Leasehold Estate Notes PDF

Preview

Summary

Download Leasehold Estate Notes PDF

Description

Leasehold Estate: Notes The Term of Years Absolute: Leasehold A lease is created when one person with an estate in land (Landlord) grants the temporary right to another (tenant) to use and enjoy that land exclusively -

A lease is one of the only two legal estates that can exist, LPA 1925, s 1(1) o The other is freehold A lease must be for a ‘term of years absolute’, defined in LPA 1925, s 205(1) (xxvii) o The lease is for a lesser term than the landlord has in the land

The creation of the lease allows the tenant the right to exclude all other people from the land, including the landlord A lease is a type of contract, which generally also confers on the tenant an estate in land capable of binding third parties - In addition to the land-specific formalities for creating leases, leases must also conform to the general law regarding contract formation and must include at least: o The parties o The premises o The rent o The duration of the lease o The date of commencement or the event on which the lease is to commence, if contingent o Any other material terms agreed by the parties A lease must be distinguished from a licence - A licence simply confers a personal right of occupation which may or may not be contractual - A licence does not confer a legal estate in the land Essential Characteristics of a Lease Generally, only two basic requirements need to be satisfied for a lease to exist 1. Certainty of term o ‘Term of years absolute’ means the estate must be held for a certain duration 2. Exclusive possession o Means the right to exclude all others from the property, including the landlord Certainty of Term ‘Certainty of term’ can be shown in two ways: Fixed Term or Periodic Term A Fixed Term - Where maximum duration of the arrangement is known from the outset - Once a fixed term lease is created, neither party can unilaterally bring the lease to an end earlier  UNLESS: break clause in lease enabling them to do so - ‘For duration of the war’ cannot create a lease (Lace v Chantler) - If arrangement is for uncertain period at the outset = no lease, but a periodic tenancy,  e.g. a yearly lease, can arise by virtue of the tenant’s possession and payment of rent  periodic tenancy instead Prudential Assurance Co Ltd v London Residuary Bodyn

A lease of uncertain duration can now take effect as a lease for life  counsel showed that prior to 1925, leases of uncertain duration were construed as leases for life determinable on the uncertain event arising (a 90-year lease under LPA, s 149(6)), determinable on either the uncertain event or death occurring, Berrisford v Mexfield Housing Co-op - Unless the intention of the parties does not support ‘a lease for life’: Southward Housing Co-op - Unless tenant is a corporate body e.g. where a lease has been granted to a limited company - Wording of s 149(6) also seems to exclude gratuitous tenancies where no rent is payable A Periodic Term - Where length of the term is not fixed in advance - Arrangement runs from period-to-period e.g. weekly/quarterly, and the period automatically renews unless either party serves a notice to quit A periodic term may be created: - Expressly, where there is a written agreement - Impliedly, where nothing is in writing, but tenant is in possession and paying rent by reference to a period: Martin v Smith o E.g. Monthly rent payments (w/o agreement on a fixed term) may = monthly periodic tenancy - Rent payment does not = periodic tenancy, it is simply one factor to consider in objectively determining the parties’ contractual intentions: Javad v Aqil The ‘term’ of the periodic tenancy depends on the period by reference to which the rent is calculated, rather than the intervals at which it is payable, Ladies’ Hosiery and Underwear Ltd v Parker - This will normally be the same: an occupier will be asked to pay £500 per month and will actually pay monthly - But if the tenant agrees to pay £10,000 a year by 4 quarterly payments, the tenancy is a yearly tenancy not a quarterly tenancy, because the rent is calculated annually o Common to pay rent on ‘usual quarter days’, (whether fixed term or yearly/quarterly periodic tenancy.) The usual quarter days are 25 March, 24 June, 29 September and 25 December Problems with certainty of term:  Tenancy at will: o Occurs where a party has exclusive possession in the absence of a term certain and does not pay rent (+ either party may terminate tenancy at any time) o If a tenant at will starts to pay rent by reference to a period = common law periodic tenancy is created.  Each period of the tenancy (week/month/year) = ‘certain term’ and satisfies this essential requirement for a lease to exist  Tenancy at sufferance: o Occurs when tenant holds over (remains in possession) without the consent of the landlord after the lease has ended. Their original entry was lawful, so their continued occupation does not constitute a trespass o If a tenant at sufferance pays rent by reference to a period = a common law periodic tenancy is created  Tenancy for Life

o

A tenancy granted for life is automatically converted into a tenancy for a fixed term of 90 years, LPA 1925, s 149(6), determinable on the death of the grantee

