Learning Outcomes
After reading this article, you will confidently distinguish leases from licences, identify the legal requirements for creating valid leases, and explain how leasehold covenants are enforced and transferred between successive owners. You will understand key remedies available to landlords and tenants for breach of covenant and recognise the main ways a leasehold interest can be brought to an end, ensuring you are equipped to tackle SQE2 assessment scenarios on this topic.
SQE2 Syllabus
For SQE2, you are required to understand the law and practice relating to leases in land law. Particular attention should be paid in your revision to:
- the essential legal characteristics of a lease and the difference from a licence
- the requirements and formalities for the creation and effective transfer of a lease
- enforcement and transmission of leasehold covenants, including privity of contract and privity of estate
- assignment and subletting, and the effect of alienation covenants
- the principal remedies available to landlords and tenants for breach of covenant, including forfeiture
- the circumstances and means by which leases terminate or can be prematurely ended.
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.
- Which of the following is always required to create a legal lease of more than three years?
a) payment of rent
b) a deed
c) a written notice
d) a fixed end date - True or false? All leasehold covenants are automatically enforceable by and against successors in title, regardless of the date of the lease.
- A lease allows the tenant to exclude all others, including the landlord. Which key legal concept does this describe?
- What is the primary statutory remedy for a landlord seeking to retake possession after a tenant breaches a lease covenant?
Introduction
A lease confers a right of exclusive possession over land or property for a specific period, with the tenant able to exclude even the landlord during the term. Leases form a central part of land law, appearing in various contexts, from residential tenancies to long-term commercial arrangements. For the SQE2, it is essential to clearly distinguish leases from licences and understand detailed rules about creation, enforceability, transfer, remedies and termination.
Leases and Licences: The Essentials
A lease is a proprietary right in land that grants exclusive possession for a fixed or periodic term. By contrast, a licence merely permits occupation or use, conferring only a personal right that cannot bind subsequent owners.
Key Term: lease
A proprietary legal right to exclusive possession of land for a defined period, enforceable against third parties.Key Term: licence
A personal, non-proprietary right to use or occupy land, revocable at will and not enforceable against third parties.
Leases are usually distinguished from licences by three essential features:
- Exclusive possession: The tenant has control over the property and can exclude the world, including the landlord.
- Definite duration: The arrangement must be for a known fixed term or a periodic tenancy (renewed by each period until notice is given).
- Formalities: Depending on the length, leases must follow specific creation requirements, usually a deed for more than three years.
Worked Example 1.1
A landlord grants occupation of a flat to an individual for one year. The occupier pays rent, can exclude everyone including the landlord, and the arrangement is documented in a signed, witnessed deed. The landlord describes it as a “licence agreement.” Has a lease been created?
Answer:
Despite the label, this arrangement grants exclusive possession for a fixed term using a deed. All legal requirements for a lease are met, so a lease (not a licence) exists.
Creating a Legal Lease: Formalities
The necessary formalities depend on the proposed term:
- Leases over three years: Must be created by deed signed, witnessed, and stating on its face that it is a deed.
- Leases three years or less: May be granted orally, provided the lease takes immediate effect, is for the best rent reasonably obtainable, and requires no upfront fine or premium.
Key Term: deed
A written instrument that is signed, witnessed, and expressed as a deed, fulfilling statutory requirements for certain legal transactions (including longer leases).Key Term: parol lease
A lease for a term of three years or less, created without a deed, taking effect in possession at best rent, and without a fine.
If the correct formalities are not followed, and there is only a contract, equity may recognise an equitable lease if it complies with statutory requirements for contracts concerning land and specific performance is available.
Leasehold Covenants: Privity and Enforcement
Leases are built on contractual obligations (covenants) by landlord and tenant. Two principal legal relationships determine covenant enforceability:
Key Term: privity of contract
The direct relationship between the original landlord and tenant, meaning both remain bound by lease covenants throughout the lease’s term unless law or agreement says otherwise.Key Term: privity of estate
The relationship between the current landlord and the current tenant, arising from holding respective legal estates; binds each to "real" covenants that touch and concern the land.
