SQE1: LAND LAW

Topic 11. Leases

Law Training Centre (Kent)

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Learning Content

◗ The Relationship between Landlord and Tenant in a Lease

◗ The Essential Characteristics of a Lease including the Difference between a
Lease and a Licence
◗ What is Meant by the Terms Privity of Contract and Privity of Estate
◗ The Rules for the Passing of the Benefit and Burden of Leasehold Covenants
and Enforceability
◗ The Purpose and Effect of an Alienation Covenant
◗ The Remedies for Breach of Leasehold Covenants (including forfeiture)
◗ The Different Ways a Lease can be Terminated

Introduction

Proprietary Rights in land essentially control your right to use and enjoy the land
that you, yourself hold and, in certain circumstances, the land owned by others.
Whilst this may seem an anomaly, the proprietary rights are in the land and not
the individual who holds the land, and therefore the rights pass on sale to a new
owner.
Let us begin our exploration of this topic by looking at the case of Street v
Mountford (1985) UKHL 4.
This case is very important and is the point at which we can truly begin to see the
legal relationship founded within the principle of exclusive possession
[possession over the property but not ownership] that becomes enforceable
under what we will now refer to as a lease. The lease is for a period of time which
is express and definite.

The Mountford case determined that there will be three elements that must be
present when determining whether a purported agreement is, in fact, a lease:

1. exclusive possession.
2. determinate term.
3. term less than that of grantor.

Essential 1 – the exclusive possession

Without exclusive possession, there is no lease. Exclusive possession is the right

to use premises to the exclusion of all others, including the landlord himself.
We must remember that the lease is not equal to ownership and therefore we
will see for clear and obvious commercial reasons that a lease will contain the
right for the landlord to re-enter the property for a range of reasons. These may
be to inspect the property [that they have true ownership of] and to ensure that
repairs are done or that they have been done to a satisfactory standard.
Appah v Parncliffe Investments Ltd (1964) 1WLR 1064.
A person recognised by the title landlord had reserved the right to come into
premises as and when they chose to empty meters and change linen. The

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arrangement was held to be a licence, since the occupier did not have exclusive
possession. The fact that the ‘landlord’ could come and go as they pleased did
not satisfy the first essential point of exclusive possession.

Essential 2 - Determinate term

The period of time that a lease will exist must be express and certain. If a
particular date is not stated and it is from that date that the lease is to run, then
the lease will be considered in law as beginning immediately (Furness v Bond
(1888) 4 TLR 457). Because it is a complete determinable period, if a person has a
lease that will be undertaken in the future, then that date must be shown and
expressed either expressly or impliedly (Harvey v Pratt (1965) 1 WLR 1025). It is
interesting to note that we cannot create a lease for life.

Essential 3 - Term less than that of grantor

An owner in fee simple can grant a lease of his property for any term because the
fee simple is itself effectively perpetual. There can only be one fee simple estate
in one piece of land, but there can be more than one term of years. This may
sound complicated, so it is simpler to express it in a more common reference to a
situation. A tenant may have the right to sublease – that is – grant a lease from
the right that he has within their lease. The sublease would then see a different
tenant occupy (remember – not own) the property. The original tenant can grant
a sublease to that person [called a subtenant] if this sublease will last for a
shorter period than the original lease that the original tenant had (that lease is
then called a head lease).

Can we now have a clear picture of what a lease is?

Yes, we can think of a lease as a grant of exclusive possession of land for a term.
That is the most essential definition that we can give.
Such a basic definition as this has brought with it numerous legal decisions when
such a question has arisen. The most recent of these developments was the
House of Lords decision in Bruton v London and Quadrant Housing Trust (1999)
UKHL 26. In this case, a housing association had been allowed to use a block of
flats, owned by the local authority, as temporary accommodation for homeless
people pending redevelopment of the block. “The claimant [Bruton] sought to
oblige the respondent to repair his flat under the 1988 Act. The respondent
replied that the arrangement was a licence only, and not protected under the Act.

