Council tax and rental properties
How much is it and who has to pay it?
Firstly, let’s talk about what every law student knows will come up at least once in their exam: what is the difference between a lease and a license? Is this distinction significant?
In Street v Mountford , a “licence to occupy” was agreed between the two parties. In effect this granted the occupant exclusive possession but, contained in the agreement, was a clause stating- as in the name of the agreement- that this was a license, not a lease. The consequence of such meant that the Rent Acts didn’t apply and the occupant had significantly reduced rights.
The House of Lords held that the ‘license to occupy’ was in fact a lease. Why? Lord Templeman made clear that there were three essential requirements for a lease: exclusive possession, for a term and at a rent (although this third element is no longer a requirement). As all of these features were present, the sheer fact that the landlord attempted to describe the agreement as a license was immaterial.
Lesson: For an agreement to constitute a lease it must be for a term and the occupant must have exclusive possession of the property. A licence in contrast gives the occupant permission to occupy but does not give them the same interests in the land as one would have under a lease.
What does it mean for a lessee to have exclusive possession of the property? What where the landlord includes an obligation on an occupant in a small bedsit to leave for 90 minutes per day? This is what happened in Aslan v Murphy and the court was quick to hold that this ‘license’ (as labelled) was in fact a lease. The court was keen to ‘keep a weather eye open for pretences’ and even though the agreement included a term permitting the landlord to introduce more tenants, the lessee still had exclusive possession until or unless this materialised.
Lesson: The courts aren’t slow to pick up on a sham or a pretence in a contract!
What happens if a lease fails for lack of certainty? In this case, a lease was granted until land was needed for the purposes of widening the road which meant the lease had an uncertain term. The lease was void due a lack of certainty but the court made clear that this does not leave the parties without redress.
Where this is the case, it is likely that an implied periodic tenancy will be awarded. The court will likely try to imply terms similar to those in the invalid lease as far as possible in law.
Lesson: Where a purported lease fails, the courts are likely to imply a periodic tenancy.
The lease and licence distinction is particularly troublesome in cases of multiple occupancy. For occupants to have a lease, they must have either exclusive possession of particular parts of the premises or all occupants must act as joint tenants by holding the right to exclusive possession of the entire premises. Elsewise, they will have a licence. How then will a joint tenancy arise?
In the Court of Appeal, it was held that for a joint tenancy to arise, the ‘four unities’ must be present. Unity of:
In this case, the occupants did not have a joint tenancy as they did not have unity of interest. The court explained this was the case as each occupant had a separate obligation to pay rent.
Lesson: In HMOs make sure you are clear on whether you intend to create a joint tenancy or not!
Applying the four unities then, what happens if your occupants made contracts at different times and you charge them different rents?
In AG Securities v Vaughan, the court held that the parties were just licensees: there was no unity of time or interest.
Lesson: Separate obligations cannot become joint.
Legislate’s lawyer-reviewed Assured Shorthold Tenancy Agreements are aware of these finite distinctions in the law. Read our tutorial to learn how to create your tenancy agreements in minutes with Legislate. Book a demo and Sign up today to put the confidence back into contracting.
The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.
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