Core principles of land law - Leases

Learning Outcomes

This article covers the core principles governing leases in land law, including:

• The lease/licence distinction, focusing on exclusive possession, certainty of term, and recognised exceptions
• Creation requirements: deeds for terms over three years, valid parol leases, reversionary limits, and equitable leases (Walsh v Lonsdale)
• Registration and HM Land Registry practice: registrable leases over seven years with prescribed clauses, overriding status of shorter legal leases, and protection of equitable leases by notice or actual occupation
• Enforcement and transmission of leasehold covenants via privity of contract and estate, and the differences between old (pre-1996) and new (post-1996) leases under the Landlord and Tenant (Covenants) Act 1995
• Assignment and subletting, landlord consent standards under LTA 1927 and LTA 1988, and use of AGAs and reasonable conditions in commercial leases
• Remedies for breach by either party: debt actions, CRAR, damages, specific performance and injunctions, self-help under Jervis v Harris clauses, and forfeiture with s146 notices and discretionary relief
• Liability of former tenants and guarantors for fixed sums and the availability of an overriding lease
• Termination routes: effluxion of time, notice to quit, strictly conditioned break clauses, surrender, forfeiture, merger, and disclaimer, plus the interaction with business tenancy security of tenure
• Practical issues around title restrictions and consent, and the consequences of failing to register a registrable lease

SQE2 Syllabus

For SQE2, you are required to understand the law and practice relating to leases in land law, with a focus on the following syllabus points:

• 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, including registration for leases over seven years and the use of prescribed clauses
• enforcement and transmission of leasehold covenants, including privity of contract and privity of estate, and the old/new lease regimes under the Landlord and Tenant (Covenants) Act 1995
• assignment and subletting, and the effect of alienation covenants and statutory obligations (LTA 1927 and LTA 1988) regarding consent
• the principal remedies available to landlords and tenants for breach of covenant, including debt actions, CRAR, specific performance, damages, self-help (Jervis v Harris) and forfeiture with s146 LPA notices and relief
• the circumstances and means by which leases terminate or can be prematurely ended, including notice to quit, break clauses, surrender, merger, forfeiture and disclaimer, and the interplay with security of tenure for business tenancies

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.

1. 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
2. True or false? All leasehold covenants are automatically enforceable by and against successors in title, regardless of the date of the lease.
3. A lease allows the tenant to exclude all others, including the landlord. Which key legal concept does this describe?
4. 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. You should also be comfortable with registration requirements under the Land Registration Act 2002, the effect of consent provisions and restrictions on title, and how different regimes affect liability on covenants depending on the lease date.

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. Exclusive possession is assessed by substance over form: labels such as “licence” will not prevent a lease if the arrangement gives exclusive possession for a term. Clauses inserted to avoid creating a lease may be disregarded if they are sham provisions and not genuinely intended to be operated.
• Definite duration: The arrangement must be for a known fixed term or a periodic tenancy (renewed each period until valid notice is given). Leases must be certain as to maximum duration at the outset; arrangements expressed to end on an uncertain event (eg “until the war ends” or “for the life of X”) will generally be void for uncertainty, subject to statutory conversion in limited cases.
• Formalities: Depending on the length, leases must follow specific creation requirements, usually a deed for more than three years.

Exclusive possession can be held jointly. Cohabitants or shared occupiers may still have a lease if they together have the right to exclude others, typically evidenced by the four unities (possession, interest, title and time). There are well-recognised exceptions where exclusive possession does not create a lease, such as service occupancies (eg employees required to live on-site), certain family or charitable arrangements lacking an intention to create legal relations, and situations where the owner retains significant control inconsistent with a tenancy.

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.

Fixed-term leases can be for any duration from days to centuries, provided the maximum term is certain at the outset. Reversionary leases can be granted to commence at a future date, but must start within 21 years of the grant; otherwise, they are invalid. Periodic tenancies (eg monthly, quarterly or yearly) renew automatically at the end of each period until terminated by valid notice to quit.

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. However, an equitable lease will not bind a purchaser for value unless properly protected (by notice on the charges register in registered land or a Class C(iv) land charge in unregistered land), or unless the tenant’s actual occupation confers overriding status in the limited circumstances permitted.