Held: The housing association had a temporary licence to occupy a house and to
re-let it, but under conditions that were more consistent with a tenancy rather
than a licence. The claimant's occupation was deemed to be under a tenancy and
not a licence, despite assertions to the contrary. Exclusive possession for repeated
periods created a tenancy.

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Lord Hoffmann said that an agreement can give rise to a tenancy even if it does
not create an estate or other proprietary interest which may be binding upon
third parties.”
As we have seen in a previous judgement referred to here, permission to occupy
land is known as a ‘licence’; it is not a tenancy. In this case, the claimant was
granted a licence to live in one of the flats. The expected redevelopment of the
flats was unexpectedly delayed, and the claimant continued to live in the flat for
several years.
The decision demonstrated that under examination of the facts, a landlord [who
has an estate in the land] has the right and can so grant a lease to a tenant
(according to the three conditions of the Street case) and then that tenant can
grant a sublease to a subtenant and so forth. In this case, however, the housing
association was considered as being not a landlord but a licensee, but one who
could yet still grant a lease with “exclusive possession for repeated periods of time
[creating] a tenancy”. The lease of Bruton was of course not a property right and
had no efficacy against any party except that who granted it to him.

The fixed-term lease

A fixed-term lease lasts for one defined length of time. That period of time will be
express, and it will be stated in the agreement between the landlord and the
tenant [the lease].

The periodic lease

This is what we commonly refer to as 'tenancy' and it will exist for a period of
time as agreed between the landlord and the tenant. The period of time is the
'tenancy'. That time period will normally be years or months but there is no
reason why it cannot be for a shorter period. The reason why we must have an
identified and understood period of time [under the tenancy agreement – a
contract] is because this will be the method of calculating rent that is due to be
paid to the landlord.

Commercial and residential

There are two types of lease, the commercial lease and the residential lease. You
will commonly find that the commercial lease is a subject addressed by particular
discussion and materials because of the differences that exist between them and
the more common residential lease. These materials will not consider those
differences now. Termination rights notice periods and the associated legal rights
of the landlord are of particular importance when looking at the contracts that
exist between these two types of lease [not including agricultural leases]. As an
example, we will mention here that the notice period for periodic tenancies
(residential) is that the Protection from Eviction Act 1977 requires that a

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minimum of four weeks’ written notice be given to residential tenants.

The underlease is a lease not granted by a landlord (the freehold owner) but by a
tenant. As we have previously mentioned here, it is a lease granted out of
another lease. As a subtenant, they will occupy but not own the property. In
occupying the property they have the right to enjoy that property as if it were
their own. This does, however, come with conditions. These conditions are called
covenants and they are the conditions [or rules] by which that tenant will occupy
the property. The covenant may be to keep it repaired or a covenant not to do
something. The subtenant must abide by the covenants that the tenant was
subjected and agreed to. Another important point to note is that the subtenant
must find their tenancy coming to an end before the tenancy of the original
tenant.

Lease or Licence?

Licence is the occupation of the property by a person that does not have the right
to occupy it. They are given that permission by someone else, but they have the
right to occupy it, nevertheless.

Because of what might appear as a strange anomaly, the lease tends to be for
shorter periods than what we might see as a tenancy [which can be 99 years].
The licence does not provide for nor does it create any legal right in the land
except to occupy the property for some time most commonly to do something
within that property – such as to run a shop. The licence will, therefore, allow for
occupation for some time to do something specific.

The person who has the licence to occupy and undertake, for example, trade,
within that property, is called a licensee.
A licence does not bind a successor in title unless there is created a constructive
trust to afford such a ‘rolling over’ of the licence.

Express licences

Express licences – this is a strange way of defining the permission someone gives
as a property owner to someone who has no legal right to be on the property to
be there for a specific purpose after which they are expected to leave.

Contractual licences

Sometimes a person may have the right to occupy and undertake whatever
activity is intended and permitted by a contract. This type of lease, unsurprisingly,
is therefore called a contractual licence. The contractual licence can be revoked
in the usual manner according to contract law because the right is founded in
contract law, as are the actions for reparation should the contractual licence be
breached in some way [again under the rules of contract].

