Land Law - Leases

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Land Law

Leases

1. Introduction

Leases in general may be the most valuable category of interest in land other than freehold estate. A lease may also constitute a legal estate. In some cases, such as flats, it may even replace freehold as the operational form of “ownership”. On the other hand, a lease is also a contract between two parties. It serves important social functions, sometimes much more than land ownership, and therefore has been receiving unyielding attention from the legislature since early 20th century.

The full technical name of a lease is a “term of years absolute”. However, unlike the counterpart in freehold, the “fee simple absolute in possession”, this full name carries very little meaning with it. A term of years absolute may be for less than a year, and it may be terminable on certain conditions (i.e. not absolute). Also noticeable is the fact that it is not required to be “in possession” (i.e. current). A reversionary or future lease may still be a legal estate, unlike a “future freehold”. The only meaningful part to be remembered is the word “term”, which will be explained below.

In some case the relationship or status created by a lease is also termed a “tenancy”. For most purposes these two words can be used almost interchangeably. However, some concepts traditionally described as tenancies may not be leases in the strict legal definition of the word.

Historically leases started as a purely personal interest between the landlord, or “lessor”, and the tenant, or “lessee”. If the landlord sold the land, the tenant had no claim against a successor in title. The law was later changed to recognise the changing nature and the importance of leases. For many centuries now leases have been accepted as proprietary interests, “chattels real”, capable of binding purchasers. However, in the last decade or so, there seems to be the emergence of a new suggestion, the possibility of a personal or non-proprietary lease again.

2. Essential Characteristics

Possibly due to the sometimes versatile and hybrid nature of leases, for many years the law was uncertain as to what the defining features of a lease are. In other words, is the agreement between the parties decisive, or the actual relationship as viewed objectively? [This links back to the numerus clausas idea of property rights.]

By the 1980s, parties (or mostly landowners) have been manipulating the agreement to avoid statutory regulation on leases being applied to their particular arrangements. Somma v Hazelhurst was probably one of the extreme but not uncommon cases, where the lease of a one-bedroom flat to a couple was twisted into two separate licences entered into prima facie by two strangers who would accept any nomination of a replacement “licensee” by the “licensor”.

Then came the landmark case of Street v Mountford [1985] AC 809, which overruled all such cases before it. The House of Lords unequivocally decided that if an agreement satisfied all the elements of a lease as the law understood, it would be a lease regardless of the term used by or the understanding of the parties.

The two essential requirements from Street are exclusive possession and a determinable period. A possible third element, namely that of a rent, was referred to, as discussed below.

Exclusive possession is the occupation and complete control of the land. This is not just against any third parties, trespassers or other persons who may interfere with the land. More often, this is against the landlord. During the existence of a lease, the tenant must have a better right to use and control of the land than the landlord. The landlord cannot use or occupy the land, nor restricting the tenant’s use of it. Examples of interference will be where the landlord has extensive right of frequent access, or the imposition of rules such as relating to guest or the permitted activities by the tenant.

A term, or period, is sometimes also described as the...
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