Nature of Leases

Topic 1: Leases

A. Nature of a lease

(1) Lease confers exclusive possession to the tenant

(2) A lease can be a legal estate under Sec 2 of CPO which includes “term of years absolute” and satisfies Sec 4

(3) A lease creates a proprietary interest in land – Distinction between leases and licence are muddled by the “Bruton” tenancies in the House of Lord’s decision in Bruton v London and Quadrant Housing Trust [1999] 3 All ER 481? (A charitable trust (LQHT) which provided short term accommodation for homeless people in a block of flats, which was owned by Lambeth LBC. The council had granted LQHT a contractual licence in 1986 to use the flats for this purpose; the trust gave a licence to Mr Bruton, a homeless person, to occupy a flat in return for a weekly licence fee): The House of Lords held that contractually binding occupancy agreement between the charitable trust and the P was a lease, even though LQHT did not have any proprietary interest in the land itself. LQHT was subject to a contractual obligation to keep the premises in repair, an obligation which is implied into tenancies but not licences)

• Leases: create a proprietary interest in land (capable of enduring through changes in the ownership of the land to which it relates) VS Licence: confers a purely personal right on the licensee to use or occupy the land (only binding as against the person who granted it)
• LQHT could not have conferred a tenancy upon P because it did not enjoy an estate in the land from which such an interest could have been derived. The right conferred upon P should properly have been regarded as a contractual licence on the principle “nemo dat quod non habet” – no one can give away sth they do not have
• As between the parties the agreement had all the characteristics of a tenancy, so that is what should be created, even if the arrangement might have been vulnerable to claims from Lambeth LBC or other parties with a superior right derived from Lambeth LBC’s title. This concept of relative title used to be a recurrent feature of unregistered land ownership, and would therefore have been familiar to members of the House of Lords who learnt their land law when unregistered land was the paradigm type of land ownership. The advantage of this view would be that if LQHT subsequently acquired title to the block of flats, the lease would automatically become complete. The disadvantage is that the concept of relative title appears strange to those who have learnt land law since registered title has become the norm, and therefore think in terms of absolute titles, although even with registered land it is possible for a vulnerable leasehold to be registered with good leasehold title or with qualified title
• The case should be viewed as dealing only with the relationship between the two parties involved, and there is no reason why a social housing landlord should be able to escape the contractual obligation to provide accommodation of an appropriate standard by denying that it had the capacity to grant a tenancy; the tenant should not shoulder the burden to repair; strong policy reason

 (4) Lease has express and implied covenants/terms and the covenants and terms may be binding on successors in title

• Landlord has a reversionary interest in land

B. Essential requirements of a lease

• In Street of Mountford [1985] AC 809 at 818, Lord Templeman defined a lease to be:

• “the occupier must be granted exclusive possession for a fixed or periodic term certain in consideration of a premium or periodic payment”
• Periodic payment → initial lump sum payment; rent

• Exclusive possession, a certain term and rent are regarded as the three essential elements of a lease
• Security tenure concept before 2004 租務管制 (in tenant/licensee →whether security tenure would apply) (licensee can evade security tenure and terminate or lease to others)

C. Exclusive possession

• Difference between exclusive possession and exclusive occupation
• Exclusive possession is a legal right which the holder can rightfully exclude all persons (including the owner) from occupying the land.  Exclusive possession cannot be observed directly
• Exclusive occupation is a purely factual status, where a person or number of persons enjoy the sole and exclusive use of the premises
• If a person has the exclusive occupation of the property, it raises a presumption that he has the exclusive possession but it can be rebutted
• The objective substance of the rights they have created by their agreement and not the subjective intention of the parties (eg the label of the grant) is relevant in determining exclusive possession
• If landlord enters the apartment without the permission of the tenant, the tenant can sue the landlord for trespass
• But licensee cannot sue the licensor for trespass even if licensor enters the land without licensee’s permission

D. Problematic cases for exclusive possession

• Lodgers/hotel guest (hotel guest can receive service like cleaning the room so he is not a tenant but a licence)