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Irrevocable licences

Under the above heading, we mentioned that where a licence is created by

contract, then the law of contract can see such a licence revoked. Unhelpfully,
some licences are irrevocable. This is, again, under the rules of contract law and
such an express condition of 'irrevocable' may be entered into the contract if it is
agreed by all signing that contract. Furthermore, we may also seek to use a
contractual bar to revocation through the principle of estoppel. This is where the
licensee has perhaps spent a great deal of time, effort and expense preparing a
building or refurbishing a property based upon the understanding that they
would be allowed to remain there for some time and trade e.g. the licensee has
spent money on improving the property because he was given to understand he
would be able to remain in the property for longer.

Covenants and leases

In any lease that is dated pre-1996, the following rules apply with regards to
covenants that appear in the lease:

• If the original parties to a lease are in ‘privity of contract’, then all the
covenants in the lease will be enforceable between them for the duration of
the lease.
• If the landlord and the tenant are not in privity of contract but are
in privity of estate, then those covenants which ‘touch and concern the land’
(but only those covenants) are enforceable between them.
Privity of estate exists where two persons are in a direct relationship of
landlord and tenant. The privity of the estate must exist so that either party
has the right to sue the other for breach of the covenant(s).

Post-1996 leases are covered by the Landlord and Tenant (Covenants) Act of
1995. Under the provisions of the Act, the original landlord or the person who
originally granted the lease shall be bound by all the covenants in the lease while
the tenant remains as a tenant.

If a tenant subleases, they will be released from any obligations that they had
under the terms of the lease and especially the covenants. This is, however, only
where the tenant has not signed an ‘authorised guarantee agreement’ or AGA.
This is most commonly the case because the landlord needs commercial surety
that the tenant will not sublease to an irresponsible party who then wrecks the
property!

An original tenant is obliged to enter an AGA only when:

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• It is commercial property – all parties have agreed upon an AGA.

• It is residential property – the 'outgoing' [albeit for a specified period and then
to return] tenant agrees to sign an AGA at the time they intend to sublease.

Statutory controls

The Landlord and Tenant (Covenants) Act 1995

The Landlord and Tenant (Covenants) Act 1995 (LT(C)A) made considerable
changes to the extent and liability of parties to a lease. This only applies to post-
1995 leases, i.e. those created on or after 1 January 1996. The Act applies equally
to legal and equitable leases.

The effect of the statutory controls imposed in 1995

All covenants that touch and affect the land transfer and affect any new landlord
or tenant. All covenants except those that are personal – because these do not
touch and affect the land.

Remember that the purpose of a covenant is that an identified party promises to

do or not to do something with freehold land that will either affect or benefit
another freeholder’s land.

Beswick v. Beswick and the passing of a covenant.

“Law of Property Act 1925, s. 56 [Persons taking who are not parties and as to
indentures]

(1) A person may take an immediate or other interest in land or other property, or
the benefit of any condition, right of entry, covenant or agreement over or
respecting land or other property, although he may not be named as a party to
the conveyance or other instrument.
Beswick v. Beswick [1968] AC 58
An agreement was made between an uncle and a nephew. The uncle owned a
coal business and, when he retired, he agreed to sell his business to his nephew.
The nephew agreed to pay a pension to the uncle during his lifetime and, after his
death, to his widow.
After the uncle died, the nephew did not pay the pension to the widow as agreed,
so she wanted to sue him. Her problem was that she was not a party to the
agreement.
In the Court of Appeal, Denning MR and Danckwerts LJ both used LPA 1925, s. 56,
among other arguments, to hold that the widow could sue for her pension. The
contract was made for her benefit, so, on a wide view of s. 56, the widow could
enforce it.

