Introduction
Lord Templeman’s judgment in Street v Mountford ([1985] A.C. 809) was an authoritative restatement of the defining characteristics of a lease. It provided clarity as to the factors that distinguish the lease from the contractual licence. In Street itself, this mattered because of the protection afforded to tenants (but not to licensees) by the Rent Acts. That such a restatement was necessary was due to the fact that certain Court of Appeal decisions (for example, Marchant v Charters [1977] 1 W.L.R. 1181, 1185 (per Lord Denning M.R.)) had muddied the waters by denying that the presence or absence of exclusive possession was the central issue.
Street v Mountford
Mr. Street entered into an agreement under which Mrs. Mountford would, as Mr. Street conceded, have exclusive possession of two rooms in a property owned by Mr. Street. The agreement described itself as a licence. It ended with a clause declaring that the parties did not intend to create a lease. Mrs. Mountford applied for the registration of a fair rent under the Rent Acts. Mr. Street sought a declaration that Mrs. Mountford was a licensee. The House of Lords (Lord Templeman giving the main judgment) held that Mrs. Mountford was a tenant since the agreement provided for her to have exclusive possession for a term and at a rent.
The essential elements of a lease
Lord Templeman explained the essential elements of a lease:
‘To constitute a tenancy the occupier must be granted exclusive possession for a fixed or periodic term certain in consideration of a premium or periodical payments.’ (Street v Mountford [1985] A.C. 809, 818).
Lord Templeman also said that ‘the only intention which is relevant is the intention demonstrated by the agreement to grant exclusive possession for a term at a rent.’ (Street v Mountford [1985] A.C. 809, 826). The Court of Appeal later explained that Lord Templeman had not intended to suggest that the payment of a rent was an essential characteristic of a lease (Ashburn Anstalt v Arnold [1989] Ch.1, 9 -10, Fox L.J.). Thus, one is left with the statement that the essential elements of a lease are exclusive possession and certainty of term. This is consistent with nearly all previous authority in England and in other jurisdictions (see, for example, Radaich v Smith (101) CLR 209).
Exclusive possession
To say that occupation by a tenant is exclusive possession, while that of a licensee is not, is to invite the accusation of circular reasoning or of simply replacing one term with another without explaining either. The court has ‘to ascertain the nature and quality of the occupancy’ (Street v Mountford [1985] A.C. 809, 825). Thus, Lord Templeman went further and sought to offer guidance as to how exclusive possession differs from the right to occupy enjoyed by a licensee:
‘The tenant possessing exclusive possession is able to exercise the rights of an owner of land, which is in the real sense his land albeit temporarily and subject to certain restrictions. A tenant armed with exclusive possession can keep out strangers and keep out the landlord unless the landlord is exercising limited rights reserved to him by the tenancy agreement to enter and view and repair.’ (Street v Mountford [1985] A.C. 809, 816).
The guidance offered here is that a tenant is one who (under the terms of the lease) has the control rights associated with ownership. In particular, the tenant has the right to exclude others (including the landlord).
This right to exclude others is compatible with (and may even be reinforced by) the fact that there are limited exceptions (such as the reservation of easements or a landlord’s right to enter for certain limited purposes) (Street v Mountford [1985] A.C. 809, 818). If, however, the landlord’s obligations require unrestricted access on his part then there is no exclusive possession and the agreement is a contractual licence (Westminster City Council v Clarke [1992] 2 A.C. 288). The result is that the licensee (a lodger perhaps), ‘is entitled to live in the premises but cannot call the place his own.’ (Street v Mountford [1985] A.C. 809 818).
Importance of a proper understanding of the agreement: labels and shams
The agreement in Street described itself as a licence. At the foot of the agreement was the following declaration made by Mrs. Mountford:
‘I understand and accept that a licence in the above form does not and is not intended to give me a tenancy protected under the Rent Acts.’
