Landlord and tenant law - Essential characteristics of a lea...

Learning Outcomes

This article outlines the essential characteristics of a lease and the lease/licence distinction in landlord and tenant law, including:

• Essential requirements and fundamental features of a leasehold estate
• Exclusive possession versus exclusive occupation, and certainty of term
• The lease versus licence distinction and the courts’ substance-over-form approach
• Legal and equitable status of leases and required formalities under statute and common law
• Registration, enforceability against third parties, and overriding interests through actual occupation, restrictions, and notices
• Enforceability and succession of leasehold covenants: privity rules pre‑1996 and the LT(C)A 1995 regime
• Legal consequences of the lease/licence divide: assignability, statutory protection, right to occupation, and enforceability against successors
• Service occupancies, shared accommodation, and judicial treatment of sham or pretence clauses
• Authorised Guarantee Agreements (AGAs), section 17 LT(C)A 1995 default notices, and overriding leases in commercial leases
• Remedies and statutory procedures for enforcement and termination of leases

SQE1 Syllabus

For SQE1, you are required to understand the essential characteristics of a lease and the lease/licence distinction in landlord and tenant law, with a focus on the following syllabus points:

• the definition and requirements for a valid lease (including exclusive possession and certainty of term)
• the difference between a lease and a licence, and why this matters for statutory protection and enforceability
• the legal and equitable status of leases, including relevant formalities and registration requirements
• the impact of registration on leases and licences in both registered and unregistered land
• periodic and reversionary leases; short leases under s 54(2) LPA 1925
• leasehold covenants and liability (old pre-1996 regime vs LT(C)A 1995)

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is an essential characteristic of a lease?
   1. exclusive possession
   2. ability to assign
   3. payment of rent
   4. all of the above
2. Which statement best describes a licence?
   1. It grants exclusive possession for a fixed term.
   2. It creates a proprietary interest in land.
   3. It is a personal permission to occupy, not binding on purchasers.
   4. It must always be in writing.

3. True or false? If an agreement gives exclusive possession for a fixed term, but is labelled a "licence," the courts will always treat it as a licence.

4. Which leases must be substantively registered at HM Land Registry to be legal?
   1. all leases
   2. leases for more than seven years
   3. leases for three years or less
   4. periodic tenancies only

Introduction

A lease is a legal estate in land granting exclusive possession to a tenant for a certain term. The distinction between a lease and a licence is fundamental in English law—affecting rights in respect of the land, assignability, security of tenure, statutory protection, and enforceability against third parties. Leases create proprietary interests which may subsist beyond the original parties, while licences only generate personal rights. A clear understanding of the requirements for creating each, and the practical and legal significance of the distinction, is essential for application in practice and SQE1 assessments.

Key Term: lease
A proprietary legal estate giving an occupier the right to exclusive possession of land for a fixed or periodic term, enforceable against third parties and capable of assignment.

Key Term: exclusive possession
The right of the occupier to exclude all others, including the landlord, except as provided for in the agreement.

Key Term: certainty of term
A requirement that the maximum duration of the lease must be ascertainable at the outset; either a fixed period or a periodic term with clear renewal intervals.

Essential Characteristics of a Lease

For an agreement to take effect as a lease, two essential conditions must be met:

• Exclusive possession: The tenant must have control of the premises; that is, general rights to exclude all others, including the landlord, subject only to agreed exceptions (such as entry for inspection, repairs, or emergencies). The label assigned by the parties is not determinative—courts consider the substance of the arrangement.
• Certainty of term: There must be a defined and ascertainable period for which exclusive possession is to be enjoyed. This may be a fixed term (e.g., one year) or a periodic tenancy (e.g., from month to month, automatically recurring unless terminated by notice).

While payment of rent is traditionally cited as an indicator of a lease, modern law recognises that rent is not strictly essential, as long as exclusive possession and certainty of term are present (see Ashburn Anstalt v Arnold).

The legal distinction between a lease and a licence is most sharply drawn by the test established in Street v Mountford [1985]. The House of Lords affirmed that exclusive possession for a term (with or without rent) usually gives rise to a lease, regardless of the label chosen by the parties. Intention to grant a lease is presumed from the rights created, not from language alone.