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In the House of Lords, however, it was held that she could sue only as the
representative of her husband's estate—if she stood in the shoes of her dead
husband, who was, of course, a party to the contract. In that capacity, she could
ask for a decree of specific performance: an order that the pension must be paid.
The House of Lords did not adopt Lord Denning's wide view of s. 56 and two of the
Law Lords (Lord Pearce and Lord Upjohn) expressly disapproved of it.
It is now generally accepted that LPA 1925, s. 56(1), simply removes the old rule
that a person must be expressly referred to by name in the deed of covenant to
benefit from it. Those who are to benefit can instead be referred to by some
generic, class description, such as 'the owners of Tower View'—but they must be
identifiable and in existence at the date of the covenant, and the covenant must
be intended to be made with them.”

The passing of the benefit of a covenant under common law

There are four conditions, the first one we have already mentioned:

1. The covenant will ‘touch and concern’ the land.

2. When the covenant was made, it was intended that the benefit should run to
successors in title.
3. At the time the covenant was made, the covenantee held a legal estate in the
land to be benefited.
4. The successor in title derives his or her title from, or under, the original
covenantee.
Smith and Snipes Hall Farm Ltd v. River Douglas Catchment Board [1949] 2 All ER
179.
“The covenantor was the River Douglas Catchment Board, which had covenanted
with several landowners (the covenantees) to maintain the banks of the Eller
Brook, to prevent it from flooding their land.
The first claimant, Smith, was a successor in title to one of the original
covenantees and he had granted a lease of the land to the second claimants,
Snipes Hall Farm Ltd. Their land was flooded on several occasions until a major
flood led the claimants to bring an action against the Board for breach of the
covenant to keep the banks in repair. Because neither were the original
covenantees, it had to be decided whether either or both, of them, had the benefit
of the covenant.
In deciding this question, Tucker LJ said that it was necessary first to establish that
the covenant touched and concerned the land. This meant that either it had to
affect how the land could be occupied (mode of occupation) or it must directly
affect the value of the land. Secondly, it had to be shown that the parties intended
the covenant to run with the land and benefit future owners.
He decided that these tests were met because the covenant was to prevent future

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flooding (it increased the value, by converting the land from flooded meadow to
agricultural use) and the works were to be maintained for all time, which
indicated the intention of the parties that the benefit should pass to successors in
title.”

The first condition – ‘touch and concern’ land

The covenant must not be a personal one but must have something to do with
the use of the land.

P & A Swift Investments v. Combined English Store Groups [1989] AC 632, 642:
Lord Oliver:
“1. The covenant is only of benefit to the person who owns the estate in the land;
if it is separated from the land, it is of no more use to the covenantee.
2. The covenant affects the nature or quality of the land, how it can be used, or
the value of the land of the estate owner.
3. The covenant is not expressed to be personal: it is not a promise made to a
specific person.”

The second condition – ‘intended that the benefit should run with the land to
successors in title’

Smith and Snipes Hall Farm Ltd v. River Douglas Catchment Board [1949] 2 KB 500
- it is necessary to show that the parties intended the benefit of the covenant to
run with the land. The intention can be implied into covenants made after 1925,
because of the impact of the Law of Property Act 1925, s. 78(1).
Law of Property Act 1925, s. 78 [Benefit of covenants relating to land]
“A covenant relating to any land of the covenantee shall be deemed to be made
with the covenantee and his successors in title and the persons deriving title under
him or them and shall have effect as if such successors and other persons were
expressed.”

The third condition - At the time the covenant was made, the covenantee held a
legal estate in the land to be benefited

The covenant can only run under the principles of common law if there is the
holding of a legal estate in the land [Webb v. Russell (1789) 3 TR 393].

The fourth condition - The successor in title derives his or her title from, or
under, the original covenantee

There must be evidence that any covenantee desiring to prove that any benefit of
a covenant has passed at common law must demonstrate that they have a legal
estate in the land and that legal estate can be traced back to the original
covenantee.

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Law of Property Act 1925

Any successor in title with any legal estate derived from the covenantee’s estate
to take the benefit.
Smith and Snipes Hall Farm Ltd v. River Douglas Catchment Board [1949] 2 KB 500
[see previously]:
“Both the freehold successor in title (Smith) and the legal lessee (Snipes Hall Farm
Ltd) were able to take the benefit of the covenant.”

