Chapter 14: Leases
ADAM SMITH - The Wealth of Nations
From Book One Chapter XI - Of the rent of land. [penguin 356- 7]
From Book One Chapter XI - Of the rent of land. [penguin 356- 7]
The whole annual produce of the land and labour of every country, or what comes to the same thing, the whole price of that annual produce, naturally divides itself, ... into three parts; the rent of land, the wages of labour and the profits of stock; and constitutes a revenue to the three different orders of people; to those who live by rent, to those who live by wages, and to those who live by profit. These are the three great, original, and constituent orders of every civilised society, from whose revenue that of every other order is ultimately derived.
The interest of the first of those three great orders... is strictly and inseparably connected with the general interest of the Society. Whatever either promotes or obstructs the one, necessarily promotes or obstructs the other. When the public deliberates concerning any regulation of commerce or police, the proprietors of land never can mislead it, with a view to promote the interest of their own particular order; at least, if they have any tolerable knowledge of that interest. They are, indeed, too often defective in this tolerable knowledge. They are the only one of the three orders whose revenue costs them neither labour nor care, but comes to them, as it were, of its own accord, and independent of any plan or project of their own. That indolence, which is the natural effect of the ease and security of their situation, renders them too often, not only ignorant, but incapable of that application of mind which is necessary in order to foresee and understand the consequences of any public regulation.
From Book One Chapter VI - Of the component parts of the price of commodities. [Penguin 152-3]
As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce. The wood of the forest, the grass of the field, and all the natural fruits of the earth, which, when land was in common, cost the labourer only the trouble of gathering them, come even to him, to have an additional price fixed upon them. He must then pay for the licence to gather them; and he must give up to the landlord a portion of what his labour either collects or produces.
More from Book One Chapter XI - Of the rent of land. [Penguin 247-9]
RENT, considered as the price paid for the use of land, is naturally the highest which the tenant can afford to pay in the actual circumstances of the land. in adjusting the terms of the lease, the landlord endeavours to leave him no greater share of the produce than what is sufficient to keep up the stock from which he furnishes the seed, pays the labour, and purchases and maintains the cattle and other instruments of husbandry, together with the ordinary profits of farming stock in the neighbourhood. This is evidently the smallest share with which the tenant can content himself without being a loser, and the landlord seldom means to leave him any more. Whatever part of the produce, or, what is the same thing, whatever part of its price is over and above this share, he naturally endeavours to reserve to himself as the rent of his land, which is evidently the highest the tenant can afford to pay in the actual circumstances of the land ...
The rent of land, it may be thought, is frequently no more than a reasonably profit or interest for the stock laid out by the landlord on its improvement. This, no doubt, may be partly the case on some occasions; for it can scarcely ever be more than partly the case. The landlord demands a rent even for unimproved land, and the supposed interest or profit on upon the expense of improvement is generally is generally an addition to this original rent. Those improvement, besides, are not always made the stock of the landlord, but sometimes that of the tenant. When the lease comes to be renewed, however, the landlord commonly demands the same augmentation of rent as if they has all been made by his own....
The rent of land, therefore, considered as the price paid for the use of the land, is naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take; but to what the farmer can afford to give.
All other monopolies are trivial in extent as compared with the monopoly on land.
Consider what rent is. It does not arise spontaneously from land; it is due to nothing that the landowners have done. It represents a value created by the whole community. Let the landholders have, if you please, all that the possession of the land would give them in the absence of the rest of the community. But rent, the creation of the whole community, necessarily belongs to the whole community. ...
[A]mong us, nothing is more common than for land to be improved by those who do not own it. The greater part of the land of Great Britain is cultivated by tenants, the greater part of the buildings of London are built upon leased ground, and even in the United States the same system prevails everywhere to a greater or less extent. Thus it is a common matter for use to be separated from ownership. Would not all this land be cultivated and improved just as well if the rent went to the State or municipality, as now, when it goes to private individuals? If no private ownership in land were acknowledged, but all land were held in this way, the occupier or user paying rent to the State, would not land be used and improved as well and as securely as now? There can be but one answer: Of course it would. Then would the resumption of land as common property in no wise interfere with the proper use and improvement of land. What is necessary for the use of land is not its private ownership, but the security of improvements. It is not necessary to say to a man, "this land is yours," in order to induce him to cultivate or improve it It is only necessary to say to him, "whatever your labour or capital produces on this land shall be yours." Give a man security that he may reap, and he will sow; assure him of the possession of the house he wants to build, and he will build it These are the natural rewards of labour. It is for the sake of the reaping that men sow; it is for the sake of possessing houses that men build. The ownership of land has nothing to do with it ...
