by Mr. Fung Lap Tin, CUHK LAW PCLL candidate
Introduction
Can I grant a lease over the Ocean Park? Common sense says that I cannot, because I do not have any proprietary interest over it. Surprisingly, the House of Lords in Bruton v London & Quadrant Housing Trust took the contrary view.
This article will consider whether Bruton was decided wrongly. This question matters because it seems absurd that, following Bruton, a person who has no proprietary interest in land is entitled to carve a lease out of nothing in favor of another person.
The decision is wrong because the need for the grantor to have a proprietary interest in the land is implied in the Street criteria. It is very likely that Lord Templeman did not spell this out because it did not occur to him that it was necessary to do so.
Basic Concepts: Lease and License Distinction
It is well-settled after Street v Mountford that a ‘lease’, as distinguished from a ‘license’, confers (1) a right to exclusive possession (2) for a definite period (Street, 818).
A license is a purely personal agreement to occupy the land. It is not an estate in land and is therefore incapable of binding any person other than the contractual parties. In contrast, a lease has a dual nature; it is personal and proprietary. It is therefore capable of binding not only the original contracting parties, but also the entire world.
Further, the law imposes implied obligations on part of landlords but not licensors. In England, for example, section 11 of the Landlord and Tenant Act 1985 (‘LTA’) imposes an implied obligation on landlords to keep the property in repair.
Facts and decision
The parties entered into an occupation agreement in respect allowing Mr. Bruton to occupy a flat in a block of flats controlled by London & Quadrant. There was no doubt that London & Quadrant was merely a licensee of the block. The agreement with Mr. Bruton described itself as a license.
Mr. Bruton contended, however, that the agreement was a lease since the agreement fulfilled all the requirements in Street. He claimed that the defendant was in breach of its implied landlord’s repairing obligation under s.11 LTA 1985. The issue was, therefore, whether London & Quadrant, as licensee, was capable of granting a lease to Mr. Bruton.
Mr Bruton’s argument was rejected by the majority of the Court of Appeal (led by Millett LJ), but was unanimously accepted by the House of Lords (led by Lord Hoffmann). Millett LJ argued that, because London & Quadrant had no proprietary interest in the land, it could not possibly have granted a lease to Mr. Bruton. The House of Lords, however, decided that a lease had been created since Mr. Bruton’s agreement gave him exclusive possession for a certain term. He had a lease but not a proprietary estate in land.
The decision created, in England, a new category of non-proprietary lease. An agreement creates a lease if it satisfies the Street criteria of exclusivity of possession and certainty of term.. Whether the lease is proprietary depends on whether the Landlord has an estate in the land and this is a separate question. The application of the Street criteria was pushed to its logical limit.
Assumed in Street that only landowners can grant leases?
The essence of the House of Lords’ view was that, once the Street requirements are met, a lease has been created. In my view, however, if the grantor has no proprietary interest over the land, the Street requirements are not fully met.
Lord Hoffmann argued that since the facts did not suggest that Mr. Bruton had to share possession with London & Quadrant, the grantor of the license to London & Quadrant nor anyone else, the requirement of ‘exclusive possession’ was met (Bruton, 413 - 414).
Even assuming Lord Hoffmann’s interpretation that there is no extra requirement on top of Street is correct, it seems more than likely that Lord Templeman took it for granted that only one with a freehold or leasehold estate in land could grant a lease. If he did not say so expressly it is probably because he thought the proposition too obvious to deserve mention.
Bruton tenancies do not bind the true owner
The House of Lords judgment in Lambeth London Borough Council v Kay is the sequel to Bruton. Local authorities that had granted licenses to London & Quadrant terminated their agreements allowing London & Quadrant to occupy the property. They then brought proceedings to recover possession from the occupiers of the flats (now known to be tenants). The occupiers argued that their leases were binding on the local authorities. Their argument failed. The occupiers’ ‘non-estate’ tenancies could not bind the local authorities, the true owners of the land (Kay, [138] – [148]). Nor, logically, can they bind anyone deriving title under the true owner.
Policy behind Bruton
The judgment in Bruton may have been driven by policy considerations. The House of Lords may have felt that it was unfair for the plaintiff, a short-term occupier, to bear repairing costs in respect of the flat as this might well benefit subsequent occupiers and the defendant.
Is the lease / license distinction breaking down?
Street sought to establish clearly definable principles for distinguishing leases from licenses. Perhaps the distinction is losing its importance. On the one hand, the decision in Bruton drags some leases out of the proprietary realm and classifies them as purely personal. On the other hand, some believe that the contractual license is on its way to becoming an estate in land (Gray and Gray, [10.3.22]).
Conclusion
Bruton is a unanimous House of Lords decision. Despite its strong binding power, the decision is wrong. Almost certainly Lord Templeman did not specify that only landowners can grant leases because he thought that this went without saying. In the long term, the distinction between leases and contractual licenses may become less important or even fade away entirely.
References
Cases
1. Bruton v London & Quadrant Housing Trust [1998] 3 WLR 438 (CA)
2. Bruton v London & Quadrant Housing Trust [2000] 1 AC 406 (HL)
3. Lambeth London Borough Council v Kay [2006] 4 All ER 128 (HL)
4. Street v Mountford [1985] 1 AC 809 (HL)
Legislation (Hong Kong)
1. Conveyancing and Property Ordinance (Cap. 219)
Legislation (United Kingdom)
1. Landlord and Tenants Act 1985 (c 70)