Critically Analyse the Impact of the Decision of the House of Lords

Land Law : Critically analyse the impact of the decision of the House of Lords in Street -v- Mountford [1985] AC 809

A licence is a personal arrangement between two parties which constitutes permission to occupy land for some particular purpose. It does not give the grantee any proprietary interest in the land which would be transferable or bind a successor in title, but instead, it merely prevents what would otherwise be an unlawful trespass . A typical licence may satisfy short term functions such as granting a cinema goer the right to sit and watch a performance, or a driver to park their car temporarily in a car park . Alternatively, it may satisfy commitments of a longer length, such as the rights of a contractor to work on a building site .

In comparison, a lease does convey an interest in land which, in certain circumstances, will be binding on a successor in title. A lessee will enjoy exclusive possession of the land, which includes the right to exclude all others from the property. In addition, they may be afforded greater protection than that granted to a licensee – for example, security of tenure and protection of relief from forfeiture.

Prior to Street v Mountford, the first case to discuss the differences between a lease and licence was Wells v Hull Corporation which concerned commercial property. The crucial factor for distinguishing lease from licence was whether the grantee had “exclusive possession” of the dock. Exclusive possession would exist where it could be shown that they had been granted overall general control of the dock. In that case, the Corporation continued to operate the dock gates, pumps and supervision of cleaning on a daily basis, and it was held that the ship owners did not have exclusive possession.

The distinction was again considered in Marchant v Charters in which it was held that the grantee was not a lodger but the occupier of a service flat (and therefore under a licence only), since his landlady performed duties such as daily cleaning and changing of bed linen.

In recent years, the leading authority for determining whether a lease or licence has been created is Street v Mountford [1985] . The case involved an agreement that purported to be a contractual licence granting occupation of two furnished rooms at a dwelling house at a “licence fee” of £37 per week.

Exclusive Possession

Lord Templeton states in Street v Mountford that in the case of residential accommodation, “there is no difficulty in deciding whether a grant confers exclusive possession. An occupier of residential accommodation at a rent for a term is either a lodger or a tenant”.

The test to be applied is whether the landlord provides “attendance or services which require the landlord or his servants to exercise unrestricted access to and use of the premises”. If so, the lodger merely has permission to live in the premises and “cannot call the place his own”. If however the accommodation is granted for a term at a rent with exclusive possession and without attendance or services from the Landlord, the grant will be considered a tenancy .

The test of whether a person occupies as lodger or tenant is not the same as whether they occupy with exclusive possession. Although it is clear that a lodger will not be a tenant , exclusive possession alone is not conclusive evidence of a tenancy. Lord Templeton explains, the occupier may be a service occupier (where the occupation is regarded as being that of the Master) or fall within one of the other exceptions mentioned in Errington v Errington & Woods where the circumstances negate any intention to create a tenancy. This demonstrates that a lodger can enjoy exclusive possession without having a tenancy. The key test then is not solely exclusive possession, although this was said to be of primary importance, but a combination of factors including whether or not the Landlord provides attendance or services as in Marchant v

Charters.

There is some confusion in the way these principles are presented in Street v Mountford and in particular, in the way other case law is referred to by Lord Templeton. For example, he cites Marchant v Charters and states that the case is “sustainable on the grounds that the occupier was a lodger and did not enjoy exclusive possession”. However, he then cites Lord Denning on the same case, who states “If exclusive possession at a rent for a term does not constitute a tenancy then the distinction between a contractual tenancy and a contractual licence of land becomes wholly unidentifiable.” He further cites the case of Somma v Hazelhurst in which he states that the Court did not ask themselves whether the couple were lodgers or tenants and did not draw the correct conclusion from the fact that they enjoyed exclusive possession. This seems to attempt to fuse the test for whether a person is a lodger or tenant with the test for whether they enjoy exclusive possession, into one and the same thing.

Nevertheless, despite the document in Street v Mountford reserving limited rights to Mr Street to enter the room for the purposes of inspecting its condition, reading meters and other such tasks of “inspection and maintenance”, these tasks were not held to constitute “an attendance or services” on the part of the Landlord. It was conceded that Mrs Mountford did have exclusive possession and the outcome was that she had a tenancy. What remains open to criticism from a consideration of Street v Mountford alone, is the reasoning behind the principles used to reach that conclusion that can be drawn from the case and in particular, how clear cut the definition is between tenant and lodger. The dividing lines between the extremes of, for example, the occupier of a property under a full repairing lease and the occupier of a hotel room, depends on a combination of factors and the test cannot easily be summarized (Burns, p.499) .