We should satisfy the law of justice, we should meet all economic requirements, by at one stroke abolishing all private titles, declaring all land public property, and letting it out to the highest bidders in lots to suit, under such conditions as would sacredly guard the private right to improvements. ...
But such a plan, though perfectly feasible, does not seem to me the best Or rather I propose to accomplish the same thing in a simpler, easier, and quieter way, than that of formally confiscating all the land and formally letting it out to the highest bidders. ...
To do that would involve a needless extension of governmental machinery - which is to be avoided. ...
It is not necessary to confiscate land; it is only necessary to confiscate rent.
Nor to take rent for public uses is it necessary that the State should bother with the letting of lands, and assume the chances of the favouritism, collusion, and corruption that might involve. It is not necessary that any new machinery should be created. The machinery already exists. Instead of extending it, all we have to do is to simplify and reduce it By leaving to landowners a percentage of rent, which would probably be much less than the cost and loss involved in attempting to rent lands through State agency, and by making use of this existing machinery, we may, without jar or shock, assert the common right to land by taking rent for public uses.
We already take some rent in taxation. We have only to make some changes in our modes of taxation to take it all.
What I, therefore, propose, as the simple yet sovereign remedy, which will raise wages, increase the earnings of capital, extirpate pauperism, abolish poverty, give remunerative employment to whoever wishes it, afford free scope to human powers, lessen crime, elevate morals, and taste, and intelligence, purify government and carry civilisation to yet nobler heights, is - to appropriate rent by taxation.
In this way, the State may become the universal landlord without calling herself so, and without assuming a single new function. In form, the ownership of land would remain just as now. No owner of land need be dispossessed, and no restriction need be placed upon the amount of land any one could hold. For, rent being taken by the State in taxes, land, no matter in whose name it stood, or in what parcels it was held, would be really common property, and every member of the community would participate in the advantages of its ownership. Now, insomuch as the taxation of rent, or land values, must necessarily be increased just as we abolish other taxes, we may put the proposition into practical form by proposing -
To abolish all taxation save that upon land values.
The initial relationship between landlord and tenant is characterised by lawyers in two ways:
- as a contract
- as the grant of a property right
Once a lease has been created, either landlord or tenant may enter into:
- subsequent transactions
affecting the demised land, transferring existing property rights or creating new ones, and building a complex web of multi-party relations.
Coverage is organised around the three ideas highlighted and is best taken in the order listed.
The contractual terms of a lease are usually referred to as "covenants".
Sub-letting:
1 The initial grant of a lease involves someone with a legal estate creating from it a lesser estate (a lease) which is granted to a tenant.
2 The tenant now herself has a legal estate. She can do the same thing - create a lesser estate (a lease shorter than the remaining period of her own) and grant it to a tenant.
Where, as in 2, the landlord's estate is itself a lease, the transaction is referred to as the grant of a sub-lease. (The term "underlease" is synonymous.)
The basic leasehold covenant rule is simple enough and covers both sub-letting and assignment:
To summarise so far:
1. 1 Basic leasehold covenant rule: a covenant in a lease is primarily enforceable between the landlord and the tenant of that lease
2. Implications explored for sub-letting and assignment. Centrally: landlord can sue an assignee but not a sub-tenant.
The solution - expediency wins - via the basic leasehold covenant rule already stated :
*** a covenant in a lease is enforceable between the landlord and tenant of that lease.
Simple lease between original L and T, and relations between L, T and S after grant of a sub-lease: this rule is simply a matter of contract. After an assignment: we've seen the basic leasehold covenant rule CANNOT be derived from contract. So what is the basis of enforcement after an assignment?
Three particular rules:
Traditionally:
1 Privity of estate at common law
Traditional form of the basic leasehold covenant rule: the doctrine of "privity of estate" - usually derived from Spencer's Case (1583) 5 Co Rep 16a.
i. Privity of estate exists between any two people who are currently landlord and tenant of a lease.
ii. Where privity of estate relied on, only covenants which "touch and concern the land" (which in practice most do) are enforceable.
iii. This still applies for assignments of leases entered into before 1 January 1996.
