Land and Property Law - Leases and Licenses
Under land law, the two concepts of leases and licenses are very important because they help draw understanding on the different interests and rights available to a person, though not being the owner of the land, but accumulates those interests and rights by virtual of either a lease or license. This paper is aimed at discussing the concept of leases and licenses and it will further provide the key distinctive features between them.
WHAT IS A LEASE?
A
lease is an interest in land for a fixed or definite duration, at a money
consideration called rent. The duration needs to be certain or ascertainable as
to the date of the commencement and the expiration date and the absence of such
certainty makes the lease void. In other words, a lease can be defined as a
contractual document evidencing the terms upon which an interest in land is
held. The parties to this contract include the person granting the land who is also
referred to as a grantor, lessor or landlord and on the other hand, is the
person granted the land and is sometimes referred to as a grantee or lessee or
a tenant.
THE
KEY ELEMENTS OF A LEASE.
There are three
underlining conditions that need to be satisfied for a lease to be created and
unless these conditions are satisfied no lease can be said to have been
created. The elements include; (i) a fixed duration, (ii) exclusive possession
of the land; and (iii) there must be consideration.
(i)
A
Fixed Duration
The
first key element is that a lease must possess a fixed duration, the certainty as
to the term is very important for a lease to be in existence. Unless the
commencement date is certain or ascertainable before the lease takes effect,
such a lease is voidable. The document creating lease must use language that is
certain with reference to the duration or at least provide a time reference
from which no one can diverge. In the case of William
Jacks & Company (Zambia) Limited v. O’Connor[1], where
the Court of Appeal articulated the five essential items for a valid lease
agreement, namely: (i) parties; (ii) property, (iii) length of term; (iv) rent
and (v) commencement date of term. The court held that:
“An alleged
agreement for lease which contains no commencement date is not, in fact, an
agreement for lease; nor does it resemble one sufficiently to be accepted as
purporting to be an agreement for lease.”
Further, in Harvey
v. Pratt[2],
it was stated that:
“It has been
settled law that, in order to have a valid agreement for a lease, it is
essential that it should appear, either in express terms or by reference to
some writings which would make it certain, or by reasonable inference from the
language used, on what day the term is to commence.”
It is evident from the cases above, that the lack
of certainty as to the duration and the commencement date of a lease makes it
invalid.
(ii)
Exclusive
Possession of the Land
The second element in determining the creation of a
lease is that of exclusive possession. A lease creates a legal right of
exclusive possession of the land of the lessee, this implies that the lessee
has the power to evict all trespassers from the land including the landlord but
it is a right subject to any other right reserved at law or by the lease to the
landlord.
In Street v. Mountford[3],
the court held that a lease must grant
exclusive possession of the property for a fixed or periodic term at a rent.
That it is the nature of the right created that is important and superficial
labels are irrelevant. The court will
look at the nature of the rights created by the agreement in order to determine
whether is a lease, it is not sufficient for the parties to just call it a
lease when it does not confer upon the lessee unrestricted access to the
premises.
(iii)
Consideration
Called Rent
The last element for consideration is that it must
be at a consideration called rent. Rent is payment by a tenant to his landlord
under the terms of a lease or tenancy agreement. The obligation to pay rent is
an implied obligation of a tenant under all leases, and a failure by the tenant
to pay rent entitles a landlord a right to an action for forfeiture of the
lease and a claim in court against the tenant for rent dues.
TYPES
OF TENANCIES
The following are the types of tenancies and their
distinction therewith;
Tenancy at Will vs Tenancy at Sufferance.
A tenancy at will involves a situation where a
tenant occupies land with the full consent of the landlord and either party is
at liberty to terminate the agreement at any time and the tenancy comes to an
end. The subsistence of a tenancy at will is dependent on the desire of both
the landlord and tenant.
Tenancy at sufferance on the other hand, is where a
tenant wrongfully holds over after his lease has expired and remains in
possession without the Landlord’s assent or dissent. In such a case the
landlord reserves the right to holdover the tenant to a new tenancy and to
collect rent for the period which the tenant had held over the land.
Periodic Tenancies Vis-à-vis Fixed Tenancies vs
Tenancy by Estopel.
Periodic tenancies involve a type of lease
agreement that continues for successive periods until there is notification
from the tenant to the landlord on the tenancy coming to an end. Under this
type of tenancy rent is paid by the tenant in reference to a definite period
i.e., weekly or monthly etc. There is only a slight difference that exists
between a periodic tenancy and a fixed tenancy, a fixed tenancy is a tenancy or lease of a fixed
and certain duration, for example, a lease for a fixed period such as, a month,
1 year or 2 years or more.
A tenancy by estopel is radically different from a
period or fixed tenancy as is granted to a tenant at the time when the landlord
holds no estate in the land granted. It follows that once the landlord becomes
the legal owner of the estate then he/she is estopped form revoking such a
grant.
WHAT IS A LICENSE?
A license is a grant of a mere right to occupy a
premise and it naturally lacks the proprietary interest associated with leases.
A license should be understood as permission granted to a person to use land
which would otherwise be a trespass without such permission. Since a license
creates no interest in land the license could be revoked at any time, leaving
the evicted party with only the remedy of a claim for damages for breach of
contract. The person granting the license is known as a licensor and the person
to whom the license is granted is referred to as the licensee.
TYPES OF LICENSES
Bare
Licenses vs Contractual Licenses.
A bare license is one where a person enters or uses
another’s land with the express or implied permission of the owner with no
valuable consideration. This form of license gives gratuitous permission to the
licensee to freely enter upon another’s land without fear of an action for
trespass to land. such a license can be revoked at any time and no action for
damages can be successful because there is a lack of consideration and no
contractual relations lie between the licensor and licensee therewith.
