Right to exclusive possession OR mere licence PDF

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Problem: J v S 2 months ago, S moved into J’s house. In return for a small fee, J imposed the following conditions (via an email) on S: ‘You are welcome to enjoy my place for the next 2 months. If you damage my house, I reserve the right to kick you out and move back in. If my brother ever needs a place to sleep, please give him access to the spare bedroom. Also, don’t walk on the lawn – I am growing some ‘special’ grass and you are only allowed to use the guest toilet’. A month later, J is demanding that S leave the premises because J wants to ‘move back in’. Is the relationship a lease or licence between J and S?

What is a licence? All licences give a person permission to be, or to do something, on someone else’s land that would otherwise constitute trespass to land. i What is a lease? ‘The essence of a lease is that a person is given the right to exclusive possession of premises, that is to say the right to exclude all other persons from them (Radaich v Smith (1959) 101 CLR 209; Lewis v Bell (1985) 1 NSWLR 731). A right to occupy premises … cannot be a tenancy if the grantor remains in general CONTROL of the property’ (Hamilton Island Enterprises Ltd v Croycom Pty Ltd (1998) Q ConvR 54-509 (Thomas J)). The test for lease v licence Did the (written or oral) agreement transfer ‘… a right of exclusive possession?’ (Goldsworthy (Mason Jii ). The objective intention here concerns not whether the parties desired to create a ‘lease’ or ‘licence’ but ‘…what was the intention of the parties as to what should be the rights granted’ (Lewis v Bell (1985) 1 NSWLR 731, 736 (Mahoney JA)). ‘The nature of the rights which have been granted is important in determining whether what has been granted is the right to exclusive possession’ (Unsworth v Debsan Pty Ltd [2014] WASC 46 [24] (Le Miere J)). In order determine what rights have been granted – and whether they amount to right of exclusive possession in land – the court will initially look at the terms of the agreement (Radaich (Windeyer J)).

Step 1: Prima facie reading of agreement An explicit term like ‘grant exclusive possession’, along with lease-like words (‘lease’, ‘demise’, ‘rent’, ‘exclusive’) will point to agreement create prima facie creating a lease (Lewis v Bell (1985) 1 NSWLR 731, 735 (Mahoney JA)). ‘Conversely, if what is granted is not in terms exclusive possession or if the words used in the grant are not words understood to convey the right of exclusive possession, then … the transaction is prima facie not one of lease’ (Lewis v Bell (1985) 1 NSWLR 731, 735 (Mahoney JA)). Step 2: Read in full context of agreement ‘…a grant may not be in terms of “possession” but of something else. It may be the grant of a right to occupy premises … [or] the right “to use” the premises either generally or in a particular way. In such cases, the court must, by the process of construction, determine whether what is granted is mere occupation or use, or is possession in the relevant sense.’ (Lewis v Bell (1985) 1 NSWLR 731, 735 (Mahoney JA)).

Step 3: From the NATURE and EXTENT of rights (in substance) granted, can it be inferred that exclusive possession was granted? If the agreement lacks express terms for exclusive possession, it ‘…becomes necessary to determine whether one can infer the grant of exclusive possession from the nature of the rights and obligations created by the operative documents. The process of implication requires that some consideration be given not only to the question of whether the normal incidents of a lease are provided for by the relevant documents, but also the question of what is required in order to give business efficacy to the arrangements made by the parties’ (Rockingham City v PMR Quarries Pty Ltd [2001] WASCA 317 [66])] Are the rights in question of such a nature and extent so as to create an inference of ‘grant of exclusive possession because the rights which have in terms been granted can be enjoyed only by one who has been granted exclusive possession’ (Lewis v Bell (1985) 1 NSWLR 731, 735-6 (Mahoney JA))? For example: ‘A strong indication that legal possession has passed to the occupant is a provision defining the circumstances in which the grantor can enter the land or premises. A grantor who has retained legal possession of land needs no express permission to enter the land’ (WA v Ward [511] McHugh J)). For example: the listing of an Airbnb property: ‘Since this is my home and I am leaving to allow you to have it all to yourself’. This, amongst other reasons, Airbnb for the whole apartment was held to be a lease (Swan v Uecker [2016] VSC 313 (Croft J)). For example: ‘Upon the expiration … of this licence the Licensee shall immediately give up possession of the said building…’ (the key term in Radaich) For example: ‘An express covenant for quiet enjoyment is another almost conclusive indicator of the right to exclusive possession. Because the covenant for quiet enjoyment implies the right of exclusive possession in the grantee, it is implied whenever there is a relationship of lessor and lessee. When a covenant for quiet enjoyment is expressly granted, it points almost irresistibly to a relationship of lessor and lessee’ (WA v Ward [512] McHugh J).

