“The decision of the House of Lords in Street v Mountford in 1985 represented a sea-change in the approach of the courts” (Smith R, Property Law 6th edition (2009) p. 354, Longman Press). Discuss in the context of the court’s approach to the distinction between leases and licences.
Many cases prior to Street v Mountford had attempted to identify the difference between a right to ‘possess’ land and a personal right to ‘occupy’ land. Lord Denning explained the difference as ‘the nature and quality of the occupancy.’ In other words, ‘a legal right of exclusive possession of the land for a term’ would constitute a lease, and a mere permission to use land would amount to a licence. The ‘exclusive possession’ test established by the House of Lords in Street v Mountford, per Lord Templeman, was that an occupier would not be a tenant if he had no exclusive ‘possession’ for a ‘certain’ duration. This case has now been regarded as having marked a ‘sea-change’ in land law.
The distinctions to be drawn between leases and licences
There are certain reasons why the courts have sought to distinguish between licences and leases. Different statutory protections exist for both. The real problem, however, is in how the courts have attempted to draw the line between leases and licences, particularly in the light of the exclusive possession test. The court’s first concern would be that the term ‘licence’ is too broad – it covers almost all types of permission. When we use the term ‘licence’ in relation to land, however, we mean, not merely a personal right to occupy the land but also, a right to use the land in any way. However, such right can be distinguished from a proprietary right. In licences, the individual holding the licence (i.e. the licensee) has, in general, no right to exclude others from the land (including the landowner). A difficulty therefore arises in circumstances where the licensee has the full right (including where s/he has been granted exclusive possession) to occupy the land. In this context, as shall be discussed below, Lord Denning stated that exclusive possession does not necessarily equate to the grant of a lease, particularly if the parties did not intend to create a tenancy. Although the test in distinguishing between licences and leases does assist in practice, such test is not as straightforward (at least in theory) as one might first expect.
Difficulties in distinguishing between leases and licences
According to Lord Templeman, the exclusive possession test is conclusive: a person granted exclusive possession must have a lease. However, it does not necessarily mean that one has a lease even though the courts have tended to adopt this approach. Furthermore, it is not easy to apply the exclusive possession test in practice. The first problem for the courts to consider would be when the grant of a right to ‘occupy’ land should amount to a grant of a lease for ‘possession’. The same problem also arises in the definition of ‘certain’ duration.
An underlying issue arising out of the first problem would be for the courts to distinguish between ‘possession’ and ‘occupation’. The meaning of ‘possession’ and ‘occupation’ are not exactly the same. The inconsistent use of the term ‘occupation’ and the term ‘possession’ in the Street v Mountford judgment somewhat confused the understanding of the concepts of ‘exclusive occupation’ and ‘exclusive possession’. Lord Templeman also failed to distinguish whether those concepts were statements of legal entitlement or statements of fact. Nevertheless, according to the judgment read as a whole, the term ‘occupation’ should refer to the fact that an occupier merely enjoys the occupation of the land. The term ‘possession’ should refer to those situations where the occupier has the right to enjoy land and exclude all others (including the landowner) from the land. Lord Templeman sought to distinguish leases and licences in the following ways:
- ‘Occupation’ is not sufficient for the occupier to grant a lease; ‘exclusive possession’ is essential.
- No lease is granted when there is no exclusive possession. Even though an occupier has exclusive possession – the landowner and the occupier may have no intention to create a legal relationship or the intention may be negatived by the facts of the case – those occupations should not amount to the grant of lease. The latter factor is sufficient to distinguish between lodgers and tenants in circumstances such as renting a hotel room.
- In the absence of those negative factors, the possession held by the occupier should amount to ‘exclusive possession’.
- When the occupier has been granted ‘exclusive possession’ for a certain period and at a rent, the grant of a lease should be presumed.
- Although the occupier has exclusive possession and the right to exclude all others from the land, the right granted might be considered to be something other than a lease such as ‘fee simple ownership’.
Prior Street v Mountford, the element of exclusive possession was not a necessary requirement to be considered. However, Lord Templeman confirmed that the consideration of exclusive possession was necessary and conclusive. He further developed the principle expounded by Lord Denning: ‘the nature and the quality’ of occupation is essential to determining whether the occupation is a lease or a licence. Lord Denning stated that although exclusive possession could be considered as the main element in deciding whether an occupier has granted a lease, it does not necessarily mean that an occupier who grants exclusive possession is not necessarily granting a lease. Nevertheless, a person in ‘occupation’ has no tenancy if he has no exclusive right in the land. Lord Templeman explained that the intention of creating a legal relationship is also important to distinguishing between a lease and a licence. However, the subjective intention between the occupier and landowner is irrelevant – the court should look at the objective agreement, i.e. whether the parties intended to create a legal relationship. First, the parties cannot assume that the label attached to the agreement will be conclusive. Secondly, the parties’ agreement cannot act as a device in order to disguise the grant of a tenancy. Thirdly, specific provisions within the agreement may be ignored by the court if the surrounding circumstances suggest that those provisions could not have been intended to form part of the agreement. It has been held that a time limitation may apply (in this case between 10:30am to noon) in respect of exclusion of persons from a property. Finally, if the occupier shares occupation with others, the court may read the relevant agreements together and treat those agreements as one transaction, even if the facts suggest that those occupiers’ relationships are interdependent.
