole building, the parties will usually agree to a covenant that the tenant is to insure. If the tenant is leasing only part of a building, the
parties will usually agree to a covenant that the landlord is to insure, in which case the lease will usually include a cove-nant to pay a service charge that will enable the landlord to recover the cost from all of the tenants.
**h.Service Charge**
If the premises are part of a large building and there are shared services (for example, access drive, utilities, lifts, car parking, insurance), the landlord or a management company will covenant to provide these services and the tenants will
covenant to meet a proportionate cost of those services by way of payment of a service charge.
**i.Not to Derogate from Grant**
The covenant not to derogate from the grant is a landlord covenant which is an obligation not to frustrate the purposes for which the premises were let.
**j.OtherKey Terms**
If the lease of the premises is of part of a building, the lease will need to provide the tenant with all rights necessary to use the premises and gain access to it and to use the ser-vices. The landlord may also need to covenant to enforce
the obligations against the other tenants in a building in the event of default. This is because there is no privity of contract between each of the tenants.
29
# 2
Alteration
The lease will therefore deal with the question of alterations in one of two ways:
*The lease may specify that **non-structural alteration**s may be made, though usually with the landlord’s prior written consent (**a ‘qualifed’ alterations covenant)**.
*The lease may **prohibit structural alterations** entirely, although this could make the lease unattractive to any potential assignee. This is known as an** ‘absolute bar’** on
alterations. It is always open to the tenant to seek specif-ic consent from the landlord even where an absolute bar is imposed, but the landlord might not agree.
30
# 2
Implied Covenants in Residential Leases
In addition to the express covenants commonly included, there are a number of covenants implied into residential leases by statute that cannot be excluded by express terms.
For example
1. the landlord must keep in repai**r the structure and exterior of the dwelling house** and keep in repair and
2. ****working order the installations in the dwelling house for the supply of **water, gas, electricity, sanitation, space heating, and heating water.**
31
‘Structure and Exterior’
Implied Covenants in Residential Leases
‘Structure and exterior’ relates to those elements of the dwelling that give it its** essential appearance, stability, and shape**, elements which are **distinct from decorations and fttings**. Internal and external plaster work, staircases, and banisters are all a part of the structure. The exterior covers
all outside parts of the building, including drains, gutters, and external pipes.
32
Standard of Repair
Implied Covenants in Residential Leases
33
RepairWithin Reasonable Time
Implied Covenants in Residential Leases
Once the landlord has been put on notice, they must efect
the repair within a reasonable time.
34
# 2
Remedies for Non-Payment of Rent
a.Commercial Rent Arrears Recovery
b.Forfeiture
35
# 4
Commercial Rent Arrears Recovery
1. Commercial Rent Arrears Recovery (‘CRAR’) is a statutory procedure that allows landlords of commercial premises to recover rent arrears by taking control of the tenant’s goods and selling them. It applies to all new and existing commer-
cial leases from 6 April 2014, whether or not it is referred to in the lease.
2. A landlord must provide **seven days’ notic**e of enforce-ment and after this time, a certifcated bailif or enforce-ment agent can enter the property (through a locked or unlocked door) to seize the tenant’s goods.
3. CRAR only applies to leases of wholly commercial prem-ises, so if any part of the premises is let as a dwelling (for example, a fat above a shop), CRAR is not available.
4. CRAR cannot be used to recover any service charge arrears.
36
# 4
Forfeiture
Remedies for Non-Payment of Rent
1. Forfeiture is the right of the landlord to re-enter the prem-ises and bring the lease to an early end due to default by the tenant.
2. There is statutory protection for the tenant, and
the tenant has the right to **settle the arrears and to apply for ‘relief’ from forfeitur**e to avoid losing the premises.
3. The forfei-ture remedy will not be implied into a lease on the landlord’s behalf, so the lease must contain an express provision for forfeiture.
4. A landlord may waive his right to forfeit. For example, if a landlord is aware of the breach and then accepts or de-mands payment, this will waive the right to forfeit.
37
Breach of Repairing Covenant
a.Damages or Specifc Performance
1. Damages
Damages are** a monetary sum awarded** for a breach of contract, the general purpose being to compensate the injured party and to put the claimant in the same position
as if the contract had been performed
2. Specifc Performance
Specifc performance is an equitable remedy available for breach of contract that compels a party to perform its contractual obligations.
38
# 5
Breach of Repairing Covenant
b.Self-Help
1. The innocent party has the option to carry out the repairs and claim the cost from the defaulting party.
2. Many leases now contain a ‘self-help’ clause, which **entitles a landlord to enter the premises and make repairs** if a tenant has breached their covenant to maintain or repair the property.
3. If the lease contains a ‘self-help’ clause, the landlord can **serve notice** on a defaulting tenant requiring them to do the work, specifying any breaches of covenant. If the tenant fails to carry out the required work promptly, the landlord can enter to carry out the works and then recover the costs.
