Ashburn Anstalt v Arnold [1989] Ch 1

Facts

• Ashburn Anstalt (claimant) succeeded to title previously held by Matlodge, which had entered into an agreement with Arnold & Co (defendant) for occupation of certain premises.
• The agreement allowed Arnold & Co to occupy the premises without rent, subject to a quarter’s notice from the titleholder.
• The agreement was labelled a 'licence', but allowed exclusive possession for a specified period.
• Later, the premises were sold to Ashburn Anstalt, who disputed the defendant's right to remain.
• The case examined whether the agreement created a lease or merely a licence, and whether any proprietary rights bound the purchaser.
• The judgment also addressed the effect of a “subject to” clause in the contract for sale related to third-party rights.

Issues

1. Whether the agreement between Arnold & Co and Matlodge created a lease or a licence.
2. Whether the absence of rent prevented the creation of a valid lease.
3. Whether a contractual licence could bind third parties or purchasers of the land.
4. Whether the “subject to” clause in the sale contract gave rise to a constructive trust binding the purchaser.

Decision

• The court held that the agreement constituted a lease despite being labelled a licence, as it granted exclusive possession for a certain term.
• It was determined that rent is not an essential requirement for a valid lease; exclusive possession for a specified period suffices.
• The court confirmed that contractual licences are personal rights and do not create proprietary interests; thus, they do not bind purchasers merely by notice.
• The inclusion of a “subject to” clause did not, in itself, create a constructive trust in favour of the licensee, as unconscionability was not established.
• The reasoning on certainty of term in Ashburn Anstalt was subsequently overruled in other cases, though the rent principle remains.

Legal Principles

• The grant of exclusive possession for a term is the essence of a lease; rent is influential but not indispensable.
• The labels applied by the parties (lease or licence) are not determinative; courts look to the substance of the arrangement.
• Contractual licences are personal rights and cannot bind third-party purchasers unless it would be unconscionable otherwise.
• A constructive trust will not arise from a “subject to” clause without evidence of intention to bind or unconscionability.
• Due diligence is necessary in property transactions to ascertain the nature of occupying rights and possible proprietary status.

Conclusion

The case established that rent is not a prerequisite for a lease, as exclusive possession and certainty of term prevail. Contractual licences do not create proprietary interests binding upon purchasers; a "subject to" clause alone is insufficient to trigger a constructive trust. This decision continues to influence English land law regarding leases, licences, and third-party rights.