• TENANCY – Street v Mountford (Mr Street granted Mrs Mountford a licence to occupy furnished rooms in a house; the agreement was stated to be a licence and a licence fee of 37 pound per week was payanle. Mrs Montford then claimed that the agreement created a Rent Act protected tenancy)
• LICENCE – Lam Man-yuen v Lucky Apartments [1964] HKLR 689 (The court was influenced by the degree of control retained by the owners of the room. They washed and changed bed-linen and servants could be summoned to provide tea and water. If occupiers got back after midnight, they had to be let into the building by a servant. The key was kept at entrance and there was a need to rouse the watchman to enter at night → all the occupiers can only be regarded as a lodger but not a tenant; where there are competing factors some of which point to a licence and while the others point to a tenancy, final outcome depends on the weight the court gives to the competing factors)
• LICENCE – So Ho v Chan Chui Yip [1980] 1 HKC 432 (nephew of tenant has an exclusive use of a particular bunk in a cubical → lodger; family relationship; no lease without exclusive possession)
• LICENCE – Long term hotel resident- Appah v Parnclifffe Investments Ltd [1964] 1 WLR 1064 (a woman occupying a room at the Enperor’s Gate Hotel as a long-term resident was held to be a licensee and not a tenant. The provision of cleaning, bed-making and linen by the owners all necessitated entry, which was inconsistent with exclusive possession)

• Provision of services/attendance

• LICENCE Marcou v De Silvesa (1986) 52 P& CR 204 (A no. of persons occupied flats in a house on the basis of agreements with the owner described as a licences. These agreements included provisions that the licensor would retain keys to the flats and enjoy the absolute right of entry at all times; the licensor could require the licensees to vacate their flat at any time and move to another flat of comparable size in the house; and that the licensor would provide services for the licensees, including acting as housekeeper, cleaning the flats, collecting rubbish and cleaning windows): the occupiers did not enjoy exclusive occupation and were mere lodgers → reserved absolute right of retention of control to move the occupier → negate tenant and landlord relationship

• Owner’s retention of keys

• LEASE Aslan v Murphy [1990] 1 WLR 767 (Owner of premises had entered into a  licence agreement which included a term that he, as the licensor, would retain the keys and enjoy an absolute right of entry at all times): retention of keys would not automatically prevent the agreement conferring a tenancy (landlord may need to carry out external or internal repairs which are consistent with the occupier being a tenant and which are common in short term leases or tenancies) → should be viewed objectively

• Residents of Home for the elderly

• LICENCE Abbeyfield (Harpenden) Society v Woods [1968] 1 WLR 37 (A man of 85 occupied a room at a home for old people in return for a weekly payment. A letter he received stated that he was entitled to sole occupation of his room and that the society would provide service, meals, heating, lighting and a resident housekeeper. When the man was asked to leave he refused, claiming that he enjoyed exclusive possession and was entitled to Rent Act protection from eviction): licensee; given the provision of services and the entirely personal nature of the arrangement between the man and the society

• Hostel Accommodation

• LICENCE Westminister City Council v Clarke [1992] 2 AC 288 (A man who was housed in a hostel containing 31 single rooms for homeless men. Their agreements entitled the Council to change the accommodation without notice and to require occupants to share. Occupiers were required to be in their room by 11 pm and not to entertain visitors after that time): The House of Lords held that in these circumstances the grant of exclusive possession would have been inconsistent with the purposes for which the Council provided the accommodation, and that the occupants were licensees and not tenants

• Short term accommodation

• LEASE Bruton v London and Quadrant Housing Trust [1999] 3 All ER 481 (see above): The fact that accommodation is provided only a short term basis does not exclude the possibility of a tenancy; the trust did not retain control over the premises and there is nothing to suggest that Bruton was to share possession with the trust