Formalities to create a Legal Lease The formalities required to create a legal lease depend on the length of the term of the lease Legal leases created for a period exceeding 7 years:  Must be created by deed to create a legal estate: LPA 1925, s 52 o Requirements of a valid deed are set out in LP(MP)A 1989, s 1  When created out of a registered freehold estate, must be registered in accordance with LRA 2002, s 27(2)(b)(i) to be legal o This creates a register of the title to the freehold estate and a register of the title to the leasehold estate o If not registered, it will only exist in equity (but can still be protected by means of a notice on the charges register)  When created out of an unregistered freehold estate, must also be registered to make it legal o But this will not trigger the need to register the freehold estate out of which it’s been created o A registered lease can exist over an unregistered freehold estate NB: Lord Chancellor has the power to reduce the length of leases that are required to be registered to three years or more, LRA 2002, s 118 Legal leases exceeding 3 years, but not exceeding 7:  Must be created by deed in order to be legal, LPA 1925, s 52 o Requirements of a valid deed are set out in LP(MP)A 1989, s 1  Cannot be substantively registered as they do not exceed 7 years o Therefore, not mentioned on the freehold register  Can be protected by means of a notice on the charges register , as it exceeds 3 years o However, by virtue of LRA 2002, Sch 1 Para 1 and LRA 2002, Sch 3 Para 1 any legal lease of 7 years or fewer overrides the register so no need to register a notice!  Example of overriding interests and will therefore bind a new freehold estate owner even though they do not appear on the registers of the title Short legal leases, i.e. not exceeding 3 years:  Do not need to be registered to be legal as they do not exceed 7 years o Cannot be protected by means of a notice on the charges register as they do not exceed 3 years  Generally, must be created by deed to be legal, LPA 1925, s 52 BUT certain short leases, which fulfil certain conditions, have no formal requirements, but will still exist as legal leases, LPA 1925, s 54(2): o Short fixed term leases (with a maximum term of 3 years) o Express periodic tenancies (where there is a tenancy agreement) o Implied periodic tenancies, where each individual period of the tenancy is fewer than 3 years The conditions for LPA 1925, s 54(2) are: 1. Term must not exceed 3 years 2. Term must take effect in possession, cannot be granted for the future

3. Term must reserve the best rent reasonably obtainable (the market rent), Fitzkriston LLP v Panayi 4. Must be no premium (no upfront lump sum to pay)

Non-compliance with formalities to make a legal lease: If a person fails to use a deed to create a lease of more than 3 years, and/or fails to register a lease exceeding 7 years, there are two possible outcomes: 1. A possible periodic tenancy  If tenant enters into possession and pays rent by reference to a period, in accordance with LPA 1925, s 54(2), common law may recognise a legal periodic tenancy 2. A possible equitable lease  If the parties have tried to create a legal lease but failed (have not complied with the formal requirements for a legal lease), equity may recognise an equitable lease.  To have an equitable lease  must be a document which constitutes a valid contract to create a lease o A valid contract must comply with LP(MP)A 1989, s 2 Walsh v Lonsdale: If the conditions for both a legal periodic and equitable lease are satisfied, the equitable lease will prevail and no periodic tenancy will co-exist alongside it - Any conflict between common law and equity – equity always prevails  ‘equity looks on as done that which ought to be done’ Formalities to transfer a Legal Lease A transfer of a legal lease is called an assignment To be valid, the assignment must be: 1. Completed by deed, regardless of the duration of the lease itself or how long there is still to run, LPA 1925, s 52, Crago v Julian  Requirements of a valid deed are set out in LP(MP)A 1989, s 1 2. Registered in accordance with LRA 2002, s 27(2)(a), if the lease has already been registered, OR 3. Registered for the first time, if the lease has not already been registered, but has more than 7 years to run at the date of the assignment A contract to transfer a legal lease must comply with LP(MP)A 1989, s 2 Equitable Leases Equitable leases can arise in 4 ways: 1. If the parties have tried to create a legal lease, but have failed because they have not complied with the appropriate formalities  There must be a document which constitutes a valid contract to create a lease o A valid contract must comply with LP(MP)A 1989, s 2  Specific performance must be available o An application of the maxim ‘equity looks on that as done which ought to be done’, Walsh v Lonsdale o Specific performance will also be granted for the execution of a proper legal lease