2 Ss 141 and 142 Law of Property Act 1925
Assignment of leases: form of the basic leasehold covenant rule unaffected by the 1925 legislation: remained common law privity of estate.
Assignment of reversions: put in statutory form in the Law of Property Act:
- S141 governs benefit of covenants (transmission of rights)
- S142 governs burden of covenants (transmission of duties)
"Touch and concern the land" reworded: enforceability of covenants "having reference to the subject-matter" of the lease.
This still applies to assignment of the reversion of leases granted prior to 1 Jan 1996.
For leases entered into from 1 January 1996:
3 Ss 3 and 4 Landlord and Tenant (Covenants) Act 1995
Leases entered into on or after 1 Jan '96 are governed by S3(1) Landlord and Tenant (Covenants) Act 1995:
i. Basic leasehold covenant rule put on a new statutory footing for assignments both of leases and reversions.
ii. "Touch and concern" etc irrelevant: even covenants which don't have "reference to the subject matter of the tenancy" will run - S2. (Presumably not covenants expressed to be personal?)
iii. Additionally:
- s3(5) allows a covenant which is "restrictive of the user of land" to be enforced against any occupier - eg head-lessor might enforce against sub-lessee.
- s4 secures the transmissibility of a landlord's right of forfeiture.
There are three standard requirements for the creation of a legal lease:
- time-period: must be a "term of years absolute"
- formalities of creation
- exclusive possession
First, standard requirement: duration:
A lease must be a "term of years absolute", ie supposedly of "fixed but finite duration".
Courts and legislature have accommodated a variety of arrangements. In practice, an attempt to create a lease will rarely fail because of duration:
- a lease can be for less than a year. (Example: Anwar and Barbara's lease is for an initial fixed term of six months.)
- periodic tenancies are leases. Overall duration is uncertain, but the fixed notice periods are (conveniently) seen as giving sufficient certainty
- certain (rare) but potentially troublesome cases are dealt with by statute.
Leases for lives
Historically important but a lease for life would now be an eccentric arrangement. S149(6) Law of Property Act 1925 converts most into 90 year fixed terms.
Perpetually renewable leases
S145 and Sch 15 para 1 Law of Property Act 1925 converts most into 2000 year fixed terms.
Wartime leases
Popular in the 1939-45 war. Salvaged by the Validation of War-time Leases Act 1944.
Second standard requirement: formalities of creation:
Like duration not a major practical problem. In outline:
- most leases have to be created by deed
- some short leases can be created orally (but in practice rarely are)
- all assignments have to be by deed
These are the requirements to create a lease at common law.
- a lease will additionally be recognised in equity (but not at common law) where there is a valid contract to create a lease.
Common law formal requirements are in the Law of Property Act, Ss 52(1) and 54(2).
Leading cases on equitable leases: Parker v Taswell; Walsh v Lonsdale.
Contract formalities in S2 Law of Property (Miscellaneous Provisions) Act 1989.
Third and final standard requirement: exclusive possession:
Where there is no exclusive possession, occupier will be a contractual licensee rather than a tenant.
This has been a far more important issue in practice than have duration or formalities.
Exclusive possession
General idea is that a tenant has not only permission to be on the premises but also the right to "exclude" all other people from them.
The landlord:
Reservation of rights to enter for particular purposes consistent with (and indicative of) tenant's right to exclusive possession.
Arrangement with day-to-day entry - eg by cleaning staff in a hotel or hostel indicates no exclusive possession.
Sharing accommodation: as below.
Other people:
Head-lessors seen as retaining exclusive possession via right to receive payment, and reversion. (Convenient fudge?)
Sharing accommodation: is difficult - e.g.:
Anwar and Barbara: letting to them jointly. They have joint exclusive possession.
Separate rooms in the same premises: can be individual exclusive possession of part of a house or flat.
Right for separate people to use the whole of a house or flat: rights of each preclude the others from having exclusive possession.
In practice, landlords do want to maximise rent but this is not their only concern. There are trade-offs with other goals - hence the rather different terms on which Pasturesnews' lease was finally granted.