Registration and HM Land Registry formalities

The registration position is important:

• Legal leases for more than seven years: Must be completed by registration. The lease obtains its own title number and is also noted against the landlord’s title. Failure to register means the disposition takes effect only in equity.
• Legal leases for seven years or less: Are overriding interests in registered land. They are not substantively registrable, although related rights (eg easements within the lease) should be registered where possible to ensure they take effect in law.
• Equitable leases: In registered land, protect by entering a notice; in unregistered land, protect by a Class C(iv) land charge against the owner of the reversion. An equitable lease may be overriding if the tenant is in actual occupation at the relevant time and the interest is obvious on inspection or known to the purchaser.

For leases granted out of registered land and compulsorily registrable (ie more than seven years), prescribed clauses must appear at the front of the lease to facilitate registration. Landlord’s consent may be required under any restriction on the title (eg lender’s restriction); without consent, registration may be refused and the landlord may breach its charge terms.

Worked Example 1.2

A landlord of registered freehold grants a 10-year lease by deed. The tenant takes possession and pays rent. The lease is not registered, and the landlord sells the freehold to a buyer who saw the tenant in occupation during inspection. Is the buyer bound?

Answer:
A legal lease for more than seven years must be completed by registration. Without registration, it takes effect only in equity. The equitable lease will bind if protected by notice, or as an overriding interest if the tenant’s actual occupation was obvious on inspection or the buyer had actual knowledge. On these facts, the buyer saw the tenant in occupation: the equitable lease is overriding and the buyer is bound.

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): The original landlord and tenant remain contractually liable for the full term. Successive tenants and landlords are liable under privity of estate for covenants that touch and concern the land while the estate/reversion is vested in them. Benefits and burdens of covenants touching and concerning pass on assignments of the reversion (LPA 1925 ss141–142). The original tenant will often seek a chain of indemnity covenants on assignment; an indemnity is implied on assignment of unregistered leases for value and on registered lease assignments.
• New leases (post-1996): The Landlord and Tenant (Covenants) Act 1995 largely abolishes privity of contract. On lawful assignment (ie in compliance with any alienation covenant), the outgoing tenant is automatically released from future liability; the assignee takes the burden and benefit of covenants (other than those expressly personal). The outgoing tenant may be required to enter an Authorised Guarantee Agreement (AGA) to guarantee the immediate assignee’s performance. Landlords do not have automatic release on assignment of the reversion, but can seek release under the statutory procedure, or limit liability contractually to their period of ownership (commonly known as an “Avonridge clause”).

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.

Alienation covenants may be absolute (no dealing permitted), qualified (consent required) or fully qualified (consent not to be unreasonably withheld). At law, a qualified covenant is treated as fully qualified: landlord’s consent must not be unreasonably withheld or delayed. Where a written application is made, the landlord must give consent (unless reasonable not to), provide written reasons for any refusal, and deal with the request within a reasonable time. For commercial leases, parties may pre-agree reasonable conditions and circumstances for refusing consent to assignment, including an AGA requirement.

Landlords often require direct covenants from subtenants in a licence to underlet, especially in commercial contexts, to strengthen enforcement options in practice. As a matter of law, there is no privity of estate between a head landlord and a subtenant; enforcement is typically via the head tenant or by direct covenant.

Worked Example 1.3

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.

Worked Example 1.4

A new lease (granted in 2010) contains a qualified covenant against assignment. The tenant applies in writing for consent to assign, offering financial references. The landlord delays for two months, then refuses without giving reasons unless the outgoing tenant agrees an AGA. Is the landlord in breach?

Answer:
The landlord must respond within a reasonable time and give written reasons for refusal. For a commercial lease, an AGA can be a permissible condition if the lease provides or it is otherwise reasonable. However, failing to respond promptly and failing to provide reasons breaches statutory obligations. The tenant may seek a declaration and, if appropriate, damages for loss caused by unreasonable delay.

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) within the six-year limitation period
  • Commercial Rent Arrears Recovery (CRAR) on commercial premises where statutory conditions are met
  • 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 and statutory notice served where required)
  • Damages (including the statutory measure for repair)
  • Specific performance or injunction (particularly for negative covenants or sufficiently precise obligations)
  • Self-help for repair via a Jervis v Harris clause (landlord enters to do works and recovers costs as a debt)

• Tenant’s remedies for landlord’s breach:

  • Damages (contract)
  • Specific performance or injunction (eg to enforce quiet enjoyment or repair where statutory provisions apply)
  • Limited self-help or set-off in tightly controlled circumstances, subject to any lease terms

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.