Covenants

Covenants are an obligation that the freeholder will, or will not, do something.
The obligation to do so will be for the benefit of one piece of land over another.
They are valuable rights in land and can be fiercely upheld.

A positive covenant

A covenantor will do something. It often requires the party requiring to do

something incurring an expense – such as maintenance of walls, roofs and
suchlike.

A restrictive covenant

A covenant that is intended to be deliberately restrictive upon the land.

Rhone v. Stephens [1994] 2 AC 310

The covenant required the maintenance of a shared roof. This covenant would be
a positive covenant. It also involves the expense of that upkeep.
“Lord Templeman [Rhone] said that restrictive covenants, unlike positive
covenants, do not impose an additional burden on the landowner. Restrictive
covenants simply cut down the rights that the successor in title received when
they acquired the land: the successor in title receives the land minus a particular
right, such as the right to build on it.”

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Equity and covenants

Renals v. Cowlishaw (1878) 9 Ch D 125, 129:

“The benefit of a covenant will pass in equity if:

• the covenant touches and concerns the land of the covenantee; and
• the benefit of the covenant was:
• annexed to the land of the covenantee; or
• expressly assigned to the successor in title; or
• the land in question is part of a building scheme.”

Annexation

A permanent attachment of the covenant to the land of the covenantee:

1. express
2. implied
3. statutory

Express annexation

• the covenant indicates an intention that the benefit should become

annexed to the land so that it runs with the land; and
• the land for which the benefit of the covenant is made is identified or
capable of identification; and either:
• the covenant is for the benefit of the whole of the covenantee’s land and
the whole of that land has been assigned to the successors in title; or
• the covenant is intended to be for the benefit of every part of the
covenantee's land, in which case the covenant is annexed to the part(s) it
benefits. Rogers v. Hosegood [1900] 2 Ch 388 - A covenant entered into by
a purchaser of land that “may enure to the benefit of [the
covenantees] their heirs and assigns and others claiming under them to all
or any of their lands adjoining or near to the [burdened land]’ was held to
be annexed to the land of the covenantees. ‘lands adjoining or near
[Rogers, above]”.

See also Renals v. Cowlishaw (1878) 9 Ch D 125, affirmed (1879) 11 Ch D 866

In this covenant, there was no mention of the lands of the covenantee, and this
was held to make annexation impossible.

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Assignment

Assignment means the transfer of the benefit of a covenant by one person

(the assignor) to another particular person (the assignee). Annexation happens at
the time at which the covenant is entered into, whereas assignment happens at
the time the land is transferred. Once annexed, the covenant passes with every
transfer of the land.

There are three conditions required so that an assignee can take the benefit of a
restrictive covenant in equity.
Miles v. Easter [1933] Ch 611 (Re Union of London and Smith’s Bank Ltd’s
Conveyance):

“1. The covenant must have been taken for the benefit of land owned by the
covenantee at the date of the covenant.
2. It must be possible to identify the benefited land.
3. The assignment must happen at the same time as the transfer of the land.”

Building schemes

A covenant can pass in equity through the existence of a building scheme or a

‘scheme of development’.
Birdlip v. Hunter [2016] EWCA Civ 603, [2017] 1 P & CR 1.
“The claimant company bought a plot of land subject to a covenant not to build
more than ‘one or two detached residences’ on it. These covenants applied to
eighteen other plots of land, one of which was owned by the defendants. The
issue was whether the defendants had the right to enforce restrictive covenants
against the claimants, and this depended on whether there was a building
scheme.

The Court of Appeal set out the modern characteristics of a building scheme:

• It applies to a defined area.

• Owners of properties within that area have purchased their properties from
a common owner.
• Each of the properties is burdened by covenants that were intended to be
mutually enforceable as between the several owners.
• The limits of that defined area are known to each of the purchasers.
• The common owner is himself bound by the scheme, which crystallizes on
the occasion of the first sale of a plot within the defined area, with the
consequence that he is not entitled to dispose of plots within that area
otherwise than on the terms of the scheme.