Key Term: periodic tenancy
A tenancy under which the tenant holds from period to period (e.g., weekly, monthly, yearly) until proper notice is given to end the arrangement.

Exclusive Possession in Practice

Exclusive possession is a factual and legal matter, not determined solely by agreement terminology. The courts will disregard labels and artificial wording if, in substance, the occupier enjoys rights of control typical of a tenant (Street v Mountford; Antoniades v Villiers; Aslan v Murphy).

Where the facts demonstrate mutual and interdependent agreements (e.g., a couple signing "separate" licences but jointly having control of a flat), the four unities of possession, interest, time, and title may be found, evidencing a joint tenancy (Antoniades v Villiers). Conversely, where occupiers lack genuine exclusive possession—due to family, friendship, or employment arrangements, or actual sharing of the property—only a licence arises (AG Securities v Vaughan; Facchini v Bryson; Norris v ChecksfIeld).

Certain circumstances are well-established exceptions:

• Service occupancy: Where occupation is subordinate to employment duties, as with residential caretakers or farm workers, the occupier's right is a licence ending with employment, despite any appearance of exclusive possession (Norris v ChecksfIeld).
• Family or gratuitous arrangements: If occupation arises from family ties or acts of friendship without intention to create legal relations, the arrangement is a licence, not a lease (Heslop v Burns).
• Lodgers: Where the owner provides substantial attendance or services (e.g. cleaning, provision of meals), and retains significant control over the premises, a lodger's right is a licence.

Key Term: service occupancy
Occupation required for the effective performance of employment, generally a personal licence terminating with employment.

Key Term: sham or pretence clause
A clause included in an agreement without any genuine intention to rely upon it, used to mask the true nature of the occupation. The courts will disregard such clauses (Antoniades v Villiers).

Landlords sometimes attempt to mask leases as licences by inserting 'sham' clauses—such as a power to introduce others into the premises—which are not intended to be exercised. If the court finds that the right of the landlord is a pretence, it is disregarded and the reality governs.

Worked Example 1.1

Scenario:
A landlord grants a couple occupation rights to a studio flat with a term of 6 months, but the agreement is entitled "Licence" and contains a clause allowing the landlord to introduce other people at any time. In practice, only the couple live in the flat, and no one else is ever introduced.

Answer:
The court would likely find that the couple have exclusive possession for a certain term. The right to introduce others is a sham or pretence, so the substance is a lease, despite the licence label.

Certainty of Term

A lease must be for a fixed maximum period or for a renewable, periodic term (Lace v Chantler; Prudential Assurance v London Residuary Body). Certainty of duration is tested at the outset—uncertain, contingent, or variable terms (e.g., "for as long as required" or "for the duration of the war") are void for want of certainty.

In Berrisford v Mexfield, the Supreme Court responded to clear criticisms of the requirement for certainty by strictly upholding it, but clarified that a lease granted to an individual for an uncertain period may sometimes be construed as a life tenancy and thereby converted to a 90-year lease by virtue of section 149(6) LPA 1925, determinable on death. The saving application of this rule is however restricted to circumstances where the parties truly intended a life lease.

Periodic tenancies, by contrast, are valid despite the total period being uncertain at the start. The certainty is obtained from the fixed length of each period (week, month, year), each renewed unless and until terminated by proper notice.

Reversionary leases—granted to begin at a future date—are valid only if they take effect within 21 years of the grant (section 149(3) LPA 1925).

Key Term: reversionary lease
A lease agreed now, but commencing at a future date (must begin within 21 years to be valid).

Worked Example 1.2

Scenario:
Landlord grants a lease to an individual "for so long as the premises are required as a working studio."

Answer:
This is invalid as a lease at law, since the maximum duration is uncertain. Unless construed as a lease for life (and then to 90 years under section 149(6) LPA 1925, if individual and consistent with intention), it would not be valid. If certainty cannot be salvaged, the arrangement amounts only to a licence.

Legal and Equitable Leases: Status and Formalities

Leases may be legal or equitable, dependent on how they are created and whether the formalities are satisfied.