4. Self-help clauses are also called Jervis v Harris clauses after an important 1995 case regarding dilapidations (in general terms, meaning items of disrepair) that held that the landlord, after carrying out repair works, could recover these costs from the tenant as a debt.
5. The signifcance of recovering the costs as a debt is that all of the costs could be recovered in a straightforward debt action rather than a more complex damages action (and the amount of any damages the landlord might be
able to recover is limited by statute).
39
# 3
Breach of Repairing Covenant
c.Forfeiture
1. If the tenant is in default of the repairing obligations, the land-lord may wish to forfeit the lease. The landlord must serve a notice on the tenant under section 146 LPA 1925 (other-wise known as an** ‘s146 notice**’).
2. This is intended to warn the tenant and allow time for rectifcation of the breach. The section 146 notice must:
*Specify the breach;
*Require the breach to be remedied within a reasonable time (if capable of remedy); and
*Require the tenant to pay compensation to the landlord for the breach, if required by the landlord.
3. Remember also that the forfeiture clause will not be implied into the lease.
40
Breach of Repairing Covenant
Other Remedies
1. Debt Action
A landlord can bring court proceedings for a debt action if rent or other money due under the terms of the lease is owed.
2. Pursue Guarantors and/or Rent Deposit
A landlord may take a sum of money from the tenant at the beginning of a tenancy, known as a ‘rent deposit’.
This is a sum paid at the outset by the tenant which is held on deposit and can be used by the landlord in the event of default. A landlord may also require someone to act as guarantor of a tenant’s obligations. This gives the landlord additional protection in the event of tenant default, because the landlord can pursue the guarantor for any breach or arrears in addition to the tenant.
41
# 2
CONTINUING LIABILITY FOR
COVENANTS—LANDLORD AND TENANT (COVENANTS) ACT1995
1. Under the Landlord and Tenant (Covenants) Act 1995, in leas-es made after 1995, tenants are automatically released from their covenants upon assignment. That is, a tenant will not be liable for a subsequent tenant’s breach of covenant after the assignment. Note that it is the date of the grant of the lease and not the date of the assignment that determines which rule applies
2. There is no automatic release for the landlord of the land-lord’s covenants under the lease, although they can apply for release in certain circumstances.
42
Authorised Guarantee Agreement (‘AGA’)
LANDLORD AND TENANT (COVENANTS) ACT1995
Under the 1995 Act, as a condition of giving consent to an as-signment, a landlord can require the outgoing tenant to enter into a written obligation called an ‘Authorised Guarantee
Agreement’ (‘AGA’), in which the outgoing tenant will act as guarantor for his immediate successor in title.
EXAMPLE
Bob took a lease of a factory unit. The lease was dated 3 February 2002 (after 1 January 1996). The lease still has fve years to run. Bob assigned his interest in the lease to Cindy in 2012. In 2015, Cindy assigned her interest to Duncan. In 2020, Duncan assigned his interest in the lease
to Ethan. Ethan is in arrears with his rent. The landlord could not pursue Bob anymore. Bob might have guaranteed the
performance of the tenant to whom he assigned the lease if there was a requirement for an AGA in the lease, but as the lease has changed hands since then, Bob’s liability would have ended on the assignment of the lease from Cindy to Duncan.
43
subletting longer than the original lease
If a tenant tries to create a lease that is as long
as or longer than his own lease, no new lease will be creat-ed; instead, the transaction will operate as an assignment (that is, a transfer) of the grantor’s own lease.
44
# 3
Is Subtenant Liable to Perform Covenants
in the Head Lease?
1. If a tenant creates a sublease, there is no relationship be-tween the head landlord and the subtenant. There is thus no privity of contract or privity of estate between the head landlord and the subtenant. This means that the covenants in the head lease are not usually enforceable by the head landlord against the subtenant.
2. It may be possible for the head landlord to enforce the covenants regarding use of the premises against the subtenant, but this is by virtue of the fact that the user covenant is a restrictive covenant.
3. However, the tenant will usually be liable for the actions of anyone occupying the premises, so they will want to ensure that the subtenant is under an obligation to perform the covenants in the head lease. They will do this by incorporating the same covenants in the sublease as they are bound to perform in the head lease.
45
# 2
Difference Between Assignment and Sublease
1. The sublease creates a further relationship of landlord and tenant out of the existing leasehold estate—the head tenant becomes the landlord of the subtenant, but the head tenant remains the tenant of the head lease and remains liable to perform the lease covenants in his lease.
2. If the tenant wants to sell his entire interest in a lease, that is an assignment. In this circumstance, the tenant ceases to be a tenant, and the incoming tenant takes on the responsibility to comply with the covenants in the lease.
