Occupational rights: time for a rethink?

Mark Pawlowski asks whether it is time to rationalise occupational rights in leasehold law in favour of a simplified scheme of proprietary and non‑proprietary rights in land It was, of course, Lord Templeman in Street v Mountford [1985] AC 809 who enunciated the three hallmarks of a tenancy: (1) exclusive possession, (2) for a fixed or periodic term, and (3) at a rent. In reality, however, it is the requirement of exclusive possession that is the decisive factor in determining whether an occupier is a tenant unless there are special circumstances (identified in Street) which negate the existence of a tenancy. The reservation of a rent was held to be not strictly necessary in Ashburn Anstalt v Arnold [1989] Ch 1 and it is apparent that the existence of a term (fixed or periodic) is not conclusive, given that a contractual licence will normally confer on the occupier the right to occupy land for a stated period. The personal tenancy In Bruton v London & Quadrant Housing Trust [1999] 2 EGLR 59, the House of Lords advocated for the first time the notion that a tenancy could create purely personal rights between the parties without conferring exclusive possession against the whole world. Such a hybrid (personal) tenancy binds the immediate landlord but not persons with a superior title: Kay v Lambeth LBC [2004] EWCA Civ 926; [2004] PLSCS 184 and Islington LBC v Green and O’Shea [2005] EWCA Civ 56. The upshot of Bruton is that now not all tenancies necessarily give rise to a leasehold estate and that some may be purely contractual in nature. The point was alluded to by Lord Hoffmann, (at 415): “[T]he term ‘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… which may be binding on third parties”. Lord Hobhouse was more explicit in so far as he expressly conceded that Mr Bruton’s case was not dependent on the establishment of a good proprietary title against all the world. In his view, Mr Bruton’s claim rested on establishing that his relationship with the Housing Trust was that of tenant and landlord. In other words, it was enough that the agreement, applying the Street test, gave rise to a tenancy and it was immaterial that it created no legal estate. Indeed, it has been held subsequently that the Bruton tenant has no estate of any kind in the land: see, Islington LBC. If this is right, then there seems little to distinguish this form of personal tenancy from a contractual licence – the Bruton tenancy simply becomes the conferment of exclusive occupation by another name. The former gives the tenant exclusive possession but only as against the grantor, while the latter confers no exclusive possession but merely exclusive occupation. Neither create proprietary rights nor bind third parties. There is no clear dividing line here between personal and proprietary rights. Tenancies at will Another hybrid in the context of occupational rights is the tenancy at will, lying also somewhere between the tenancy and a mere licence to occupy. Like a tenancy (in the orthodox sense), it confers on the occupier exclusive possession albeit that a purely personal relationship is created between the parties and, as with a licence, no estate in land arises as the tenancy is not, in any sense, a “term of years” within the meaning of section 205(1)(xxvii) of the Law of Property Act 1925 – the word “tenant” in this context is merely synonymous with the word “holder” as opposed to an estate owner having a proprietary interest in land. For this reason, neither a licensee nor a tenant at will can assign or sublet to a third party. In view of these obvious similarities, it has been suggested judicially that, in reality, the tenant at will is simply a person with a licence to occupy: see Irish Shell and BP Ltd v John Costello Ltd [1984] IR 511, at 523, per McCarthy J. Tenancies at sufferance A tenancy at sufferance denotes the relationship of owner and occupier where the tenant holds over on the expiry of his lease and the landlord has neither consented nor expressed objection – the absence of the landlord’s consent negatives any relationship of tenure. Moreover, he is under no obligation to pay rent, but the landlord may demand money for use and occupation. It is apparent, therefore, that a tenancy at sufferance is another anomalous hybrid having some of the hallmarks of an occupational licence, yet also resembling the tenancy at will in so far as the landlord may sue for possession without demand. Ultimately, however, because the tenant holds over without the consent of the landlord, he falls to be classified as a form of tolerated trespasser. A simplified scheme? Given the close similarities between personal tenancies contractual licences and tenancies at will, there is considerable scope for abandoning these fine distinctions in favour of a more rational structure involving the grant of either personal or proprietary occupational rights in land. A personal occupational right (akin to a licence) would confer on the occupier the benefit of personal occupation either at the will of the owner or for a stated period (fixed or periodic) depending on the form of contract entered into between the parties. The occupier would enjoy exclusive occupation but not exclusive possession (in the traditional sense). In other words, the occupational right would not create any estate in land capable of assignment or binding third parties. It would not, therefore, rank as an interest capable of being overridden under paragraph 2 of Schedule 3 to the Land Registration Act 2002. In this connection, paragraph 2 confers overriding status on an “interest” belonging to a person in actual occupation of the land. This wording differs from that contained in section 70(1)(g) of the Land Registration Act 1925, which referred to the “rights” of every person in actual occupation. Interestingly, however, even under this more relaxed formulation, personal rights of an occupier were not given overriding status: see National Provincial Bank Ltd v Ainsworth [1965] AC 1175. In particular, a bare or contractual licence was held not to qualify: Strand Securities Ltd v Caswell [1965] Ch 958. Nevertheless, in exceptional circumstances, a purchaser may take subject to a personal occupational right where his conscience is bound by a constructive trust to give effect to the personal right: see, for example, Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044 and IDC Group Ltd v Clark [1992] 1 EGLR 187. It would be possible, under such a new structure, to abandon also the notion of the tenancy at sufferance by recognising that a tenant who holds over after the expiry of his lease does so under a non-proprietary occupational right determinable at the will of the landlord. This would be akin to a bare licence to occupy recognising that, if the landlord does not expressly object to continued occupation, he is deemed to consent until such time as his (implied) permission is revoked. By contrast, a proprietary occupational right would create in favour of the occupier an estate in land and, consequently, the right to exclusive possession of the property against the whole world. Such right (being a lease or tenancy) would be capable of assignment and have all the other hallmarks of a leasehold estate. There would be no room for hybrids since the governing factor distinguishing the two types of occupational right would be the presence (or absence) of exclusive possession. This reflects the current test for distinguishing between a lease and a licence. Ultimately, it is this element of excludability that characterises estate ownership under English law and distinguishes it from more fragile forms of personal occupation. A restructuring of occupational rights into a simplified two-tier hierarchy of personal and proprietary interests would, in the writer’s view, herald a much-needed return to this orthodoxy. Main image © John Birdsall/Rex/Shutterstock Mark Pawlowski is a barrister and professor of property law at the University of Greenwich