Two examples:
Capital value of the freehold - repair A landlord who takes full responsibility for repair will get a higher gross rent. But because the lease is not "clear" she is unlikely to attract institutional purchasers of the freehold.
Estate management - alienation and user no restriction on alienation or user in an individual lease will maximise negotiated rent. But landlords standardly require some control over who uses their premises and for what. E.g. right to a high rent is useless against an assignee who is broke; tenants as well as landlord of a shopping centre have an interest in a good mix of businesses in it.
Rent review - synopsis.
Because of inflation, arrangements to review the initial rent have become usual features of leases - especially commercial leases.
Standard approach has been the upwards-only rent review clause, designed to adjust the rent to the current market level for comparable new lettings and by a surveyor where the parties cannot agree.
(Alternatives include upwards-downwards review, indexing,
and turnover rent.)
Review clauses can raise complex valuation issues and need particularly careful drafting and vetting:
A rent review clause normally aims to fix a rent which reflects the current market price for:
o a new letting of the property
o on a "hypothetical lease" with the same basic terms as the actual lease
o with certain matters "disregarded" or "assumed".
Three main ways in which repair of leasehold premises is governed by statute as well as contractual negotiation - though these are by no means exhaustive:
(a) Landlord is obliged to repair in short residential leases.
(b) Landlord's enforcement of repair covenants against tenants is limited.
(c) Landlord's contractual rights to recoup repair-costs from tenants are regulated.
Short residential lease
S11 Landlord and Tenant Act 1985 (as amended) is the latest version of the statutory repair obligation for short residential lettings: landlords are obliged to repair, and are prevented from shifting the cost onto tenants (but think about how meaningful this is given market rent levels.)
Landlords obligation relates to basic structure, exterior, equipment for mains services and heating.
- does not include rebuilding after destruction
- does not include interior decoration
- is relative to the standard of the bridling and the area.
- is limited by tenant's duty to "use the premises in a tenant-like manner."
- only arises when L has notice of disrepair.
S116 Housing Act 1988 extends L's obligation to other parts of the building in which T is renting.
A whole range of other statutory and common-law provisions may also apply. None of this has prevented a poor state of repair in much rented housing.
Tenants repairing
Tenants' repairing obligations, especially towards the end of long residential leases, are open to abuse by landlords.
The relevant statutory provisions are piecemeal and complex. In outline:
(1) S18(1) Landlord and Tenant Act 1927 - limits damages for breach of Ts' repairing covenants. Generally, to diminution in the value of the reversion. And a stops particular abuse towards the end of the lease: the landlord who is going to redevelop - but tries to recover damages to assessed on the cost of putting the premises in good repair.
(2) Leasehold Property (Repairs) Act focuses on abuses during the currency of a lease rather than at the end: particular target was landlords seeking early repossession through exaggerated allegations of disrepair. Applies to leases of at least seven years with at least three years still to run. System of notices through which T can require L to obtain leave of the court on specified grounds before proceedings for forfeiture or damages for disrepair.
Landlords recouping
Standard that L repairs and recoups costs from tenants where different units are in a single building and / or there are common parts - eg blocks of flats or offices; shopping-centres.
Particularly fraught arrangement since L takes decisions and Ts pay. Typical problems are not straightforward fraud (eg charging for work not done) but disputes about standard and timing of repairs; how far tenants should be forewarned; how far they should have a voice in decisions.
Commercial tenants need to secure adequate arrangements by contract - eg providing resolution of disputes by an independent surveyor. Recent statutory regulation to add flat purchasers like Celia:
Landlord and Tenant Act 1985 regulates "service charges" (but definition is likely to include all recoupment of repair costs whether or not by regular payments). Substantive control limits costs to those "reasonably incurred"; on work of a "reasonable standard." Procedurally, major work requires more than one written estimate and notice to tenants for their comments; tenants may demand a break-down of costs and may inspect accounts.
Landlord and Tenant Act 1987 gives tenants the right to seek appointment of a manager where L is failing in her / his obligations.
Leasehold Reform etc Act 1993 further strengthens Ts' position: (directly) by giving a right to call for a more wide-ranging "management audit" and (indirectly) in that the threat of collective enfranchisement may keep Ls on their mettle.