The House of Lords reaffirmed these principles in the latter case Burrows v Brent LBC. In that case, the landowner granted a possession order against the tenant for unpaid rent. They agreed temporarily not enforce the order and to allow the tenant to remain in occupation if she paid a sum equivalent to the rent due. Applying those principles to this situation, it was held that the parties had not intended to create a legal relationship, and the tenant therefore was considered a ‘tolerated trespasser’.
Lord Millett also confirmed the principle that exclusive possession on its own is not sufficient for the granting of a lease, but that occupation with the identification of a legal relationship between the occupier and the landlord is an essential consideration. Lord Millett therefore regarded Street v Mountford as a significant authority for the proposition that a person in ‘occupation’ or ‘possession’ may be regarded as merely a licensee if there is no legal relationship. Notwithstanding the fact that the debate about the definition of ‘legal relationship’ will be ongoing, the differences between leases and licences may be distinguished by the degree of ‘possession’. If someone who is purely holding a personal right to occupy land without a legal relationship, then such right will, in most cases, be a licence. Alternatively, if someone grants a right to exclude all others from the land in question, including the landlord, for a certain period of time, then such right may be called a lease.
The ‘terminology’ problem of the words ‘possession’ and ‘occupation’ appear to have been solved by the cases which were decided after Street v Mountford. The debate surrounding the meaning to be given to ‘certain’ duration, however, still remains alive. Lord Denning posed: what would the court do if the occupier has been granted exclusive possession of land without certain duration? In law, if a landlord grants an occupier (who pays rent) exclusive possession of a property without certainty of duration, the occupier will have a periodic tenancy (demonstrated by the payment of a periodic rent) rather than a licence. This case reaffirmed that the element of ‘exclusive possession’ is the most important consideration to the granting of a lease.
Nevertheless, the distinction between the tenant (leaseholder) and the lodger (licensee) is very significant. Case law has established that the distinction will arise from the fact that an agreement might allow a landowner to exercise unrestricted rights to use or access property, and not simply ‘from the provision that the landowner provides service to such property’. An additional consideration for the courts, established by one particular case, was to examine the extent of the right which the landowner actually has to exercise. By reference to that approach, it will become clear whether there is a tenant or a lodger to property.
Another significant impact which Street v Mountford has made in the context of litigation has been in relation to the duties of local authorities to provide accommodation for the homeless under the Housing Act 1985 (now Part VII of the Housing Act 1996). The Court of Appeal has held that although an occupier has been granted exclusive possession, a local authority might have had provided accommodation pursuant to its statutory duties towards the homeless which will have the effect of negating the intention of creating a legal relationship between the parties. However, if the accommodation was provided by a housing association or an organisation other than the local authority (even on referral from the local authority), the background of homelessness will not negative the intention of creating a tenancy as such an association or organisation does not exercise any statutory duty. Therefore, the House of Lords affirmed that the duties of local authority were held to negative the intention of creating a lease even though the occupier was granted an exclusive possession of the property.
In the case Burton v London and Quadrant Housing Trust, since the agreement in question stated that the housing trust had no legal title to the property and the parties had attempted to create a licence rather than a lease, the Court of Appeal held that there was no lease because the housing trust had no legal title to the property. However, the House of Lords found that legal title was not relevant. Nonetheless, the distinction between licence and lease in this context (under statutory duty) has been reduced by the Housing Act 1996, section 216(3), Schedule 17, para 3.
Having regard to the Housing Act 1996, the Court of Appeal held that granting exclusive possession under the statute would not amount to the creation of a lease. This rule also applies to the relationship between beneficiaries and trustees – the trustee has the power to grant the right, but the grant of a lease may intrude upon the trustees’ duties.
Although the rules of Street v Mountford apply in cases of residential occupation, certain principles deriving from it such as the distinction to be drawn between ‘lodger’ and ‘tenant’ may not be applicable in certain circumstances. The basic elements of ‘exclusive possession’ and ‘the nature and quality’ test will, however, be applicable in the commercial occupation context. Nevertheless, we should note that Street v Mountford was a case of a single occupier. Multiple occupation may, therefore, lead to a more complicated situation, which Lord Templeman has not discussed.
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