Key Term: legal lease
An estate for a term of years absolute, created using necessary formalities (usually a deed), and—where needed—registered.

Key Term: equitable lease
An equitable interest only, arising where an agreement to grant a lease is specifically enforceable (Walsh v Lonsdale), or where a purported legal lease fails for lack of formalities but meets contractual requirements.

Legal Lease Creation

• Leases for over three years (whether fixed or periodic) must be created by deed (section 52 LPA 1925; section 1 Law of Property (Miscellaneous Provisions) Act 1989).
• Leases for more than seven years (including reversionary leases, or those to take effect more than three months after grant) must be registered at HM Land Registry to be legal (section 27(2)(b) LRA 2002). If not properly registered, they only take effect as equitable leases.
• Leases not exceeding three years may be created orally or in writing without a deed if they:
  • take effect in possession immediately,
  • are at the best rent reasonably obtainable,
  • are without payment of a fine or premium (section 54(2) LPA 1925).

Where a purported legal lease fails for want of a valid deed or registration, but the agreement would be specifically enforceable, an equitable lease may arise.

Equitable Leases

• Arise out of a valid written contract for a lease (complying with section 2 Law of Property (Miscellaneous Provisions) Act 1989), capable of specific performance and with the applicant having ‘clean hands’ (Coatsworth v Johnson).
• Also arise where there is a failed attempt to create a lease by deed, but the instrument serves as a specific contract (Parker v Taswell).

Key Term: clean hands
Requirement that a party seeking equitable relief (e.g., specific performance of a contract to lease) is not themselves in substantial breach of the relevant agreement.

Worked Example 1.3

Scenario:
A landlord orally agrees to a two-year lease. The tenant takes possession and pays rent, at market value, without any fine or premium.

Answer:
Under section 54(2) LPA 1925, as this is a lease for not more than three years, taking immediate effect in possession, at the best rent and without a fine, it is a valid legal lease despite no written document.

Periodic Tenancies

A periodic tenancy arises where the parties intend a recurring tenancy with payment of rent by periods (e.g. weekly, monthly). A periodic tenancy for three years or less is a legal lease if it meets section 54(2) LPA requirements.

The Nature of a Licence

A licence is a personal permission permitting occupation or use of land, creating no estate or proprietary interest, and generally not binding on third parties (King v David Allen Ltd; Ashburn Anstalt v Arnold). Licences may be contractual (supported by consideration), bare (gratuitous), or coupled with a grant (permitting enjoyment of another right). Most licences are revocable on reasonable notice, unless expressly agreed to be irrevocable or protected by estoppel.

Key Term: licence
A personal, non-proprietary right to occupy or use land, enforceable only against the licensor, and usually revocable.

Some exceptional circumstances may give rise to protection against revocation or the creation of an equitable interest (e.g., where supported by proprietary estoppel, as in errington v Errington and Woods). Generally, however, licences do not enjoy security of tenure or priority against purchasers, and are personal to the licensee.

Licences do not pass with the land, cannot be assigned, and do not give rise to statutory protection, e.g., security of tenure under the Rent Acts or Housing Acts.

Lease vs Licence: Substance Over Form

The central test for distinguishing between lease and licence is exclusive possession. Where exclusive possession for a term is granted, a lease arises, subject to exceptions (service occupancies, family arrangements, hostels with intensive management, etc.). Artificial attempts to grant a "licence" while conferring exclusive possession will be disregarded (Street v Mountford; Antoniades v Villiers).

Worked Example 1.4

Scenario:
A group of four students, each signing separate annual "licence" agreements for rooms in a shared flat, with rolling occupancy and changing residents, and with the landlord retaining control over allocation and occupation.

Answer:
On the facts, each occupier likely has only a licence, as the agreements are independent, occupants come and go, and no individual has exclusive control or the four unities necessary for a joint tenancy (AG Securities v Vaughan).