Alienation
Alienation is affected by statute as well as by what the lease does or does not say
One statutory provision specific to assured tenancies:
1 Many assured tenancies are not alienable
Two general issues about qualified alienation covenants covered by statute:
2 L's procedures in dealing with request for consent to alienate
3 Qualified and fully qualified covenants
The interest of the first of those three great orders... is strictly and inseparably connected with the general interest of the Society. Whatever either promotes or obstructs the one, necessarily promotes or obstructs the other. When the public deliberates concerning any regulation of commerce or police, the proprietors of land never can mislead it, with a view to promote the interest of their own particular order; at least, if they have any tolerable knowledge of that interest. They are, indeed, too often defective in this tolerable knowledge. They are the only one of the three orders whose revenue costs them neither labour nor care, but comes to them, as it were, of its own accord, and independent of any plan or project of their own. That indolence, which is the natural effect of the ease and security of their situation, renders them too often, not only ignorant, but incapable of that application of mind which is necessary in order to foresee and understand the consequences of any public regulation.
From Book One Chapter VI - Of the component parts of the price of commodities. [Penguin 152-3]
As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce. The wood of the forest, the grass of the field, and all the natural fruits of the earth, which, when land was in common, cost the labourer only the trouble of gathering them, come even to him, to have an additional price fixed upon them. He must then pay for the licence to gather them; and he must give up to the landlord a portion of what his labour either collects or produces.
More from Book One Chapter XI - Of the rent of land. [Penguin 247-9]
RENT, considered as the price paid for the use of land, is naturally the highest which the tenant can afford to pay in the actual circumstances of the land. in adjusting the terms of the lease, the landlord endeavours to leave him no greater share of the produce than what is sufficient to keep up the stock from which he furnishes the seed, pays the labour, and purchases and maintains the cattle and other instruments of husbandry, together with the ordinary profits of farming stock in the neighbourhood. This is evidently the smallest share with which the tenant can content himself without being a loser, and the landlord seldom means to leave him any more. Whatever part of the produce, or, what is the same thing, whatever part of its price is over and above this share, he naturally endeavours to reserve to himself as the rent of his land, which is evidently the highest the tenant can afford to pay in the actual circumstances of the land ...
The rent of land, it may be thought, is frequently no more than a reasonably profit or interest for the stock laid out by the landlord on its improvement. This, no doubt, may be partly the case on some occasions; for it can scarcely ever be more than partly the case. The landlord demands a rent even for unimproved land, and the supposed interest or profit on upon the expense of improvement is generally is generally an addition to this original rent. Those improvement, besides, are not always made the stock of the landlord, but sometimes that of the tenant. When the lease comes to be renewed, however, the landlord commonly demands the same augmentation of rent as if they has all been made by his own....
The rent of land, therefore, considered as the price paid for the use of the land, is naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take; but to what the farmer can afford to give.
All other monopolies are trivial in extent as compared with the monopoly on land.
Consider what rent is. It does not arise spontaneously from land; it is due to nothing that the landowners have done. It represents a value created by the whole community. Let the landholders have, if you please, all that the possession of the land would give them in the absence of the rest of the community. But rent, the creation of the whole community, necessarily belongs to the whole community. ...
[A]mong us, nothing is more common than for land to be improved by those who do not own it. The greater part of the land of Great Britain is cultivated by tenants, the greater part of the buildings of London are built upon leased ground, and even in the United States the same system prevails everywhere to a greater or less extent. Thus it is a common matter for use to be separated from ownership. Would not all this land be cultivated and improved just as well if the rent went to the State or municipality, as now, when it goes to private individuals? If no private ownership in land were acknowledged, but all land were held in this way, the occupier or user paying rent to the State, would not land be used and improved as well and as securely as now? There can be but one answer: Of course it would. Then would the resumption of land as common property in no wise interfere with the proper use and improvement of land. What is necessary for the use of land is not its private ownership, but the security of improvements. It is not necessary to say to a man, "this land is yours," in order to induce him to cultivate or improve it It is only necessary to say to him, "whatever your labour or capital produces on this land shall be yours." Give a man security that he may reap, and he will sow; assure him of the possession of the house he wants to build, and he will build it These are the natural rewards of labour. It is for the sake of the reaping that men sow; it is for the sake of possessing houses that men build. The ownership of land has nothing to do with it ...