Old (pre-1996) leases and new (post-1996) leases are treated differently in law:
- Old leases (pre-1996): Both the original and any assignee tenant are liable for lease covenants; original landlords may still sue or be sued after selling the reversion.
- New leases (post-1996): On valid assignment, both liability and benefit automatically pass to the assignee (subject to exceptions like Authorised Guarantee Agreements). The outgoing tenant is usually released from future liability.
Key Term: Authorised Guarantee Agreement (AGA)
An agreement, often required upon assignment, by which the outgoing tenant guarantees the new tenant's compliance with lease covenants until further assignment.Key Term: alienation covenant
A lease term restricting or regulating assignment or subletting of the lease (or other forms of disposal).Key Term: assignment
Transfer of the tenant's entire interest in the lease to a new tenant (the assignee), who then assumes liability for its covenants.Key Term: sublease
Creation of a new, shorter lease by a tenant out of their own leasehold estate; the head lease remains in place.
Worked Example 1.2
A 25-year commercial lease states the tenant cannot assign or sublet without landlord’s consent. The tenant seeks to assign to another business. The landlord refuses, stating only “I don’t like their logo.” Can consent be justifiably refused?
Answer:
If the lease is post-1996, statutory provisions require landlord’s consent not to be unreasonably withheld. Refusal based purely on personal dislike is unlikely to be reasonable.
Remedies for Breach of Covenant
Landlords and tenants each have contractual and proprietary remedies when the other breaches relevant covenants:
- Landlord’s remedies for non-payment of rent:
- Debt action (suing for arrears)
- Commercial Rent Arrears Recovery (CRAR) on commercial premises
- Forfeiture (termination of the lease for serious breach, usually by peaceful re-entry or court action, if a forfeiture clause exists)
- Landlord’s remedies for other breaches:
- Forfeiture (if clause permits)
- Damages or specific performance (in rare cases)
- Self-help for repair (if the lease authorises and after due notice)
- Tenant’s remedies for landlord’s breach:
- Damages (contract)
- Specific performance or injunction (for breach of landlord covenants)
- Rent set-off or carrying out repairs themselves in limited circumstances
Key Term: forfeiture
The landlord’s right to end a lease prematurely (usually by peaceable re-entry or a possession order) because the tenant has breached a covenant and the lease permits it.
Exam Warning
Forfeiture is only available if the lease specifically provides. Waiver (such as accepting rent after breach) may remove the right. Court orders are usually required if residential occupants are present.
Termination of Leases
The principal methods by which leases end are:
- Expiration: Lease reaches the end of its fixed or periodic term.
- Notice to quit: Required for periodic tenancies, following statutory minimums.
- Break clause: Either party may terminate the lease early by complying with agreed notice procedures.
- Surrender: Landlord and tenant agree to end the lease early (usually by deed).
- Forfeiture: Landlord ends the lease because of a serious tenant breach.
- Merger: Tenant acquires the superior estate (e.g., purchasing the freehold).
- Disclaimer: Following tenant’s insolvency, a liquidator or trustee in bankruptcy disclaims the lease.
Worked Example 1.3
A tenant holds a monthly periodic lease. The landlord gives written notice to quit, expiring at the end of the next monthly period. Does this terminate the lease?
Answer:
Yes, provided statutory and contractual notice requirements are satisfied, a monthly periodic tenancy may be lawfully ended by proper notice to quit.
Key Point Checklist
This article has covered the following key knowledge points:
- The essential features of a lease and how it is distinguished from a licence.
- Required formalities for creating valid legal and equitable leases, including deeds and parol leases.
- The difference between assignment and subletting, and the legal effects of an alienation covenant.
- Privity of contract and privity of estate as the basis for covenant liability and enforcement.
- Principal remedies available for breach of leasehold covenants by either landlord or tenant.
- Main ways a lease terminates, including expiration, break clauses, surrender, and forfeiture.
Key Terms and Concepts
- lease
- licence
- deed
- parol lease
- privity of contract
- privity of estate
- Authorised Guarantee Agreement (AGA)
- alienation covenant
- assignment
- sublease
- forfeiture