E. Shared occupation cases

• More than one occupier of the premises?
• (a) Joint tenants of the leased premises or (b) owner granting licences to individual occupiers?
• For (a) joint lessees of the entire property, the ‘four unities’ (ie possession, interest, title and time) must be present so as to support a joint tenancy of the lease
• Multi-occupiers being regarded as licensees but not joint tenants of a property -AG Securities v Vaughan [1990] 1 AC 417 (the owner of a four-bedroomed flat entered into separate agreements with four occupiers, each expressed to be licences. The agreements contained provisions requiring the individual licensees to share the flat with all the other occupiers granted licences by the owner. The flat was kept fully occupied over a period of time and whenever one occupier left another would be granted a licence by the owner; The occupiers had the sole use of a bedroom and shared use of the longe, kitchen and bathroom): landlord could replace any of the occupiers separately was the critical factor; one othe death of one occupier the remaining three would not be entitled to joint and exclusive occupation of the flat
• Joint tenants- Antoniades v Villiers [1990] 1 AC 417 (joint appeal with AG Securities v Vaughan) (a couple occupied a flat and enjoyed exclusive occupation. But the owner had required them to enter into separate agreements with himself described as licences and required them to separately undertake to pay half the rent. The licences also contained a clause reserving to the owner the right to go into occupation of the flat with couple or to nominate others to occupy it with them): agreements are entered into at different times; a sham/pretence – owner has no real intention to enter into the flat  or to impose any other occupiers on the couple→ artificial arrangement to avoid occupiers getting tenant status and having the tenant protection and it is not possible to kick out the couple together → couple is joint tenant)
• Sham or pretence provisions LEASE - Aslan v Murphy [1990] 1 WLR 766  (an agreement did contain sham provisions which were to be ignored and held that a tenancy had been conferred. The occupier had entered into a licence agreement for a small basement room which included provisions that the licensee had no right to use the room between 10am and 1200 noon and that the licensor would retain the keys to the room): both provisions were wholly unrealistic and were clearly pretences as no services had been provided
• Label used by party on the document irrelevant
• Street v Mountford: the court will look to the reality of the parties’ actions and disregard the artificial provisions; the court should be astute to detect and frustrate sham devices and artificial transactions whose only object is to disguise the grant of a tenancy and to evade the Rent Acts 
•  Antoniades v Villers (1. Agreement cannot realistically have been contemplated that parties would have put other person in to share accommodation 2. Specifically adapted for the occupation of the parties): court may read the agreements together as constituting one transaction under which the parties became joint occupiers
• Chan Wing Lin v Moy Shee [1952] HKLR 321: the label used by the parties referring to the occupancy agreement as ‘tenancy or lease’or ‘licence’ is not conclusive

F. Term has to be certain

• A grant of lease would fail for uncertainty and be void if there is uncertainty as to the date of commencement or as to the duration of the intended tenancy
• certainty of commencement of tenancy - Harvey v Pratt [1965] 1 WLR 1025 (the parties made a written agreement for the lease of a garage which included the length of the term and details of the rent but did not give a date for commencement of the tenancy. The intended tenant had never entered into occupation): CA held that, in the absence of a commencement date, there was no valid contract for the lease
• uncertain but clearly defined start date is not a lease but an agreement for lease enforceable on the occurrence of specified event - Brillant v Michaels [1945] 1 All ER 121 (a contract for a lease of a flat entered in 1943, and which was to take effect when the flat became vacant, as enforceable as the tenant had actually taken possession on the flat becoming vacant)
• Certainty as to the maximum duration of the lease

• Lace v Chantler [1944] KB 368 (a tenant of a house granted a sub-lease to the defendant during WWII which was expressed to be for the duration of the war): this did not create a good leasehold interest for a fixed term as the term was void for uncertainty
• Prudential Assurance Co Ltd v London Residuary Body [1992] 2 AC 386 (the case concerned an agreement made in 1930 between the London County Council and the owner of a strip of land fronting a highway. The owner sold the land to the Council, and in return leased it back at a rent of 30 pounds per annum. The agreement stated that the tenancy should continue until the land is required by the Council for the purpose of widening the highway. P and D were the successors in title to the original council and owner. The central question was whether the agreement had created a lease): the original lease was ineffective to create a tenancy on its terms but the fact that rent had been paid and accepted by the owners of the land was sufficient to generate an implied yearly periodic tenancy of the land

• Curing of uncertainty of term by implied periodic tenancy -Prudential Assurance Co Ltd v London Residuary Body [1992] 2 AC 386 (council can still terminate the implied periodic tenancy with 6 months’ notice)
• Notice the conduct of parties: (1) exclusive possession (2) periodic payment of the rent -Prudential Assurance Co Ltd v London Residuary Body [1992] 2 AC 386
• Drafting to avoid uncertainty of term: draft leases with reference to a fixed maximum term coupled with a right to determine would satisfy the requirement e.g. in Lace v Chantler → a lease for 999 years subject to the landlord’s right to determine if the war ends would have created a valid lease; in Prudential Assurance v London Residuary Body → a lease for 999 years subject to the landlord’s right to determine if the land should be required for a road widening scheme would have created a valid lease
• Periodic tenancy not uncertain-