Contractual licenses on the other hand are licenses
that are granted at a valuable consideration. As the name suggests a
contractual license creates a contractual relationship and the rights that are
created therewith are dependent on the terms of the contract. A contractual
license is capable of enforcement where there is wrongful revocation, but the
license can be revoked according to the fixed term in the contract, in Cowell v. Rosehill
Racecourse Co Ltd[4], where
the court were faced with a question whether it was possible to revoke a
contractual license? The court held that,
“Although it had been paid for by the appellant did
not create any proprietary interest (the
right to still remain on the land even though the purpose of the license had
come to an end). It did create a contractual right; however, this was
revocable at common law and the respondent was not prevented by equity from
revoking the license or relying on the revocation.”
License
Coupled by an Interest vs License by Estoppel
A
license coupled by an interest (a grant), is a license which not only gives the
licensee the right to enter upon or use the land, but it is accompanied by some
other form of interest, for example the right to also hunt or cut down tresses
from the land. The only consideration is that the granted right must be
recognised interest in property and that it is lawfully created.
A
license by estoppel is one created where the licensor is prevented by the
doctrine of estoppel from revoking a license or in other cases from putting it
into effect.
THE
DISTINGUISHING FEATURES BETWEEN LEASES AND LICENSES.
The main
distinguishing feature between a lease and a license is set out in the case of Street v. Mountford[5],
the facts of the case were that, Street, gave rooms to Mrs.
Mountford for a ‘license fee’ of £37 a week, terminable on fourteen days’
notice. Mrs. Mountford also signed a form saying she understood the Rent Act,
did not apply to regulate her rental payments. The Rent Act at the time applied
to leases only, not licenses, and required landlords to accept a rent which was
deemed fair by an independent officer or tribunal, and also required more than
fourteen days’ notice to be given. Mrs. Mountford argued that she had a lease.
The judge held in Mrs. Mountford’s favor. When Mr. Street appealed, the court
of appeal held that, the written agreement was clear, Mr. Street did not intend
the existence of a lease. That, “there is manifested a clear intention of
both parties that the rights granted were merely those of a personal right of
occupation and not those of a tenant.”
The matter was
taken before the House of Lords and it was held that despite a contrary
intention expressed by the contract, Mrs. Mountford did have a lease as it was
conceded that Mrs. Mountford was given exclusive possession. In the case of
residential accommodation there is no difficulty in deciding whether the grant
confers exclusive possession. An occupier of residential accommodation at a
rent for a term is either a lodger or a tenant. The occupier is a lodger if the
landlord provides attendance or services which require the landlord or his
servants to exercise unrestricted access to and use of the premises. A lodger
is entitled to live in the premises but cannot call the place his own.
With regards to the submission made by Mr.
Street that the court cannot in these circumstances decide that the agreement
created a tenancy without interfering with the freedom of contract enjoyed by
both parties. Both parties
enjoyed freedom to contract or not to contract and both parties exercised that
freedom by contracting on the terms set forth in the written agreement
and on no other terms. But the
consequences in law of the agreement, once concluded, can only be determined by
consideration of the effect of the agreement. 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 license.
The case of Street v. Mountford illustrates that, the grant of exclusive
possession distinguishes a lease from a license as it is present in a lease and
it is absent in licenses. The right to exclusive possession is the legal right
to exclude third parties from the land including the landlord. The right that
stem from a lease is proprietary in nature, so the right represents an interest
in the land rather than a personal contractual right. Although a license does not confer upon
the licensee exclusive possession of the land it does confer upon the licensee
the right to exclusive occupation and enjoyment of the premises.
Leases provide a security of tenure whereas,
a license can easily be terminated. Security of tenure
is the certainty that one’s right in land will be recognised by third parties
and protected in cases of specific challenges. Since a lease is created with
one of the conditions being that it must be of a fixed duration, a lessee cannot
at any point be forcefully evicted by his/her landlord. Licenses on the other
hand are generally more flexible and easier to terminate as compared to leases.
Further, it is possible to conclude certain
types of licenses without any valuable consideration whereas, for a lease to
come into existence the element of valuable consideration is essential. A bare
license requires no valuable consideration from the licensee because even
permission that is gratuitous in nature can bring such a license into existence,
the same cannot be said for a lease because what creates a valid lease are the
three elements of fixed duration, exclusive possession and valuable
consideration.
A lease is transferable and inheritable, a
lease can be transferred to another person. The reasoning is that, a lease runs with the land. where the ownership in the land is
passed on to another, then the new owner must take the land subject to the
lease. This is not the case with a license as it is neither transferable nor
inheritable and if ownership of the land is passed on to another, then the
licensee does not have any rights against the new owner of the land unless the license
is transferred by agreement between the old owner, the new owner and the
licensee.
From the above
it is clear that, a lease and a license only provide a temporal transfer of the
different rights and interests over land, from a land owner to another party
subject to a time period. What distinguishes a lease from a license is the
different rights and obligations they convey, while leases give a legal right over
land, the same cannot be said for licenses, because they only convey a mere
right of occupation. An understanding of the key distinctive features between
leases and licenses is imperative because it makes known to parties of what
available recourse is open to them, in a case of a breach of either a lease or
license agreement.
This Article is Brought to you by:
LEGAL AID INITIATIVE
(Access to Knowledge )
About the Author:
Kunda Mulenga is a third-year law student at the University of Zambia and serving as the Secretary General of Legal Aid Initiative.