Exclusive Possession as the Determining Factor in the Lease-Licence Divide in the United Kingdom

Author: Natalie Wong

The Lease-Licence Divide

A lease is one of the two estates in land capable of being conveyed or created by law. The three elements of a lease were set out in Street v Mountford. Exclusive possession is a fundamental characteristic of a lease and the key distinguishing feature in the lease-licence divide. Such a distinction is crucial as tenants under a lease have far greater rights than licensees. An example being, a duty on lessors to ‘keep in repair the structure and exterior of the dwelling-house’ in a lease. The orthodox position of exclusive possession has been challenged in Bruton v London & Quadrant Housing Trust. This article seeks to assess the significance of the concept of exclusive possession while determining the difference between a lease and a licence. It then concludes that the concept remains highly significant and relevant, continuing to be the guiding principle of the courts’ reasoning while Bruton is just an exception to the rule.

The Concept of Exclusive Possession

It was established in Street that the test regarding the nature of occupancy was ‘whether, on the true construction of the agreement, the occupier had been granted exclusive possession of the accommodation for a fixed or periodic term at a stated rent’. Exclusive possession refers to the ability of the tenant to ‘keep out strangers and keep out the landlord’. Contrarily, ‘a licensee lacking exclusive possession can in no sense call the land his own and cannot be said to own any estate in the land’. It follows that if exclusive possession exists, it shall accordingly be most conclusive of a lease.

The example of a lodger should be considered- ‘The occupier is a lodger if the landlord provides … services which require the landlord or his servants to exercise unrestricted access to and use of the premises’. It was held in Allan v Liverpool Overseers that ‘a lodger in a house … is not in exclusive occupation …, because the landlord is there for the purpose of being able … to have his own servants to look after the house …, and has retained to himself the occupation, though he has agreed to give the exclusive enjoyment of the occupation to the lodger’. The same reasoning applies. A lodger has no exclusive possession and is merely a licensee because he cannot exclude others, including the landlord, from entering the property. The concept of exclusive possession appears to be determinative of the distinction between a lease and a licence. As Shaw has noted, Street ‘re-established the test of exclusive possession as the sole determinant of the distinction in English law’.

Courts’ Readiness in Disregarding the Expressed Intentions of Parties

The significance of the concept of exclusive possession is amplified by the courts’ readiness in looking beyond the label used. The court is prepared to disregard the labels if, on a true reading, an agreement gives rise to a different arrangement. Shaw describes this as the ‘objectification of the conveyance’, where ‘one does not … look to the intention of the parties but to the rights and duties that they have in fact created’. The key authority is Street. The agreement is described as a ‘licence’ and contained a clause providing that ‘a licence in the above form does not and is not intended to give … a tenancy protected under the Rent Acts’. It was held that ‘if the agreement satisfied all the requirements of a tenancy, then the agreement produced a tenancy and the parties cannot alter the effect of the agreement by insisting that they only created a licence’. As in Errington, ‘parties cannot turn a tenancy into a licence merely by calling it one’.

  • Shams

It was stated in Street that ‘the court should, … be astute to detect and frustrate sham devices and artificial transactions whose only object is to disguise the grant of a tenancy and to evade the Rent Acts’. Also, it was held in Aslan v Murphy that ‘provisions in the agreement for sharing the room and licensing the occupier for part of the day only were … a pretence and the provision providing for the owner to retain the keys had no significance since no services were provided by him’. Accordingly, ‘those provisions were to be ignored’ while determining the nature of the agreement. Another case in point is Antoniades v Villiers, where the respondent let a flat to an unmarried couple, under separate but identical agreements termed ‘licences’. It was held that ‘the true nature of the arrangement was to create a joint tenancy and the purported retention by the respondent of the right to share the occupation of the small flat with the appellants or to introduce an indefinite number of third parties … was clearly a pretence to deprive them of the protection of the Rent Acts’. The example of sham clauses reiterates the practice that, so long as there is in fact exclusive possession, a tenancy is created, ‘whatever the label the parties may have chosen to attach to it’. Exclusive possession is the controlling factor, and is therefore of great significance in the lease-licence distinction.

The Concept of Exclusive Occupation in Bruton

Bruton, which gave rise to a ‘new form of quasi-estate’, does not sit comfortably with this orthodoxy. The case concerns a Housing Trust, to whom a licence of a block of flats had been granted by Lambeth LBC, which then granted a licence to Mr Bruton. The House of Lords held that the ‘licence’ was in fact a lease, despite the fact that the Trust themselves were mere licensees. According to Pawlowski, such a ‘relaxed contractual approach’ ‘presupposes that a landlord and tenant can now create, by contractual agreement, a form of personal estate without necessarily conferring exclusive possession against the whole world’. It is argued that Islington LBC v Green and Kay v Lambeth LBC confirm that ‘non-proprietary arrangement binds only the immediate landlord, but not persons with a superior title and … other third parties’. However, if his rights only bind the immediate grantor, which are purely personal, it begs the question of how these are different from the rights of a contractual licensee. In other words, ‘if exclusive possession is limited as against the grantor only, is this not simply the conferment of exclusive occupation by another name?’ Unlike an occupier with exclusive possession, one with only the rights of exclusive occupation cannot keep out strangers nor the landlord. It appears that the difference between a lease and licence may be blurred where the grantor of a lease lacks the title to grant one.

Yet, the court, in reaching its conclusion, heavily relied on the concept of exclusive possession. It is put forward that Bruton ‘involves an attempt to further the presumed purpose of a legislative scheme by looking for a lease in the wider, non-juristic sense of an arrangement which confers practical control of property’. Even though the conclusion in Bruton distorted the meaning of exclusive possession, this should be treated as an exception, whenever the difference between a lease and a licence is made negligible. The concept remains of great significance in determining the lease-licence distinction in cases concerning a proprietary lease.

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