We should satisfy the law of justice, we should meet all economic requirements, by at one stroke abolishing all private titles, declaring all land public property, and letting it out to the highest bidders in lots to suit, under such conditions as would sacredly guard the private right to improvements. ...
But such a plan, though perfectly feasible, does not seem to me the best Or rather I propose to accomplish the same thing in a simpler, easier, and quieter way, than that of formally confiscating all the land and formally letting it out to the highest bidders. ...
To do that would involve a needless extension of governmental machinery - which is to be avoided. ...
It is not necessary to confiscate land; it is only necessary to confiscate rent.
Nor to take rent for public uses is it necessary that the State should bother with the letting of lands, and assume the chances of the favouritism, collusion, and corruption that might involve. It is not necessary that any new machinery should be created. The machinery already exists. Instead of extending it, all we have to do is to simplify and reduce it By leaving to landowners a percentage of rent, which would probably be much less than the cost and loss involved in attempting to rent lands through State agency, and by making use of this existing machinery, we may, without jar or shock, assert the common right to land by taking rent for public uses.
We already take some rent in taxation. We have only to make some changes in our modes of taxation to take it all.
What I, therefore, propose, as the simple yet sovereign remedy, which will raise wages, increase the earnings of capital, extirpate pauperism, abolish poverty, give remunerative employment to whoever wishes it, afford free scope to human powers, lessen crime, elevate morals, and taste, and intelligence, purify government and carry civilisation to yet nobler heights, is - to appropriate rent by taxation.
In this way, the State may become the universal landlord without calling herself so, and without assuming a single new function. In form, the ownership of land would remain just as now. No owner of land need be dispossessed, and no restriction need be placed upon the amount of land any one could hold. For, rent being taken by the State in taxes, land, no matter in whose name it stood, or in what parcels it was held, would be really common property, and every member of the community would participate in the advantages of its ownership. Now, insomuch as the taxation of rent, or land values, must necessarily be increased just as we abolish other taxes, we may put the proposition into practical form by proposing -
To abolish all taxation save that upon land values.
The initial relationship between landlord and tenant is characterised by lawyers in two ways:
- as a contract
- as the grant of a property right
Once a lease has been created, either landlord or tenant may enter into:
- subsequent transactions
affecting the demised land, transferring existing property rights or creating new ones, and building a complex web of multi-party relations.
Coverage is organised around the three ideas highlighted and is best taken in the order listed.
The contractual terms of a lease are usually referred to as "covenants".
Sub-letting:
1 The initial grant of a lease involves someone with a legal estate creating from it a lesser estate (a lease) which is granted to a tenant.
2 The tenant now herself has a legal estate. She can do the same thing - create a lesser estate (a lease shorter than the remaining period of her own) and grant it to a tenant.
Where, as in 2, the landlord's estate is itself a lease, the transaction is referred to as the grant of a sub-lease. (The term "underlease" is synonymous.)
The basic leasehold covenant rule is simple enough and covers both sub-letting and assignment:
To summarise so far:
1. 1 Basic leasehold covenant rule: a covenant in a lease is primarily enforceable between the landlord and the tenant of that lease
2. Implications explored for sub-letting and assignment. Centrally: landlord can sue an assignee but not a sub-tenant.
The solution - expediency wins - via the basic leasehold covenant rule already stated :
*** a covenant in a lease is enforceable between the landlord and tenant of that lease.
Simple lease between original L and T, and relations between L, T and S after grant of a sub-lease: this rule is simply a matter of contract. After an assignment: we've seen the basic leasehold covenant rule CANNOT be derived from contract. So what is the basis of enforcement after an assignment?
Three particular rules:
Traditionally:
1 Privity of estate at common law
Traditional form of the basic leasehold covenant rule: the doctrine of "privity of estate" - usually derived from Spencer's Case (1583) 5 Co Rep 16a.
i. Privity of estate exists between any two people who are currently landlord and tenant of a lease.
ii. Where privity of estate relied on, only covenants which "touch and concern the land" (which in practice most do) are enforceable.
iii. This still applies for assignments of leases entered into before 1 January 1996.
2 Ss 141 and 142 Law of Property Act 1925
Assignment of leases: form of the basic leasehold covenant rule unaffected by the 1925 legislation: remained common law privity of estate.