Step 4: What rights were reserved by the grantor? Were the rights reserved by the grantor ‘inconsistent with the grant of exclusive possession’? (Lewis v Bell (1985) 1 NSWLR 731, 737 (Mahoney JA)). For example: not a lease in Hamilton Island Enterprises Ltd v Croycom Pty Ltd [1998] Q ConvR 54-509 because grantor had extensive rights to interfere with possession, extensive control over the business of the occupier, extensive rights of re-entry the right to rebuild virtually at will during the term; and the right to relocate the occupier elsewhere. For example: not a lease in Lewis v Bell (1985) 1 NSWLR 731 in large part because grantor had express reserved ‘possession and control’ over the premise and only granted a non-assignable (i.e., indicating a non-proprietary character) personal right to occupier. The rights here given to the horse trainer were said to be personal to the trainer and not assignable or transferable. [‘If the right granted is, of its nature, not transferable or is otherwise personal to the grantee, then this suggests that it is not a leasehold interests’ (Rockingham City v PMR Quarries Pty Ltd [2001] WASCA 317 [39])] For example: In Rockingham City v PMR Quarries Pty Ltd [2001] WASCA 317, an occupier digging for limestone was held to not have a lease. ‘Exclusivity of the right to quarry limestone and sand did not amount to nor require exclusive possession of the subject land. So long as a person who entered upon the land with the consent of the city [that is, the city controlled access] did not interfere with quarrying activities, PMR would have no right to exclude such a person from the licensed area’ (Rockingham City v PMR Quarries Pty Ltd [2001] WASCA 317 [63]).

Step 5: Taking into account the whole context of the relationship The High Court in Radaich looked beyond the explicit terms of the agreement ‘to the relevant surrounding circumstances, including in particular the nature of the premises and the purpose for which the grant was given and taken. In effect it was held, for it was obvious as a matter of common-sense, that the grantee could make use of the premises only if she had the exclusive right to use them as a shop’ (KJRR Pty Ltd v Commissioner of State Revenue [1999] 2 VR 174, 177 [6] (Tadgell JA)). The question is whether a lease or licence relationship is necessary to give business efficacy to the rights that otherwise have been granted (Lews v Bell (1985) 1 NSWLR 731, 736). For example: ‘In other words, unlike the case of the lock-up premises to be used as a milk bar, being the factual situation in Radaich v Smith iii, the nature of the business activity in the present case does not lead to a compelling inference that the parties must have intended that PMR was to have exclusive possession of the subject land. The city and its servants, agents and contractors are at liberty to enter the land, provided they do not interfere with the quarrying operations’ (Rockingham City v PMR Quarries Pty Ltd [2001] WASCA 317 [72]).

Step 6: Do the rights granted (minus rights reserved) amount to the right of exclusive possession or something less? ‘Once the nature of the rights granted is finally determined, the classification of the transaction, as lease or licence, will depend upon whether the rights are or are not those of exclusive possession. It is in this sense that, as it has been said, expressions of intention are irrelevant: the parties cannot “escape the legal consequences of one relationship by professing that it is another” Radaich v Smith (at 222) per Windeyer J’ (Lewis v Bell (1985) 1 NSWLR 731, 737 (Mahoney JA)). Physical Occupations falls short of Exclusive Possession ‘Distinguishing between exclusive possession on the one hand, and occupation or sole [physical] occupation on the other, is important in determining whether a legal right to exclusive possession has been given. … A person may retain legal possession (that is, exclusive possession) even though another person has sole physical occupation of the premises’ (Ray Mullins & Sons Pty Ltd v Skycorp Investments Pty Ltd [2011] WASCA 49 [70] (Bass JA)).

If there is no written agreement If there is no written agreement, courts will glean the nature of the rights from the parties’ words, conduct and surrounding circumstances (Streatfield v Winchcombe Carson Turstee [1981] 1 NSWLR 519).

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Thomas v Sorrell (1673) Vaughn 330; 124 ER 1098. Goldsworthy Mining Ltd v Commissioner of Taxation (Cth) (1973) 128 CLR 199, 212 (Mason J). iii ‘The preamble [to the agreement between parties] recites that the respondents are ‘to carry on the business of a milk bar’ in the subject premises. I think that such a business could only be carried on in reasonable convenience by persons having the exclusive possession of the premises. Nothing in the deed suggests that the parties did not recognise this as an implication of their agreement embodied therein. The premises, it appears, constituted what is often called a ‘lock-up shop’. On several of the rent receipts given by the respondents, and which are in evidence, is the notation: ‘All window, door keys, locks, etc, lost or broken, shall be paid for by the tenant’. The agreement contemplates that the so-called ‘licensee’ is to have control of the premises, and of the persons entering them, during business hours and, indeed, at all other times’ (Radaich (McTiernan J)). ii...