Lord Templeman had to consider whether these facts should carry any weight in the analysis. He leaves no room for misunderstanding on this point: it is entirely a question of whether, properly construed, the agreement offered exclusive possession for a certain term (Street v Mountford [1985] A.C. 809, 823 and 826). The parties ‘cannot turn a tenancy into a licence merely by calling it one.’ (Street v Mountford [1985] A.C. 809, 821). 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.’ (Street v Mountford [1985] A.C. 809, 825. See also A.G. Securities v Vaughan and Antoniades v Villiers [1990] 1 A.C. 417). There is a slightly troubling statement in National Car Parks Ltd v Trinity Development Co (Banbury) Ltd ([2001] EWCA Civ. 1686) to the effect that, when making the lease / licence distinction, some weight might be given to the label employed by two professionally advised parties with equal bargaining power.
The lease as an estate in land
Lord Templeman takes it for granted that a lease is always an estate in land. At the very beginning of his judgment he explains that if the agreement created a tenancy then Mrs. Mountford had acquired a legal estate in land (Street v Mountford [1985] A.C. 809, 814).When the court ascertains the nature and quality of the occupancy with a view to seeing whether or not exclusive possession has been granted, the ultimate question is ‘to see whether the occupier has or has not a stake in the room’ (Street v Mountford [1985] A.C. 809, 823). Is the degree of control that the occupier can exercise in accordance with the terms of the agreement so extensive as to amount to ownership for the time being? Is the land ‘his land albeit temporarily and subject to certain restrictions’? Or, by contrast, is the occupier a mere licensee with the result that he ‘cannot be said to own any estate in the land’? (Street v Mountford [1985] A.C. 809, 816).
Lord Templeman’s express understanding, then, is that the lease is always an estate in land. In Bruton v London & Quadrant Housing Trust ([2000] 1 A.C. 406), however, the House of Lords decided that the lease need not be an estate in land. Once there is an agreement that offers exclusive possession for a term then a lease has been created. This is true even though the ‘landlord’ has no estate in land (is himself a licensee for example). Paradoxically, a literal reading of Street has resulted, in the eyes of some commentators at least, in a blurring of the distinction between the lease and the contractual licence. The paradox is that Lord Templeman had insisted that the grant of exclusive possession for a term would be what distinguished the lease (an estate in land) from the contractual licence (a non-proprietary arrangement).
Exceptional cases
Lord Templeman states that while exclusive possession is an essential element of a lease, an occupier with exclusive possession is not necessarily a tenant (Street v Mountford [1985] A.C. 809, 818). In discussing these special cases, Lord Templeman draws a distinction between ‘conduct which negatives an intention to create legal relations’ and ‘special circumstances which prevent exclusive possession from creating a tenancy’ (Street v Mountford [1985] A.C. 809, 822). The former category catches informal arrangements where a landowner allows someone else (perhaps a family member or friend) to occupy property but where there is no contractual intent (as in Marcroft Wagons Ltd v Smith [1952] 2 K.B. 496).
As for the latter category, Lord Templeman says:
‘Sometimes it may appear from the surrounding circumstances that the right to exclusive possession is referable to a legal relationship other than a tenancy. Legal relationships to which the right of exclusive possession might be referable and which would or might negative the grant of an estate include occupancy under a contract for the sale of land, occupancy pursuant to a contract of employment or occupancy referable to the holding of an office.’ (Street v Mountford [1985] A.C. 809, 826 – 7)
It would have been better to say that while the occupier in such cases might appear to have exclusive possession, the reality is that he does not. One reason for saying so is that it would have avoided any blunting of the message that a person enjoying exclusive possession as a result of an agreement with a landowner is a tenant. Another reason is that the occupiers in these exceptional cases do not have exclusive possession at all. One who occupies property between contract and completion will do so either as licensee or as tenant; either is possible and whether a lease or licence has been created will depend on the terms agreed between the parties. In the other two cases mentioned, it would be appropriate to say that the occupier is there on behalf of the employer or the organisation in which he holds an office. It is the employer or organisation which is in exclusive possession through its employee or office-holder. In fact, this is the explanation given by Lord Templeman himself earlier in the judgment (Street v Mountford [1985] A.C. 809, 818).