Intention to Create Legal Relations

It is clear from Street v Mountford that a tenancy will not be implied where there is no intention to create legal relations. Lord Templeton cites the case of Cobb v Lane where the owner allowed her brother to occupy a house rent-free. A further example cited was the case of Heslop v Burns where again, the owner allowed their family to live in a cottage rent-free. In both cases there was no intention to create legal relations, an essential element of any binding contract, and it was therefore held that only a license was granted. Interestingly, these cases involve domestic agreements which generally in contract law have been viewed to lack sufficient intent to make them legally binding . More recently, it has been suggested that a presumption that such arrangements are not binding may be incorrect and it would be preferable to concentrate on the seriousness of a promise as the primary indicator of intent (Brown & Chandler, p.24) .

Lord Templeton also cites other examples of where no intention to create a tenancy will arise. Referring to Errington v. Errington and Facchini v Bryson he explains that where the relationship between the parties is that of, for example, Vendor and Purchaser or Master and Service Occupier, some arrangement, act of friendship or generosity, this may be sufficient to negate the presumption of an intention to create a tenancy – these categories were later said to be “illustrative but not exhaustive” .

Sham Transactions

One of the most important aspects of Street v Mountford is the impact it has on “sham” transactions. A sham in the ordinary sense of the word is “a trick that deludes” . Similarly, in the context of the case, a sham is defined as where an agreement does not reflect the common intention of the parties. To avoid such transactions, it is necessary to look beyond the face of the agreement and into the substance and reality of it – an agreement may purport to be a licence but its terms and the conduct of the parties to the agreement may clearly indicate a tenancy.

In this case, the document used language such as “licence fee” and “personal licence”, and in addition, expressly stated that it was not intended that Mrs Mountford should acquire any rights under the Rent Acts. Indeed, before the case reached the House of Lords, it was held in the Court of Appeal that an occupier with exclusive possession for a term at a rent may be a licensee where there is a manifest clear intention of both parties to that effect . However, Lord Templeton explains, in citing Glenwood Lumbar Co v Phillips , that the relevant consideration is not the words used but the substance and the effect of the document (as oppose to the intention of the parties). Simply calling a document a licence will not turn it in to one. If the document does indeed give the holder exclusive rights to occupation, it is “in law, a demise of the land itself”. In other words, the clear intention of the document (and the effect of it) was not to create a licence but to create all the benefits of a tenancy whilst attempting to exclude any rights the tenant may have under the Rent Acts by calling the document something other than a lease.

A key point made here is that the question of whether a lease or licence has been granted must be determined without considering the effects of the Rent Acts. The effects of the Acts are irrelevant as to whether or not it is intended that they apply to a particular agreement. However, Lord Templeton explains that the Court should give consideration to them only in the context of detecting artificial “sham” transactions whose object is to, as in the present case, disguise the fact that a tenancy has been granted and thereby attempt to exclude the protection afforded by Rent Acts.

It is this part of the decision that has had major impact, overruling the cases of Somma v Hazelhurst aforementioned, which was dismissed as a “sham device and artificial transaction” and others . The applicability of this principle extends beyond leases and licences for premises. For example, in Natwest Bank plc v. Spectrum Plus it was stated that a particular label of “fixed” or “specific” used within a debenture is not decisive if the rights granted by that debenture when properly construed are entirely inconsistent with the label.

Business Tenancies

Although Street v Mountford involved residential premises, the same principles it establishes have been held to apply to business premises , although it is recognized that in some cases business premises do have particular characteristics that may require special consideration . In Clear Channel UK Ltd v Manchester City Council it was of particular relevance to determine whether Clear Channel occupied two sites under licence or tenancy, as business tenancies qualify for security of tenure under the Landlord and Tenant Act 1954, whereas licences do not. The Act provides that qualifying tenancies may continue until brought to an end in accordance with the terms of the Act and in addition, tenants may apply to court for a new tenancy, with only limited grounds on which a Landlord may object.

Similar to the agreement in Street v Mountford, the document pertaining to the Chester Road site contained a clause preventing Clear Channel from assigning, subletting or parting with possession of the structure and this indicated a tenancy. In contrast, the agreements relating to the hoarding sites were expressed in such a way as to imply permissive use to place something on another’s land, rather than to grant some proprietary interest in and exclusive possession of it. The parties’ intentions were further demonstrated by a clause that held “Each advertising display shall remain at all times the property of Clear Channel”, implying that the right granted was to place and maintain something which was Clear Channel’s personal property on the land. Similarly, the wording of the document in Street v Mountford – for example, the exclusive possession inferred by clause 2 and clause 9 (“re-enter”), indicates the true intention of the document.