• Prudential Assurance Co Ltd v London Residuary Body [1992] 2 AC 386: accommodate periodic tenancies with the requirement of a certain term rather than declare that they are an exception; a tenancy from year to year is saved from being uncertain as each party has power by notice to determine at the end of the year. The term continues until determined as if both parties made a new agreement at the end of each year for a new term for the ensuing year
• Hammersmith LBC v Monk- [1992] 1 AC 478: although retrospectively the period possessed is viewed as a single term, the continuation of the tenancy at the end of each term depends upon the will of the parties such that prospectively it should continue no further than they have impliedly agreed, namely one term. Therefore each period is in itself certain, but once commenced is agglomerated into the single continuous period comprised of any earlier periods. As Lord Bridge explained “the law regards a tenancy from year to year which has continued for a number of years, considered retrospectively, as a single term”. A periodic tenancy does not fall foul of the requirement that a lease must have a certain maximum duration

G. Perpetually renewable lease

• A lease which contains a term which gives the tenant the option to renew the lease at the end of the term “on the same terms and conditions as the existing lease” would then become a perpetually renewable.  
• Court would construe against the granting of a perpetually renewable lease unless there is express wording- Burnett Ltd v Barclay (1980) 258 E.G. 642; (1981) 125 S.J. 199 (P granted to a company a lease for seven years at a rent of 650 pounds per year. The lease contained a clause which provided that the tenant had a right to renew for a further term of seven years and that ‘such lease shall also contain a like covenant for renewal for a further term of 7 years on the expiration of the term thereby granted’. The lease was assigned to D who later argued that the lease was perpetually renewable and became a term of 2000 years) → the renewal covenant did not create a perpetually renewable lease; tenant was only entitled to double renewals
• Following clause in Burnett Ltd v Barclay:
• "grant to tenant a new lease for a further seven years at a rent to be agreed," and "such lease should also contain a like covenant for a further term of seven years on the expiration of the term thereby granted”
• HK context: perpetually renewable lease went until the end of government lease

H. Payment of rent

• Essential requirement for a lease?
• Street v Mountford vs Ashburn v Arnold and Prudential Assurance Co Ltd v London Residuary Body: payment of rent was an essential criterion for the existence of a lease, since Lord Templeman’s repeated refrain through the judgment was that a tenancy consistes of exclusive possession for a term, at a rent.
• definition of the “terms of years absolute” in the UK Law of Property Act 1925 specifically referred to the term can be “whether or not for a rent” but the HK definition of “terms of absolute” does not have similar wording
• Under Sec 4(2)(d) of Cap 219, rent would be a requisite requirement for creating a legal lease without a deed because Sec 4(2)(d) requires the lease to be granted at the “best rent”
• A lease without payment of rent may be argued as the parties not intending to create legal relationship and no lease is granted- Colchester Council v Smith [1991] Ch 448 (a man had occupied agricultural land under an agreement with the Council in 1967 allowing him to remain in occupation for the rest of that year without charge and at his own risk): licence but not tenancy, even though he enjoyed exclusive use of the land

I. Other factors that may negate tenancy

• (1) Occupation by family relationship/friendship/charity/employment would negate intention to create legal relationship

• LICENCE Cobb v Lane [1952] 1 TLR 1037 (a sister owned a house in which she allowed her brother to live for more than 13 years without paying rent): no intention to grant a lease and that the brother was in occupation as a mere licensee
• LICENCE Booker v Palmer [1942] 2 All ER 674 (the owner of a cottage allowed evacues who had been bombed out of their home to occupy it at the request of a friend): no intention to create legal relations

• LICENCE Gray v Taylor [1998] 4 All ER 17: a person who occupied an almshouse, which was administered by the trustees of a charity for the provision of accommodation for poor persons of good character who were not less than 60 years of age, was a licensee and not a tenant. Although D claimed that she enjoyed exclusive possession in return for the payment of a weekly sum, it was held that she only occupied the almshouse as a beneficiary of the charitable trust. Finding a tenancy would have imposed a burden on the charitable trustees which might have made it impossible for them to ensure that the occupation of the almshouse was restricted to persons who satisfied the criteria specified in the trust deed.

