Exclusive possession: lease or licence?

Louise Clark explains a decision on the Telecoms Code that the Upper Tribunal itself acknowledged was to an extent unsatisfactory. Key points The grant of exclusive possession of land for a term at a rent creates a lease irrespective of label or intention A term certain means a fixed term, a periodic tenancy or an amalgamation of the two The law does not always provide satisfactory practical consequences In AP Wireless II (UK) Ltd v On Tower UK Ltd [2024] UKUT 263 (LC); [2024] PLSCS 166, the Upper Tribunal (Lands Chamber) has provided a detailed analysis of the meaning of exclusive possession and the requirements of a lease. Background The case concerned agreements for the installation and operation of telecommunications equipment at separate rural sites in Sandbach, Cheshire, and Hullbridge, Essex. In each case the freehold owner of the site was now the appellant, APW, and the operator was the respondent, OT. The agreements were subject to the Electronics Communication Code in schedule 3A to the Communications Act 2003. If the agreements were licences, the operator could seek a new agreement under Part 5 of the Code. If they were leases, they were subject to Part II of the Landlord and Tenant Act 1954 and Part 5 would not apply. The agreements The Sandbach agreement was made in 1997 for a minimum term of 10 years at a fee and was subject to termination by either party on 12 months’ written notice on or after expiry of the minimum term. A supplemental agreement in 2000 extended the site area for an increased fee. The agreement relating to the Hullbridge site was made in 2002 for a term of 20 years at a fee. In both cases, the telecommunications equipment was to be in a fenced compound, which the operator was required to erect and maintain within land also owned by the landowner, over which the operator had rights of access. The landowner could access the sites for inspection purposes only, by prior appointment. The law Where a contractual agreement for the occupation of land grants exclusive possession of the land for a term at a rent, the result will be a lease whatever label the parties put on it or their intentions (Street v Mountford [1985] 1 EGLR 128). It is necessary to look at the substance and effect of the agreement as a whole. Since the agreements were for business purposes, business common sense applied. What would a reasonable person with all the background knowledge reasonably available to the parties have understood them to have meant? These principles apply irrespective of whether the Code applies. Exclusive possession requires two elements: factual possession, meaning a sufficient degree of physical control and custody; and an intention to possess, meaning an intention to exercise custody and control on one’s own behalf and for one’s own benefit. To be a term certain, it must be possible to identify the maximum duration of the term from inception. A periodic arrangement determinable by either party is also capable of being a term certain. A fetter on the right of determination by either party, if for a specified period, will not invalidate the arrangement but a curb on the right, unless and until uncertain events occur, will. It is also possible for a tenancy comprising a fixed term followed by a periodic tenancy to comprise a term certain (Mexfield Housing Co-operative Ltd v Berrisford [2011] UKSC 52; [2011] 3 EGLR 115). The decisions The judge in the First-tier Tribunal decided that he was dealing with “a legal relationship other than a tenancy” as identified by Lord Templeman in Street v Mountford and that to seek to use the lease/licence distinction was inappropriate in the rapidly developing world of electronic communications. The intention of the parties was that the operator would be granted a bundle of rights relating to the installation and operation of telecommunications equipment. There was no grant of exclusive possession of land, lift and shift provisions allowed the site owner to move the site to another location and the plans did not demarcate the site. The agreements were licences not leases to which the 1954 Act applied. The Upper Tribunal disagreed. The agreements did grant an extensive bundle of rights, but in relation to equipment which was to be installed and operated within an enclosed compound. The grant of those rights, considered with the plans (which identified specific areas of land subject to the rights), the enclosed nature of the sites and the operator’s fencing obligations, the operator’s extensive sharing rights and restricted access for the owner meant that the agreements granted exclusive occupation of each site. This conclusion was reinforced by each agreement providing that it bound successors in title of the original contracting parties. It was not disputed that the tariff payable under each agreement was capable of functioning as rent if the other hallmarks of a lease were present. The Hullbridge agreement was for a fixed term at a rent and so was a lease. However, the Sandbach agreement, being for a minimum term, was not for a term certain. It was neither a fixed term, a periodic tenancy nor an amalgamation of the two. The tribunal rejected the argument that a fourth category of tenancies existed where the term continued until determined by notice given by either party. The Sandbach agreement was not capable of being construed as creating a periodic tenancy on expiration of the minimum term. It was also not possible to imply – by the operator’s exclusive possession of the site – an annual periodic tenancy, because of the termination provisions. The Sandbach agreement was therefore a licence, not a lease. Conclusion As the chamber president, Justice Edwin Johnson, conceded his decision was unsatisfactory. Each agreement granted exclusive possession of the site to the operator but the Sandbach agreement was precluded from being a lease because of the term issue. He ascribed this outcome to Lord Neuberger’s sentiment in Mexfield that on the term issue the law “appeared clear in its effect, intellectually coherent in its analysis, and in part, unsatisfactory in its practical consequences”. Louise Clark is a property law consultant and mediator Image © Umang Patel/Pexels