46
# 3
Covenants Against Assignment
1. Unless prohibited by the lease, the tenant has the right to as-sign the lease or to grant subleases out of his interest in the property.
2. The landlord’s concern in the instance of an assignment is loss of control over the property. Thus, it is common for leases to contain restrictions on the tenant’s power to
assign or sublet or both.
3. These restrictions will be contained in a covenant relating to assignment. Often the covenant is either an **absolute covenant** or a** qualifed covenant**.
47
Absolute Covenant
An absolute covenant against assignment means just what it sounds like: the covenant is** a total bar** to assignment. An absolute covenant against assignment prohibits the tenant from assigning in any circumstances, and is relatively rare unless the lease is very short.
48
# 3
Qualifed Covenant
1. A qualifed covenant against assignment means that the cov-enant is imposed subject to conditions. A qualifed covenant prohibits the tenant from assigning unless the landlord has
given his consent to the assignment, and/or unless certain conditions are met, as set out in the lease.
2. Under such a covenant, the tenant enjoys some statutory protection. The landlord’s consent **may not be unreasonably withheld**.
3. If the tenant gives the landlord a written request for their consent to an assignment, the landlord must **within a reasonable time** either give their consent or else give written reasons for their refusal. Where their consent is subject to conditions, those conditions themselves must be reasonable.
49
# 2
Assignment Must Be by Deed
1. Assignment of a legal lease must be by deed even if the lease was originally made orally.
2. It will transfer the estate** even where there is a qualifed covenant against assignment **in the deed and the assignor has not sought the neces-sary consent (although the assignor will be automatically in breach of covenant).
50
The Effect ofAssignment
When a lease (whether a head lease or a sublease) is assigned, the incoming tenant takes responsibility for performance of the tenant covenants in the lease which has been assigned. There is privity of estate between the landlord and the incoming tenant, meaning that each can enforce the cov-enants in the lease.
51
# 2
Effect ofAssignment When Landlord
Refuses to Consent
1. ****If the tenant has sought consent but this has been refused, the assignment will be efective as between assignor and assignee, but there will be a breach of covenant.
2. Assuming the tenant feels that the landlord’s reasons for withholding consent are unreasonable, the best course of action will be
to seek** a declaration of the court** that the conduct of the landlord is unreasonable, rather than assigning despite the landlord’s refusal. If the court disagrees with the tenant, then the tenant will be in breach of covenant.
52
# 4
Assignment of Head Lease
1. If a head lease is assigned, the sublease remains valid.
2. The incoming tenant of the head lease will be bound by the covnants in the head lease.
3. The incoming tenant will acquire the premises subject to the sublease.
4. The incoming tenant of the head lease will become the new landlord of the subtenant under the terms of the sublease.
53
# 5
TERMINATION OF LEASES
1. Expiry of the Lease
2. Termination by Notice
3. Surrender and Merger
4. Forfeiture
5. Frustration
54
Termination by Notice
a periodic tenancy will usually come to an end by either party serving written notice of the requisite length on the other. The length of notice is at least one full period expiring at the end of a period. If there are either joint landlords or joint tenants, any joint owner may serve a notice to quit.
55
# 2
Surrender and Merger
1. If there is a fixed term tenancy without a break clause (which is a clause in a lease that allows either party to terminate early), neither party may bring the tenancy to an end unilat-erally before the term has expired.
2. However, the parties can mutually agree to bring the tenancy to an end.
*If the parties agree the tenant will **give up possession to the landlord**, this is known as ‘**surrender**’.
*If the parties agree that the landlord will** transfer the reversion to the tenant,** this is known as a** ‘merger’**.
In either case, **the leasehold and freehold interest fuse** because, in law, a tenant cannot be their own landlord
56
Enforcement Where No Deed Is Given
1. Where no deed is given but the parties enter into a written contract, this can be enforced in equity through an order for specifc performance of the contract.
2. Where there is no written contract, but the landlord accepts possession of the property at the tenant’s request, this will give rise to an** ‘estoppel’** which prevents either side denying that the surrender has taken place.
57
forfeiture
termination of lease
If a lease contains a forfeiture clause and the tenant is in
breach of covenant, the landlord may be able to claim pos-
session of the property under the forfeiture clause.
58
# 3
Effect ofTermination on a Sublease
1. If a head lease is brought to an end by expiry, notice to quit, or forfeiture, the general rule is that the sublease will end as well.
2. If the head lease is brought to an end by surrender or merger, the position is diferent.
a.Surrender
If the head lease is ended by surrender, the sublease will not come to an end. The subtenant will become the tenant of the head landlord on the terms of the sublease.
b.Merger
If the head lease and the landlord’s reversion merge, the new owner of the combined estate will hold the estate** subject to the sublease**, and the position of the subtenant will be as for
surrender above.