• (2) Service occupancy

• Smith v Seghill Overseers (1875) LR 10 QB 433: the relevant test is whether the servant is to occupy the premises to better perform his duties as a servant (e.g. school housemaster who occupies a school house within the school grounds is unlikely to enjoy a tenancy and will be a mere licensee of the school because his occupancy is to enable him to act more effectively as a housemaster; farm workers, police officers and members of armed force etc)
• LICENCE Glasgow Corp v Johnstone [1965] AC 609 (whether a  non-conformist clergyman, who occupied a house which was part of the church building, was a tenant or whether the church itself occupied a house which was part of the church building, was a tenant or whether the church itself occupied the building. The minister’s duties included attending the services, counting the collection and acting as caretaker of the church): though it was not strictly necessary for him to reside in the house, since he could still have performed his duties if he had lived a short distance away though with some loss of efficiency, he was not a tenant as he was required to live there and this was of material assistance to the carrying out of his duties
• LEASE Murray Bull & Co Ltd v Murray [1953] 1 QB 211 (D was appointed managing director of P chemical research company and was granted a lease of a flat in the company’s premises which enjoyed independent access to the street but also had direct access to the company’s offices and laboratory): no sevice occupancy as D was never required by the terms of his employment to live in the flat and he did so only because it was convenient for both  parties
• LICENCE Secretary for Justice v Fok Hi Chiu [2005] 3 HKLRD 281 (stationing at a temple as manager of temple did not create a tenancy)

• (3) Occupation of premises prior to completion of sale

• Street v Mountford: There is no landlord and tenant relationship prior to the completion of sale
• TENANCY AT WILL Javad v Mohammed Aqil [1991] 1 WLR 1007 (D was allowed into occupation of business premises owned by P in anticipation of their being able ultimately to agree the terms of a lease): D was a tenant at will

• (4) Owner does not have authority to grant tenancy

• Secretary for Justice v Fok Hi Chiu [2005] 3 HKLRD 281 (X give power to Secretary for Justice X authority negate the granting of tenancy)
• AG v Chiu Pak Yue [1963] HKLR 544 (director of public work purported to grant a lease to a construction company → who should be responsible to repair defects of the premises → director X authority to grant the lease despite the fact that the contract has terms stating that the construction company has exclusive possession): In the case of a permit granted by the government, the fact that the landlord is the Government rather than a private individual, that the case does not involve consideration of rent control legislation, that the authority does not have power to grant leases, may all negate the existence of a lease

J. Differences between a lease and a licence

• Objective approach to determine if there is a lease or licence (Street v Mountford)
• Lease creates an interest in land whereas a licence only creates a personal right
• Lease being a proprietary interest can be binding on successors in title and licence would not be binding on the successor of licensors unless in the limited circumstance where a constructive trust is imposed on the purchaser
• A lessee has exclusive possession of the property and a licensee does not have exclusive possession
• Landlord and tenants have implied rights and obligations under statutes (Eg Cap 7)  and common law but licensee do not have such implied rights and obligations

K. Creation of legal lease

• To create a legal lease in HK, the lease has to satisfy:
• (1) The definition of legal estate in Section 2 of Cap 219
• (2) The formality requirement for creation and disposal of legal estate by deed under Sec 4 of CPO unless if falls within the exception of Sec 4(2)(d) of Cap 219
• (3) Exception for parol lease under Sec 6(2) of CPO

1. Meaning of legal estate under Section 2 of Cap 219

• Legal estate includes “term of years absolute” in land.
• Term of years is defined in Section 2 of CPO which would include a fixed term lease (ie a term for more or less than a year) and a periodic tenancy (“from year to year”)
• The reference to the term “absolute” in the definition of the legal estate would mean that the term of the lease could not be early terminated under any condition
• A lease with a break clause would not satisfy “term of years “absolute” and therefore not a legal estate
• See break clause in Clause 5 of the Sample Tenancy Agreement
• This is a specific HK problem as the definition of “term of years absolute” in the UK Law of Property Act is different and would include a lease with break clause
• UK Law of Property Act 1925- Sect 205(1)

(xxvii) “Term of years absolute” means a term of years (taking effect either in possession or in reversion whether or not at a rent) with or without impeachment for waste, subject or not to another legal estate, and either certain or liable to determination by notice, re-entry, operation of law, or by a provision for lesser on redemption, or in any other event (other than the dropping of a life, or the determination of a determinable life interest); but does not include any term of years determinable with life or lives or with the cesser of a determinable life interest, not, if created after the commencement of this Act, a term of years which is not expressed to take effect in possession within twenty-one years after the creation thereof where required by this Act to take effect within that period; and in this definition the expression “term of years”includes a term for less than a year, or for a year or years and a fraction of a year or from year to year;