Lease vs Licence: Rights, Statutory Protection and Case Law

Leases and licences: proprietary and personal rights

Leases give an individual a proprietary right in land which is binding on any third parties, while a licence gives a personal right that can be revoked at any time, as stated in Thomas v Sorrell. Licences are also not binding on third parties.

Furthermore, if one obtains a lease, they will have statutory protection under the Rent Act 1977 and the Housing Act 1996, which do not allow the leaseholder to be evicted simply and which provide rent control. As opposed to this, a licence does not provide any statutory protection to the occupier.

Court difficulties in distinguishing leases and licences

As such, most occupiers of properties would like to establish a lease instead of a licence, as a lease favours the occupier. However, the problem that the courts constantly face is determining whether a lease has been created.

In order for a lease to be created, there are three essentials to be satisfied, as stated by Lord Templeman in Street v Mountford. First, there must be certainty of duration.

1. Certainty of duration: In Lace v Chantler, the duration of the lease was described as "the duration of the war." The courts held that this was a mere licence and laid down the principle that the entire or maximum duration of the lease must be determinable at the beginning of the lease. The candidate submits that this principle is not suitable, as most parties would not know the requirement of certainty of duration.

It was suggested in Re Midland Railway and Ashburn Anstalt v Arnold that this requirement should not be applied so strictly, because it could frustrate genuine leases. However, Prudential Assurance v LRB reaffirmed Lace v Chantler instead.

Later, in Perrisford v Mexfield, the Supreme Court had the option to affirm Prudential or Re Midland Railway. The form of the agreement was that if the rent was not paid or the tenant breached it, only then would the lease come to an end. However, there was no certainty of duration, which is required by Lace v Chantler. As such, Mexfield sought to remove the tenant because there was no statutory protection if there was no lease.

The Court of Appeal applied the rule in Lace v Chantler and agreed that there was no lease. However, the Supreme Court did not overrule Lace v Chantler; instead it treated the agreement differently by reference to the decision in Row v Brown and by applying statutory provisions.