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• The effect of the scheme will bind future purchasers of land falling within
the area, potentially forever. (per Lewison LJ at [2]).”

In this case, the Court of Appeal held that there was no building scheme because:

• The description and the plans in the transfers did not indicate a larger
estate, but only the properties themselves;
• The benefited land was said to be a very large area of land which could
not be accurately identified;
• The covenants contained no express statement of mutual enforceability;
• Some covenants were positive, or required the consent of the seller;
• The two plans of the estate differed too much for certainty as to the
extent of the benefited land.

So, from this case and the judgement we can understand that without the
following two critical points there will be no building scheme:

1. There must be a clear delineation and definition of the land that will be
affected by the scheme.
2. All of the obligations are agreed by all of the parties [see also Reid v.
Bickerstaff [1909] 2 Ch 305 and Whitgift Homes Ltd v. Stocks [2001] EWCA Civ
1732].

Breach of covenant and remedy

Under contract law, the recognised remedy for breach will be available if the
tests as applied under contract law are met. These extend across all of the
available remedies as was seen in the case of Hussein v Mehlman [1992] 2 EGLR
87, and the possibility of acceptance of repudiatory breach as a way of
terminating the lease. Further information on contractual remedies is available in
your materials on the law of contract. There are, however, some important
decisions on the specific enforcement of certain covenants in leases, which are
covered here.

Specific performance

An agreement that some activity will continue or will be done [where a party has
agreed but failed to do so]. Such an obligation can take the form of a ‘keep open’
covenant. The question of whether an obligation to stay open and trade [for
example] was questionable when it came to enforcement, but we refer to the
case of Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1996] Ch
286. “Argyll Stores, which had closed its Safeways store in Hillsborough shopping
centre in breach of its keep-open covenant, was required to continue to trade
there until the end of the lease in 2014, or until it could assign or sublet the
premises with its landlord’s consent.”

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This decision was reversed in the case of [House of Lords] Co-operative Insurance
Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1. “Lord Hoffmann said that
the cumulative effect seemed to show that the settled practice of refusing to
order specific performance of such an obligation is based upon sound sense.
Those reasons included: the difficulty of defining precisely what the defendant
was required to do; the hardship caused to him by requiring him to carry on a
loss-making business; the perpetuation of conflict between the parties who were
required to continue in a hostile relationship; and the need for continuing
supervision by the court.”

Residential tenancy and repairing covenants – can they be achieved through the
contractual remedy of specific performance?

Can a repair covenant be enforced against a landlord?

Statutory power to order specific performance of a landlord’s repairing covenants
is now to be found in the Landlord and Tenant Act 1985, s. 17, replacing the
Housing Act 1974, s. 125.

Can a repair covenant be enforced against a tenant?

Rainbow Estates Ltd v Tokenhold Ltd [1999] Ch 64.

“The remedy of specific performance does not fall within the provisions of the
Leasehold Property (Repairs) Act 1938. In consequence, a landlord would not need
to obtain leave from the court before seeking this remedy (as he would have to do
if seeking damages or forfeiture), and applications for specific performance could
therefore be used to harass or oppress a tenant. [I]t would not be right to extend
the Act by judicial interpretation to cover applications for specific performance,
but the court would take care to ensure that such applications were not used to
bring about the mischief which the Act was designed to remedy. An order for
specific performance against a tenant was likely to be appropriate only in rare
cases, but: subject to the overriding need to avoid injustice or oppression, the
remedy should be available when damages are not an adequate remedy.”

The enforcement of obligations between the landlord and the tenant

We would straightforwardly address this. We do so by thinking of where the

obligations between the landlord and the tenant exist? They are not within the
legal estate or title; they exist within the contract of lease that exists between the
tenant and their landlord.
The cumulative rights that enshrine the relationship that exists between them is
to be found there within that document [recognising also that statutory rights
exist in addition to these].

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The landlord, through the lease, can undertake enforcement action against the
tenant and vice versa upon the legal efficacy of that legally recognised document;
the lease contract. The range of options is wide but lie more within the realms of
the law of landlord and tenant than that of land exclusively.

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