In essence, “leases” are created between landlords and tenants as contracts to grant exclusive possession of the land for a defined period of time, in exchange of rent from tenant. Leases give contractual interests to tenants, while at the same time creates proprietary interests in the land by granting exclusive possession, which elevates a tenancy into an “estate/interest in land”.
It can therefore be understood and has been suggested by commentators that leases are of dual nature and should “be characterised as something of a hybrid”: a hybrid of contract and estate in land. In the landmark case of Bruton v London and Quadrant Housing Trust, court to a certain extent disregarded this dual nature and consequently revolutionized the long-established understanding and principles of lease/tenancy and created a new species of “lease”. This essay will explain the decision made in Bruton, explore its implications and elucidate the potential problems associated with it.
The defendant charitable organization London & Quadrant Housing Trust (“LQHT”),entered into an agreement with and was granted a licence by the local authority (“the Council”) to use a block of flats owned by the Council for temporary housing accommodation for homeless persons. Both parties confirmed the nature of agreement as a licence with no proprietary interest or estate granted to the LQHT.
LQHT executed a licence agreement with the plaintiff, Mr. Bruton, to allow him to reside in the flat. According to the licence agreement, LQHT preserved the right to enter the flat for reasons of inspection and repair works. Mr. Bruton later initiated proceedings against LQHT, alleging that he occupied the flat as a tenant and LQHT was in breach of the implied covenant to repair under Section 11 of a Landlord and Tenant Act. LQHT defended its case and claimed that Mr. Bruton was merely a licensee of the flat that LQHT did not owe him any implied obligation to repair under the Act.
Although the Court of Appeal held that the agreement was a licence, on appeal the House of Lords reversed that decision and concluded that the agreement was in fact a lease (albeit not in the “traditional” sense) and Mr. Bruton was an effective tenant of the flat.
Ratio: the Street v Mountford legacy
The judgment made in Brutonby the House of Lords was a highly controversial one, and it was generally based on the understanding and interpretation of the Street v Mountford case which served as a justification of its departure from longstanding principles.
In the judgment, court referred to a set of characteristics described by Lord Templeman in Street v Mountford to ascertain the nature of a “tenancy”: “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”. After analyzing the facts of Bruton, court reached the conclusion that the agreement between LQHT and Mr. Bruton did possess all the characteristics of a tenancy.
The language used and the label placed upon the agreement was decided by court as irrelevant as the court would investigate and discover the true nature of the agreement, and decide “if upon its true construction it has the identifying characteristics of a lease”. As Lord Jauncey puts it, “it is the legal consequences of the agreement which is determinative rather than the label”.Therefore, even though the agreement was labelled as “license”, court has decided from facts and construction that “prima facie the agreement constituted a tenancy.”
The cornerstone of the decision made in Bruton was the interpretation made by Lord Hoffmann regarding the nature of a lease/tenancy. Lord Hoffman defined a lease/tenancy as follows: “lease or tenancy describes a relationship between two parties who are designated landlord and tenant. It is not concerned with the question of whether the agreement creates an estate or other proprietary interest which may be binding upon third parties.”
This is a groundbreaking decision as it clearly stated that the creation of a lease does not depend upon the grant and creation of proprietary interest binding on third parties by the landlord. In other sense, the necessary connection between lease and estate in land was denied by court. Court acknowledged that as long as exclusive possession along with other rights were granted in a contractual agreement, even though they were purely contractual (not proprietary) in nature, the agreement would still be considered as a lease.
Tradition v Bruton: Concepts of “Exclusive Possession”
The differences between traditional principle and Bruton can be explained by the fundamentally different concepts of “exclusive possession” understood. Although both sides admit creation of exclusive possession is necessary for a lease, there are, as commentary points out, contrasting views to exclusive possession as “absolute or relative concept”.
In the traditional view, exclusive possession is understood as absolute – exclusion of the whole world. Following the common law tradition of nemodat quod non habet, exclusive possession (i.e. proprietary interest) cannot be granted if the “landlord” has no title in land (e.g. a licensee), since in that case he himself would lack the proprietary interest in land as he is unable to exclude the real owner from taking possession. In a nutshell, leases are estates in land, and a party without proprietary interest will not be able to grant the exclusive possession necessary to elevate the tenancy into an estate in land.
In Lewisham Borough Council v Roberts, a case concerning delegation of power of requisition, Lord Denning affirmed that the Council ”cannot grant a lease or create any legal interest in the land…because it has itself no estate in the land out of which to carve any interest.” More recently, Neuberger J. in Re Friends Provident Life Office reassured “a lease involves not only a contract, but also an estate in land”. Therefore, the traditional concepts are long-standing principle and the possibility of leases existing merely in contractual nature and granting “tenant” merely contractual rights are denied by courts.
