Learning Outcomes
After studying this article, you will be able to distinguish between leases and licences, identify the formalities required for valid lease creation, explain the main covenants binding landlords and tenants, and outline the principal methods by which leases may be terminated. You will also be able to apply these principles to SQE1-style scenarios and identify common pitfalls in landlord and tenant law.
SQE1 Syllabus
For SQE1, you are required to understand the landlord and tenant relationship from a practical viewpoint. Focus your revision on:
- the essential characteristics and formalities of a lease, including the distinction between leases and licences
- the main express and implied covenants in leases and their enforceability
- the rules for passing the benefit and burden of leasehold covenants, including privity of contract and privity of estate
- the principal remedies for breach of leasehold covenants
- the different ways in which a lease can be terminated, including forfeiture, surrender, effluxion of time, and frustration.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- What are the three essential characteristics of a lease as set out in Street v Mountford?
- Which formalities are required to create a legal lease for more than three years?
- What is the difference between privity of contract and privity of estate in the context of leasehold covenants?
- Name two ways in which a lease can be terminated before its fixed term expires.
Introduction
The landlord and tenant relationship is a central feature of property law in England and Wales. It arises when a landlord grants a tenant exclusive possession of land for a defined period, usually in return for rent. Understanding the legal requirements for creating a lease, the covenants that bind the parties, and the methods by which leases may be brought to an end is essential for SQE1.
Key Term: lease A proprietary right granting exclusive possession of land for a fixed or periodic term, enforceable against third parties.
Key Term: licence A personal permission to use land, which does not confer exclusive possession or bind third parties.
Creation of Leases
A valid lease must satisfy three requirements: exclusive possession, a defined term, and (historically) rent. The presence of exclusive possession is decisive—if the occupier can exclude all others, including the landlord (except as expressly reserved), the arrangement is likely to be a lease.
Key Term: exclusive possession The right of the tenant to exclude all others, including the landlord, from the premises, subject to any rights reserved to the landlord.
Leases for more than three years must be created by deed. Short leases (three years or less), granted in possession at the best rent without a premium, may be created orally or in writing.
Key Term: deed A formal written document, signed, witnessed, and delivered as a deed, required for certain transactions in land.
If the parties intend to create a lease but fail to comply with the necessary formalities, equity may recognise an equitable lease if there is a valid contract to grant a lease and specific performance is available.
Key Term: equitable lease A lease recognised by equity where the parties have agreed the essential terms and there is a valid contract, but the legal formalities have not been completed.
Lease or Licence?
The distinction between a lease and a licence is essential. A lease creates a proprietary right, whereas a licence is a personal permission. The label used by the parties is not determinative; the substance of the arrangement is key.
Worked Example 1.1
A landlord grants a "licence" to a tenant to occupy a flat for one year, with the right to exclude all others. The tenant pays monthly rent and the landlord retains a key only for emergencies.
Answer: Despite being called a "licence," this arrangement is a lease. The tenant has exclusive possession for a fixed term at a rent, satisfying the requirements in Street v Mountford.
Covenants in Leases
Covenants are promises in the lease that set out the obligations of landlord and tenant. They may be express (written in the lease) or implied (arising by law).
Key Term: covenant A binding promise in a lease, either express or implied, imposing obligations on the landlord or tenant.
Tenant Covenants
Typical tenant covenants include:
- Paying rent
- Repairing and maintaining the premises
- Using the property only for permitted purposes
- Not assigning or subletting without consent
Landlord Covenants
Common landlord covenants include:
- Allowing the tenant quiet enjoyment of the property
- Not derogating from grant (not substantially depriving the tenant of the lease's benefit)
- Repairing obligations (especially for common parts in multi-occupancy buildings)
Key Term: quiet enjoyment The tenant's right to use the premises without substantial interference by the landlord.
Key Term: non-derogation from grant The landlord must not act in a way that frustrates the purpose of the lease or deprives the tenant of its benefit.
Worked Example 1.2
A landlord opens a shop in the same building as the tenant and blocks the tenant's only access to customers.