Practical Consequences

• A lease entitles the tenant to assign or sublet (subject to the lease terms), and provides access to statutory protections such as security of tenure for business tenancies (Landlord and Tenant Act 1954) or prescribed procedures for residential possession proceedings (Housing Act 1988).
• Leases are binding on successors in title (subject to registration/notice requirements), and benefit from proprietary remedies for breach of covenant.
• Licences do not bind third parties and may be revoked (subject to express terms and estoppel).

Exam Warning

Always analyse the facts and assess exclusive possession, the intention of the parties, and whether the arrangement is explained by an alternative legal relationship (e.g., service occupancy). Avoid being misled by labels or "sham" provisions inserted merely to disguise the true agreement.

Registration and Leases

Registration is critical to the enforceability and legal status of leasehold interests.

Key Term: actual occupation
Physical presence or substantial occupation by the holder of an interest, which may confer overriding status in registered land (see Schedule 3, para 2 LRA 2002).

Registered Land

• Leases exceeding seven years (or reversionary leases beginning more than three months in the future) must be substantively registered to be legal (section 27(2)(b) LRA 2002).
• Leases of seven years or less are overriding interests under Schedule 3, para 1, binding purchasers even if not registered, provided that the tenant is in actual occupation.
• Unregistered legal leases (for fewer than seven years) remain binding as overriding interests if the tenant has possession.

Equitable leases in registered land should be protected by a notice in the charges register (section 32 LRA 2002). If not protected, an equitable lease will only bind a purchaser if the tenant is in actual occupation (and the interest is not excluded by Schedule 3, exceptions), or if the buyer has actual notice of the equitable right.

Where actual occupation is not visible and the purchaser makes reasonable enquiry, the interest will not override—protection by notice remains essential.

Key Term: overriding interest
An interest that binds a purchaser of registered land even if not registered, owing to its presence in Schedule 3 LRA 2002.

Worked Example 1.5

Scenario:
A tenant is granted a ten-year lease by deed, but the lease is not registered at HM Land Registry. The tenant is in actual occupation.

Answer:
Because the lease exceeds seven years, it must be registered to be a legal estate; failure to do so renders it equitable only. If not protected by notice, the tenant may still have an overriding interest if in actual occupation and if the occupation would have been obvious on inspection or was disclosed when asked. If not in actual occupation, or if not obvious and undisclosed, the interest may not bind the purchaser.

Unregistered Land

In unregistered title, legal leases (properly created) bind all purchasers without registration ("legal rights bind the world"). Short legal leases are protected regardless of notice.

Equitable leases in unregistered land must be registered as a Class C(iv) land charge to bind a purchaser for value. If registration is omitted, the lease is void against a purchaser for value (LCA 1972, section 4(6)), even where the purchaser had actual notice.

Worked Example 1.6

Scenario:
Sam occupies a property as a monthly tenant, with consent and payment of the market rent, but no written agreement.

Answer:
A monthly periodic tenancy arises in accordance with section 54(2) LPA 1925. Each month is a separate legal lease, binding on all purchasers in registered land as an overriding interest (Schedule 3, para 1), and in unregistered land as a legal right. The absence of writing is not fatal for short, in-possession, best-rent, no-fine leases.

Leasehold Covenants and Liability

Leasehold covenants are the rights and obligations agreed between landlord and tenant, expressed or implied in the lease. Enforcement of covenants, and who is liable to whom, depends fundamentally on whether the lease was created before or after 1 January 1996.

For leases before 1 January 1996 ("old leases"), privity of contract and privity of estate operate. Original landlords and tenants remain contractually liable for the whole term, even after assigning their interest, unless and until expressly released. Assignees of the lease are liable while holding the lease (privity of estate) for "real" covenants—those touching and concerning the land (Spencer's Case; P & A Swift Investments v Combined English Stores Group).

The benefit and burden of leasehold covenants "touching and concerning the land" pass with the assignment. In pre-1996 leases, an indemnity covenant is implied on assignment, providing a right of recovery for a former tenant who pays for breaches committed by their assignee.

Sections 141 and 142 LPA 1925 ensure the benefit and burden of landlord covenants pass to assignees of the reversion. Thus, successive landlords and tenants may sue and be sued on covenants that "touch and concern" the land.