Clearly a distinction here can be made between words and labels. Although Lord Templeton said words were not relevant but substance was, he did not intend to discount consideration of the wording used in a document but just those words which, as in Natwest Bank plc v. Spectrum Plus, purported to label one thing as another. He explains, “.. a five pronged instrument results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade”.

Comparison to general Contract Law

The position held in Street v Mountford can be contrasted with the general rule in contract law that seeks to uphold bargains wherever possible. People are entitled to make contracts which confer rights and obligations freely, and this ensures “stability in current behaviour, and predictability as to future behaviour”. Such a system reduces uncertainty and allows people to make promises that others can rely on .

The law cannot “paternalistically intervene to create a contract (Brown & Chandler, p.23)” , nor can it imaginatively create bargains that do not exist. It is difficult on the face of it to reconcile this principle with the decision in Street v Mountford because Mrs Mountford knew the terms of the licence and knew it attempted to exclude the protection afforded under the Rent Act but signed the agreement anyway.

As the document was unsuccessful in creating a licence and did in fact create a tenancy, it could be argued that the landlord had no right to try and exclude protection under the Rent Act and this would seem to resolve the question. However, the outcome does seem biased towards the rights of the tenant and it is therefore unsurprising that the principles have been the subject of law reform, both through the Housing Act 1988 and future proposals which will offer more certainty of contract, for both Landlord and Tenant.

Conclusion

The case of Street v Mountford presented a clear shift from the view that the critical issue was whether a person enjoyed exclusive possession, to the view that the intention of the parties and all circumstances should be taken into account when considering whether a lease or licence exists . This shift had already taken root in earlier cases such as Barnes v Barnett , where it was said that exclusive possession was no longer a conclusive factor and had a diminishing weight. However, Street v Mountford attempted to clarify the position and introduced other necessary factors, such as the intention to create legal relations and the intention of the parties gleaned from the effect of the document. It also, very importantly, clarified that construction of a document was not a question of words, but of substance. As Slade LJ stated in the Court of Appeal, in order to displace the express statement of intention embodied in the document which excluded any rights under the Rent Acts, Mrs Mountford would have to show the declaration was a “deliberate sham” or an inaccurate statement of the true substance agreed between the parties. The agreement was indeed seen to be a sham and the decision put a welcome stop in the thinly disguised attempts to avoid the provisions of the Rent Acts by, for example, including terms that premises were to be used “in common with the licensor and other such licensees as the Landlord may permit” .

However, it should be noted that the inclusion of the requirement of “rent” is not a necessary element in determining whether a tenancy exists, and in the later case of Ashburn Anstalt , it was decided that the principles in Street v Mountford would apply to business tenancies, even where no rent was payable. Further, the principles laid down in the case have been held to apply to cases where only part of the premises are let .

The principles laid down by the case had the potential to overly protect the tenant at the expense of the landlord and a new solution was needed. This arrived in the form of the Housing Act 1988 which phrased out the Rent Act 1977 and introduced the concept of assured and assured shorthold tenancies, providing basic security of tenure for a specified period with minimum rights of succession and rent control. The new legislation provides a balance of rights for the landlord and tenant and therefore, less incentive for a landlord to use a licence rather than a lease .

The distinction between licence and lease has been blurred by more recent case law and although rooted in contract, the legal status of a licence is said to often perform a similar role and take on similar characteristics to conventionally recognized proprietary rights (Gray & Gray, p.293) . Indeed, some types of licence resemble quasi-proprietary rights in land . The complexity and uncertainty of the fast developing body of case law in relation to the distinction between leases and licenses has been considered in the Law Commission’s report on Renting Homes , which states that “while the practical importance of the distinction has receded in recent years [with the introduction of the Housing Act 1988], it nonetheless retains its potential for complexity”. The Report proposes a scheme of agreements with either a high or low security of tenure, the low security tenure being based on the existing Shorthold Tenancy agreements. The report states the aim of applying a new scheme to all contractual occupational agreements, rather than those just classified as tenancies. If introduced, this will undoubtedly bring about a far more satisfactorily result than the present complex position under Street v Mountford and its preceding cases by phasing out licenses altogether and applying a scheme which effectively balances the rights and obligations of the landlord and tenant.

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