Commercial Rent Arrears Recovery applies only to written commercial leases. The landlord must serve an enforcement notice giving at least seven clear days, then appoint an enforcement agent to take control of goods. CRAR is limited to rent (excluding most ancillary sums) and has strict procedural safeguards; wrongful enforcement may be actionable.

For forfeiture, different rules apply for rent and other breaches. For rent arrears, many leases permit forfeiture without prior notice once the arrears exceed the threshold specified; for other breaches, the landlord must serve a s146 Law of Property Act 1925 notice specifying the breach, requiring remedy within a reasonable time where capable of remedy, and requiring compensation where appropriate. Some repair claims are constrained by the Leasehold Property (Repairs) Act 1938 (where term originally seven years or more and at least three years remain), which gives tenants a right to serve a counter-notice, requiring the landlord to obtain the court’s leave to proceed.

Relief from forfeiture is available to tenants and, in some cases, subtenants. Relief is discretionary and generally granted where the breach is remedied and costs are paid. Where peaceable re-entry is not lawful (eg residential occupation), a possession order is required.

Liability may extend to former tenants and guarantors in limited circumstances. For the recovery of fixed sums (rent, service charge, insurance), a landlord must serve a statutory notice within six months of the sum falling due before pursuing a former tenant or guarantor. A former tenant paying under such a notice may require the grant of an overriding lease, making them the immediate landlord of the defaulting assignee for the remainder of the term plus a short period.

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. For breaches other than non-payment of rent, a valid s146 notice is essential. For significant repair claims in long leases, the Leasehold Property (Repairs) Act 1938 may restrict immediate enforcement.

Termination of Leases

The principal methods by which leases end are:

• Expiration: Lease reaches the end of its fixed or periodic term (effluxion of time).
• Notice to quit: Required for periodic tenancies, following the requisite period and any statutory minimums; notices must expire at the end of a period.
• Break clause: Either party may terminate the lease early by complying with agreed conditions and notice procedures. Strict compliance with break conditions is essential for validity.
• Surrender: Landlord and tenant agree to end the lease early (usually by deed), though surrender may occur by operation of law where conduct unequivocally treats the lease as at an end.
• 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, releasing the insolvent from future liabilities; subtenants can seek relief to preserve their position.

Business tenancies may have statutory protection of security of tenure. Where such protection applies, termination and renewal are governed by statutory procedures; where the parties have lawfully excluded protection before grant, termination reverts to common law methods. Always check whether the tenancy falls within or has been excluded from statutory security before advising on expiry or termination strategies.

Worked Example 1.5

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 expiring at the end of a period.

Worked Example 1.6

A five-year commercial lease includes a tenant’s break right in year three “subject to no arrears and strict compliance with clause conditions.” The tenant serves notice on time but is short by £50 of interest on late service charge demanded after notice. Is the break effective?

Answer:
Break clauses must be strictly complied with. If “no arrears” includes interest and the lease makes such sums part of rent or sums due, a small shortfall can invalidate the break. The tenant should ensure all sums due are paid in full before the break date or seek the landlord’s confirmation of compliance.

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, including the central role of exclusive possession and certainty of term.
• Required formalities for creating valid legal and equitable leases, including deeds, parol leases, reversionary limits and the Walsh v Lonsdale principle.
• Registration consequences: leases over seven years must be registered; shorter legal leases are overriding; equitable leases must be protected appropriately; prescribed clauses are required for registrable leases out of registered land.
• The difference between assignment and subletting, and the legal effects of an alienation covenant, including statutory duties on landlords when dealing with consent.
• Privity of contract and privity of estate as the basis for covenant liability, and how liability is allocated under old and new lease regimes; AGAs and landlord release.
• Principal remedies for breach: debt, CRAR, forfeiture (and s146 requirements), specific performance and injunction, damages (including statutory measure for repair), and self-help via Jervis v Harris clauses.
• Former tenant/guarantor liability for fixed sums via statutory notices and the right to an overriding lease.
• Main ways a lease terminates, including expiration, notice to quit, break clauses (strict compliance), surrender, forfeiture, merger and disclaimer, with awareness of business tenancy security of tenure.

Key Terms and Concepts

• lease
• licence
• deed
• parol lease
• privity of contract
• privity of estate
• Authorised Guarantee Agreement (AGA)
• alienation covenant
• assignment
• sublease
• forfeiture