Assignment of reversions: put in statutory form in the Law of Property Act:
- S141 governs benefit of covenants (transmission of rights)
- S142 governs burden of covenants (transmission of duties)
"Touch and concern the land" reworded: enforceability of covenants "having reference to the subject-matter" of the lease.
This still applies to assignment of the reversion of leases granted prior to 1 Jan 1996.
For leases entered into from 1 January 1996:
3 Ss 3 and 4 Landlord and Tenant (Covenants) Act 1995
Leases entered into on or after 1 Jan '96 are governed by S3(1) Landlord and Tenant (Covenants) Act 1995:
i. Basic leasehold covenant rule put on a new statutory footing for assignments both of leases and reversions.
ii. "Touch and concern" etc irrelevant: even covenants which don't have "reference to the subject matter of the tenancy" will run - S2. (Presumably not covenants expressed to be personal?)
iii. Additionally:
- s3(5) allows a covenant which is "restrictive of the user of land" to be enforced against any occupier - eg head-lessor might enforce against sub-lessee.
- s4 secures the transmissibility of a landlord's right of forfeiture.
There are three standard requirements for the creation of a legal lease:
- time-period: must be a "term of years absolute"
- formalities of creation
- exclusive possession
First, standard requirement: duration:
A lease must be a "term of years absolute", ie supposedly of "fixed but finite duration".
Courts and legislature have accommodated a variety of arrangements. In practice, an attempt to create a lease will rarely fail because of duration:
- a lease can be for less than a year. (Example: Anwar and Barbara's lease is for an initial fixed term of six months.)
- periodic tenancies are leases. Overall duration is uncertain, but the fixed notice periods are (conveniently) seen as giving sufficient certainty
- certain (rare) but potentially troublesome cases are dealt with by statute.
Leases for lives
Historically important but a lease for life would now be an eccentric arrangement. S149(6) Law of Property Act 1925 converts most into 90 year fixed terms.
Perpetually renewable leases
S145 and Sch 15 para 1 Law of Property Act 1925 converts most into 2000 year fixed terms.
Wartime leases
Popular in the 1939-45 war. Salvaged by the Validation of War-time Leases Act 1944.
Second standard requirement: formalities of creation:
Like duration not a major practical problem. In outline:
- most leases have to be created by deed
- some short leases can be created orally (but in practice rarely are)
- all assignments have to be by deed
These are the requirements to create a lease at common law.
- a lease will additionally be recognised in equity (but not at common law) where there is a valid contract to create a lease.
Common law formal requirements are in the Law of Property Act, Ss 52(1) and 54(2).
Leading cases on equitable leases: Parker v Taswell; Walsh v Lonsdale.
Contract formalities in S2 Law of Property (Miscellaneous Provisions) Act 1989.
Third and final standard requirement: exclusive possession:
Where there is no exclusive possession, occupier will be a contractual licensee rather than a tenant.
This has been a far more important issue in practice than have duration or formalities.
Exclusive possession
General idea is that a tenant has not only permission to be on the premises but also the right to "exclude" all other people from them.
The landlord:
Reservation of rights to enter for particular purposes consistent with (and indicative of) tenant's right to exclusive possession.
Arrangement with day-to-day entry - eg by cleaning staff in a hotel or hostel indicates no exclusive possession.
Sharing accommodation: as below.
Other people:
Head-lessors seen as retaining exclusive possession via right to receive payment, and reversion. (Convenient fudge?)
Sharing accommodation: is difficult - e.g.:
Anwar and Barbara: letting to them jointly. They have joint exclusive possession.
Separate rooms in the same premises: can be individual exclusive possession of part of a house or flat.
Right for separate people to use the whole of a house or flat: rights of each preclude the others from having exclusive possession.
In practice, landlords do want to maximise rent but this is not their only concern. There are trade-offs with other goals - hence the rather different terms on which Pasturesnews' lease was finally granted.
Two examples:
Capital value of the freehold - repair A landlord who takes full responsibility for repair will get a higher gross rent. But because the lease is not "clear" she is unlikely to attract institutional purchasers of the freehold.
Estate management - alienation and user no restriction on alienation or user in an individual lease will maximise negotiated rent. But landlords standardly require some control over who uses their premises and for what. E.g. right to a high rent is useless against an assignee who is broke; tenants as well as landlord of a shopping centre have an interest in a good mix of businesses in it.