2. If there has been a mere agreement to grant a lease, i.e. an agreement that a lease will be granted/created in the future  The agreement must be a valid land contract, which complies with LP(MP)A 1989, s 2  Provided specific performance is available, equity will treat the lease as already having been granted 3. If there has been a mere agreement to transfer a legal lease (in the future)  The agreement must be a valid land contract , which complies with LP(MP)A 1989, s 2  Provided specific performance is available, equity will treat the lease as already having been transferred 4. If the person granting the lease only holds an equitable estate in land then they can only grant an equitable lease (cannot grant more than they have)  Requirements for creating this type of equitable lease are set out in LPA 1925, s 53(1)(a) Protecting an equitable lease against a new landlord (3P):  Unlike legal leases, a properly created equitable lease is not automatically binding on a new freehold owner  An equitable tenant should protect his interest under the LRA 2002, by entering a notice on the charges register  By virtue of LRA 2002, s 1(2) (for first registration of unregistered land) and LRA 2002, s 3(2) (for land where the superior title (freehold owner’s estate) is already registered), any equitable lease coupled with discoverable occupation overrides the register, binding a new estate owner o E.g. of ‘unregistered interest overriding registered dispositions’ Formalities for the assignment of an equitable lease:  Assignment (transfer) of an equitable lease must comply with min requirements in LPA 1925, s 53(1)(c)  Contract to transfer should comply with LP(MP)A 1989, s 2 Legal or Equitable Lease – Which is Better? A tenant may have satisfied the requirements for both a legal periodic tenancy and an equitable lease. If the parties have attempted to grant a legal lease but have failed because they have not complied with the relevant formalities, or they have entered into a contract to grant a lease in the future, but the lease has never actually been created and the document they have used is a valid contract (complying with LP(MP)A 1989, s 2) then they appear to have an equitable lease  If the tenant then goes into possession and starts paying rent by reference to a period, they will also have satisfied the requirements for an implied legal periodic tenancy which has no formalities, if it falls within ambit of LPA 1925, s 54(2) Walsh v Lonsdale: If the conditions for both a legal periodic and equitable lease are satisfied, the equitable lease will prevail and no periodic tenancy will co-exist alongside it 

DISADVANTAGES OF AN EQUITABLE LEASE: 1. The existence of an equitable lease is dependent on specific performance  As an equitable remedy, this is discretionary  If a tenant seeks specific performance, but has breached the terms of the agreement, e.g. he has not paid rent, he will be refused specific performance: Coatsworth v Johnson o ‘He who comes to equity must come with clean hands’

Breach must be ‘gross and wilful’ (= serious and intentional):Parker v Taswell Remember: No such consideration arises where there is a legal estate - if legal, the courts must enforce the terms of the lease o

2. An equitable lease may not be as easily enforceable against a third party (eg new landlord)  This issue is governed by the rules on registration 3. An equitable lease is not a ‘conveyance’  LPA 1925, s 62 provides that on any ‘conveyance’, certain easements shall be deemed to pass to the buyer  A legal lease is a conveyance, but an equitable lease is not 4. Enforceability of leasehold covenants  Covenants (promises) in a legal lease are binding on a new landlord or tenant due to the doctrine of ‘privity of estate’  Covenants in an equitable lease made before 1996 do not pass on to a successor in title  However, the Landlord and Tenant (Covenants) Act 1995 removed the legal/equitable distinction for post 1995 leases Commonhold - Falls between freehold and leasehold  system of ownership and management of blocks of flats and other multiple interdependent properties o Disputes can often arise as to the responsibility for maintaining common areas - Technically, a commonhold is not a separate estate from freehold - A commonhold is created out of a freehold estate and is registered at the Land Registry as a freehold estate in commonhold land...