Answer: The landlord may be in breach of the covenant for non-derogation from grant, as this substantially deprives the tenant of the benefit of the lease.
Passing the Benefit and Burden of Leasehold Covenants
The enforceability of leasehold covenants depends on privity of contract and privity of estate.
Key Term: privity of contract The legal relationship between the original parties to the lease, making them liable for covenants throughout the lease term.
Key Term: privity of estate The legal relationship between the current landlord and tenant, making them liable for covenants that "touch and concern" the land while they hold their respective interests.
For leases granted before 1 January 1996 ("old leases"), the original tenant remains liable for lease covenants even after assignment, due to privity of contract. For leases granted on or after that date ("new leases"), the Landlord and Tenant (Covenants) Act 1995 releases the original tenant from liability on assignment, unless an Authorised Guarantee Agreement (AGA) is required.
Key Term: Authorised Guarantee Agreement (AGA) An agreement by which an outgoing tenant guarantees the performance of lease covenants by the immediate assignee, permitted under the 1995 Act.
Remedies for Breach of Covenant
Remedies for breach of leasehold covenants include:
- Damages (compensation for loss)
- Specific performance (court order to perform an obligation)
- Injunction (to prevent a breach)
- Forfeiture (landlord's right to terminate the lease for serious breach)
Key Term: forfeiture The landlord's right to terminate the lease for breach of certain covenants, usually requiring a forfeiture clause and compliance with statutory notice procedures.
Worked Example 1.3
A tenant fails to pay rent for three months. The lease contains a forfeiture clause. The landlord serves the required notice and seeks possession.
Answer: The landlord may forfeit the lease for non-payment of rent, provided the notice requirements are met and the tenant does not obtain relief from forfeiture by paying the arrears.
Termination of Leases
Leases may be terminated by:
- Effluxion of time (expiry of the fixed term)
- Break clause (early termination by notice)
- Surrender (mutual agreement to end the lease)
- Forfeiture (landlord's right to terminate for breach)
- Frustration (rare—where an unforeseen event makes performance impossible)
- Disclaimer (by a trustee in bankruptcy or liquidator)
- Repudiatory breach (serious breach accepted by the other party)
- Merger (tenant acquires the landlord's interest)
Key Term: surrender The mutual agreement of landlord and tenant to end the lease before its expiry, usually by deed.
Key Term: break clause A contractual provision allowing either party to terminate the lease early by giving notice.
Key Term: frustration The lease is brought to an end because an unforeseen event makes performance impossible or radically different.
Key Term: disclaimer The right of a trustee in bankruptcy or liquidator to disclaim a lease, releasing the tenant from future obligations.
Key Term: merger The lease ends when the tenant acquires the landlord's interest, combining both estates.
Key Term: notice to quit The notice required to terminate a periodic tenancy.
Worked Example 1.4
A tenant holds a monthly periodic tenancy. The landlord gives one month's written notice to quit, expiring at the end of a rental period.
Answer: The periodic tenancy will end at the expiry of the notice period, provided the notice complies with statutory requirements.
Key Point Checklist
This article has covered the following key knowledge points:
- The distinction between leases and licences is determined by exclusive possession, not by the label used.
- Leases for more than three years must be created by deed; short leases may be created orally or in writing.
- Covenants in leases may be express or implied and bind landlords and tenants.
- Privity of contract and privity of estate determine liability for leasehold covenants, especially on assignment.
- The Landlord and Tenant (Covenants) Act 1995 releases original tenants from liability on assignment of new leases, subject to AGAs.
- Remedies for breach of covenant include damages, specific performance, injunction, and forfeiture.
- Leases may be terminated by effluxion of time, break clause, surrender, forfeiture, frustration, disclaimer, repudiatory breach, merger, or notice to quit.
Key Terms and Concepts
- lease
- licence
- exclusive possession
- deed
- equitable lease
- covenant
- quiet enjoyment
- non-derogation from grant
- privity of contract
- privity of estate
- Authorised Guarantee Agreement (AGA)
- forfeiture
- surrender
- break clause
- frustration
- disclaimer
- merger
- notice to quit