Rent review - synopsis.
Because of inflation, arrangements to review the initial rent have become usual features of leases - especially commercial leases.
Standard approach has been the upwards-only rent review clause, designed to adjust the rent to the current market level for comparable new lettings and by a surveyor where the parties cannot agree.
(Alternatives include upwards-downwards review, indexing,
and turnover rent.)
Review clauses can raise complex valuation issues and need particularly careful drafting and vetting:
A rent review clause normally aims to fix a rent which reflects the current market price for:
o a new letting of the property
o on a "hypothetical lease" with the same basic terms as the actual lease
o with certain matters "disregarded" or "assumed".
Three main ways in which repair of leasehold premises is governed by statute as well as contractual negotiation - though these are by no means exhaustive:
(a) Landlord is obliged to repair in short residential leases.
(b) Landlord's enforcement of repair covenants against tenants is limited.
(c) Landlord's contractual rights to recoup repair-costs from tenants are regulated.
Short residential lease
S11 Landlord and Tenant Act 1985 (as amended) is the latest version of the statutory repair obligation for short residential lettings: landlords are obliged to repair, and are prevented from shifting the cost onto tenants (but think about how meaningful this is given market rent levels.)
Landlords obligation relates to basic structure, exterior, equipment for mains services and heating.
- does not include rebuilding after destruction
- does not include interior decoration
- is relative to the standard of the bridling and the area.
- is limited by tenant's duty to "use the premises in a tenant-like manner."
- only arises when L has notice of disrepair.
S116 Housing Act 1988 extends L's obligation to other parts of the building in which T is renting.
A whole range of other statutory and common-law provisions may also apply. None of this has prevented a poor state of repair in much rented housing.
Tenants repairing
Tenants' repairing obligations, especially towards the end of long residential leases, are open to abuse by landlords.
The relevant statutory provisions are piecemeal and complex. In outline:
(1) S18(1) Landlord and Tenant Act 1927 - limits damages for breach of Ts' repairing covenants. Generally, to diminution in the value of the reversion. And a stops particular abuse towards the end of the lease: the landlord who is going to redevelop - but tries to recover damages to assessed on the cost of putting the premises in good repair.
(2) Leasehold Property (Repairs) Act focuses on abuses during the currency of a lease rather than at the end: particular target was landlords seeking early repossession through exaggerated allegations of disrepair. Applies to leases of at least seven years with at least three years still to run. System of notices through which T can require L to obtain leave of the court on specified grounds before proceedings for forfeiture or damages for disrepair.
Landlords recouping
Standard that L repairs and recoups costs from tenants where different units are in a single building and / or there are common parts - eg blocks of flats or offices; shopping-centres.
Particularly fraught arrangement since L takes decisions and Ts pay. Typical problems are not straightforward fraud (eg charging for work not done) but disputes about standard and timing of repairs; how far tenants should be forewarned; how far they should have a voice in decisions.
Commercial tenants need to secure adequate arrangements by contract - eg providing resolution of disputes by an independent surveyor. Recent statutory regulation to add flat purchasers like Celia:
Landlord and Tenant Act 1985 regulates "service charges" (but definition is likely to include all recoupment of repair costs whether or not by regular payments). Substantive control limits costs to those "reasonably incurred"; on work of a "reasonable standard." Procedurally, major work requires more than one written estimate and notice to tenants for their comments; tenants may demand a break-down of costs and may inspect accounts.
Landlord and Tenant Act 1987 gives tenants the right to seek appointment of a manager where L is failing in her / his obligations.
Leasehold Reform etc Act 1993 further strengthens Ts' position: (directly) by giving a right to call for a more wide-ranging "management audit" and (indirectly) in that the threat of collective enfranchisement may keep Ls on their mettle.
Alienation
Alienation is affected by statute as well as by what the lease does or does not say
One statutory provision specific to assured tenancies:
1 Many assured tenancies are not alienable
Two general issues about qualified alienation covenants covered by statute:
2 L's procedures in dealing with request for consent to alienate
3 Qualified and fully qualified covenants
This entry was posted
on Thursday, May 25, 2006 at 5/25/2006 07:57:00 PM.
You can skip to the end and leave a response.
» Post a Comment