On the contrary, in Bruton court’s understanding of “exclusive possession” was a relative concept. Exclusive possession granted to Mr. Bruton was found based on the fact that he was not required to “share possession with the trust, the Council or anyone else” and “the trust did not retain such control”. Whether the grantor possesses title or not was held to be irrelevant. Nevertheless, since LQHT in fact could not exclude the true owner (i.e. the Council) from taking possession, the exclusive possession enjoyed by the “tenant” would be “only as against the grantor and not the rest of the world” and practically dependent on the contractual relationship. This has received support from later cases applying Bruton.
In Islington LBC v Greenwith similar facts to Bruton, the tenant raised an argument that the grantor of lease was acting under the licence agreement as the true owner’s agent, hence the true owner was bound by the contract entered into between the grantor and the tenant. Court did not hesitate to reject this argument, pointing out the lack of estate in land in a Bruton tenancy due to its non-proprietary nature as a reason of its inability to bind the true owner. The case shows Bruton has received acceptance and supported the presumption that exclusive possession granted as a contractual right without any involvement of proprietary interest, would fail to bind third parties.
The justifications and reasons made in Bruton to disregard the original principles and depart from precedents were not totally satisfactory. It has long been established and recognized in case laws that leases have a dual nature, granting both contractual and proprietary interests. By creating a relative concept of exclusive possession to fit the characteristics set out in Street v Mountford and changing the principle of leases, Lord Hoffman has essentially disregarded the proprietary nature of leases.
In my opinion, lease/tenancy is not merely a personal and contractual relationship between landlord and tenant. As established in precedents, leases also possess a proprietary nature, and creation of proprietary interests (estate in land) is a crucial element to classify an agreement as a lease. The relative concept of exclusive possession in failing to create proprietary interest is not “exclusive” and does not create any tenancy. It is therefore incorrect to assert that a lease’s nature (being proprietary/non-proprietary) depends on grantor’s presence or absence of title in land. The preposition of “non-proprietary lease” is itself contradictory.
Implications: Non-proprietary Lease and Contractual License
Due to their similar nature, distinguishing leases and licenses has been a difficult task for court. Court has long considered the presence of exclusive possession as a prime factor in distinguishing between the two, as Lord Donaldson M.R. puts it, it is “the touchstone by which the spade of tenancy falls to be distinguished from the fork of lodging. The decision in Bruton has only unhelpfully blurred the line and put the law in a yet more confusing and unreasonable position.
In Bruton court has created the concept of relative “exclusive possession” contrary to the absolute tradition, meaning only exclusion against the grantor but not the whole world. A question inevitably arises. How does this concept differ from “exclusive occupation”, which does not lead to creation of a lease? An occupant with exclusive possession has “mere permission to occupy” without estate in land and cannot “exercise the right of an owner consistent with the grant of a tenancy”. The lack of interest to exclude the whole world, inclusive of the “true owner”, puts the concept of relative exclusive possession in a middle ground between the polar ends of exclusive possession and exclusive occupation. When we hold exclusive possession to an absolute degree as in case precedents, relative exclusive “possession” may be recognized as flawed and merely an “occupation”, rendering the “non-proprietary lease” as a sheer “contractual licence”. The unclear and ambiguous nature of this “lease” is indeed subject to challenge.
The confusing nature of “non-proprietary leases” leads to disputes in its legal status. In the Hong Kong context, it is not entirely clear whether legislations governing tenancy, including the Landlord and Tenant Ordinance, would be applicable. Similar to the legislation’s UK counterpart, such legislation “are based on the assumption that leases are potentially assignable”. Since “the ability to alienate leases flows from their proprietary status”, assignment of rights of “non-proprietary leases” would presumably be impossible. The problem with uncertainty of rights of which “non-proprietary lease” holders are entitled if left unsolved, would potentially drives more undesirable disputes and confusion in law.
The creation of the new species of “lease” in Bruton reflects the court’s flexible and practical mentality in protection of the powerless occupant from the authority “landlord”. Nevertheless in achieving this, the court had altered the definition of lease, disregarded its dual nature and departed from established principles. The lease/licence distinction was blurred, with the potential consequences being confusion in law and problems in the social context. Since Bruton is now a widely accepted decision, one remedy remaining could be, as commentary suggests, formalizing the Bruton “lease” and its corresponding rights through legislation. In any case, clarification and settlement of this confusion would undoubtedly be most beneficial for the legal community and society as a whole.