From 1 January 1996 ("new leases"), the Landlord and Tenant (Covenants) Act 1995 revolutionised the approach. With limited exceptions, all benefits and burdens of leasehold covenants (other than those expressed to be strictly personal) pass automatically to successors in title. The original tenant is released from liability on assignment (section 5), subject to any required Authorised Guarantee Agreement (AGA). The assignee assumes responsibility for all tenant covenants (section 3).

AGAs are permitted only where the lease includes an enforceable restriction on assignment (usually with landlord's consent), and the requirement for an AGA is either reasonable or pre-agreed for commercial leases (section 19(1A) LTA 1927).

Release of landlords after assignment is not automatic; they must actively seek it (sections 6-8 LT(C)A 1995), and the outgoing landlord may remain liable for breaches occurring during subsequent ownership unless released by specific provision.

Section 17 LT(C)A 1995 imposes on landlords a duty to serve a default notice within six months of the arrears or fixed charge falling due before claiming from a former tenant under a pre-1996 lease; if satisfied, the former tenant may be entitled to an overriding lease (section 19 LT(C)A 1995), placing them back in a position to manage or mitigate ongoing loss.

Worked Example 1.7

Scenario:
A pre-1996 lease is assigned twice. The current (third) tenant fails to pay rent for nine months. The landlord seeks to recover the arrears from the original tenant.

Answer:
The landlord must serve a section 17 LT(C)A notice on the former tenant within six months of each missed rent payment in order to claim for that period. Only the most recent six months can be recovered if notices are served; earlier arrears are not recoverable. If the former tenant pays, they may request an overriding lease and seek to recover losses from the current occupant by indemnity.

Key Term: Authorised Guarantee Agreement (AGA)
An agreement—where required—by which an outgoing tenant guarantees their immediate assignee's performance of lease covenants.

Key Term: touch and concern the land
A requirement for the automatic passing of lease covenants: the covenant must benefit the land itself, not just the parties.

Summary

A lease requires exclusive possession and certainty of term; the true character of the arrangement prevails over labels. Short leases (three years or less) can be created without a deed, provided statutory criteria are met. Leases over seven years must be registered in registered land to be legal, while equitable leases must be protected by notice or Land Charge (unregistered land). Service occupancies, family lodgers, and other excepted arrangements are generally licences. On assignment, liability for leasehold covenants is governed by privity of estate/contract (pre-1996) or passing of benefit/burden under the LT(C)A 1995 (post-1996). Section 17 default notices and overriding leases further shape old lease enforcement.

Key Point Checklist

This article has covered the following key knowledge points:

• A lease arises only when exclusive possession and certainty of term are present; payment of rent supports, but is not essential, for a lease.
• The courts will disregard labels, sham and pretence clauses, and focus on substance when determining the nature of the occupational right.
• Short legal leases (three years or less) may be created orally if the s.54(2) LPA 1925 requirements are satisfied.
• Legal leases over seven years must be registered to be legal in registered land; unregistered legal leases remain valid if created by deed or by parol for three years or less.
• Legal leases of seven years or less are overriding interests in registered land; equitable leases are overriding only when coupled with actual occupation, unless otherwise protected by notice.
• In unregistered land, equitable leases must be registered as Class C(iv) Land Charges, else they are void against a purchaser for value.
• Licences grant no estate, do not bind successors, and usually carry no statutory protection. Exceptions (proprietary estoppel, constructive trust) are rare.
• Service occupancies and other non-commercial arrangements are generally licences, even with apparent exclusive possession.
• The enforcement of leasehold covenants depends on whether the lease is pre- or post-1 January 1996; privity of contract and privity of estate apply pre-1996, while automatic passing and potential AGAs apply post-1996.
• S.17 LT(C)A 1995 notices are essential for recovery from former tenants; overriding leases provide further recourse.

Key Terms and Concepts

• lease
• exclusive possession
• certainty of term
• legal lease
• equitable lease
• periodic tenancy
• reversionary lease
• licence
• service occupancy
• sham or pretence clause
• clean hands
• actual occupation
• overriding interest
• touch and concern the land
• Authorised Guarantee Agreement (AGA)