Lease: Ahmed and Fred

Introduction

Ahmed and Fred have agreed for Ahmed to share Fred’s flat under a licence. There is also a lease agreement between Ahmed and Fred for Fred’s shop. Now Fred has sold his flat and shop to Fresco Ltd and the new purchaser is asking Ahmed to vacate the flat and shop. Ahmed may be asked to vacate the flat but he cannot be asked to vacate the shop.

Licence: Flat

There is a licence between Ahmed and Fred, allowing Ahmed to share Fred’s flat for a fee of £ 300 per month. A licence is enforceable only between the parties to it and does not create any proprietary interest in the property. It has no protection under the Rent Act 1977 and the Housing Acts 1988 and 1996. Licence can be terminated on short notice as per the common law. In the present case, Ahmed’s sharing of Fred’s flat is under a licence. The Protection from Eviction Act 1977, s.5 allows an eviction for residential occupier after reasonable notice is given to such an occupier. This notice is subject to minimum period of 28 days. Hence, Fresco Ltd need only give a notice to Ahmed to ask him to vacate the property.

Lease: Shop

With respect to Fred’s shop, Fred and Ahmed have orally agreed upon a rent of £ 24,000 per year. They have agreed upon the term of lease to be for 15 years and although they have not made a formal lease deed, there has been an exchange of notes between them. A lease can be created if there is an intention between the parties to create legal relations and the following conditions are also present:

• There is certainty of term (Lace v Chantler). In the present case, Ahmed and Fred have fixed the term of the lease to be 15 years.
• Consideration or rent is agreed upon by the parties. Rent by itself is not a strict requirement (Ashburn Anstalt v Arnold). In the present case, a rent of £ 24,000 per year has been agreed upon. Consequently, Ahmed has made regular payments to Fred amounting to £ 2000 every month.
• Exclusive possession is given to the lessee. Exclusive possession means tenant’s control over the property. This control means the tenant has the right to exclude all the world (including the landlord) to the use of the property (National Car Parking v Trinity Development Corporation). In the present case, Ahmed has been given exclusive possession of the shop.

If these conditions are present and the two parties intended to be legally bound then there is a lease (Street v Mountford). As these conditions are present in the case, a lease does exist between Fred and Ahmed. There are two issues that need to be clarified. First, Ahmed and Fred are friends. If there is a relationship of friendship between the parties, and the use of the property is entirely out of friendship or generosity, then the lease will not exist (Cobb v Lane). In the present case, as Ahmed has taken the possession of the property and is paying rent to Fred, it cannot be said that the use of the property is out of generosity. Second, there is no formal lease deed as between Ahmed and Fred. This is a problem. As per the Law of Property Act 1925 (LPA 1925), s.52(1), fixed term lease must be made through a lease deed. The deed must be according to the Law of Property (Miscellaneous Provisions) Act 1989 (LPMPA 1989), s.1. This section provides that a deed must be signed, attested and delivered and it must be headed as a deed. As the period of lease is 15 years, it must satisfy the formal requirements of deed in order to be valid.

Equitable Lease

Even when there is no lease deed, Ahmed’s interest may be recognised as an equitable lease if the following conditions are satisfied:

• There must be an agreement between Fred and Ahmed capable of specific performance which complies with LPMPA 1989, s.2. Thus it must be made in writing, signed by both parties and contain all the agreed terms (Commission for New Towns v Cooper). In this case, there has been an exchange of notes between Ahmed and Fred.
• There must be consideration. In this case, a yearly rent of £ 24,000 has been agreed upon and paid by Ahmed.
• Ahmed must come to equity with ‘clean hands’ (Coatsworth v Johnson; Cornish v Brook Green Laundry). Here Ahmed was supposed to tarmac the carpark which he has not done. However, this is not a condition precedent to the creation of the lease and may be overlooked. Moreover, Ahmed has carried out expensive repairs to the shop.

Finally, in order to enforce the equitable lease as against Fresco Ltd., Ahmed will have to show that his equitable interest in the property qualifies as an ‘actual occupation’ overriding interest over a registered disposition. This is protected under Land Registration Act 2002 (LRA 2002), Schedule 3 para 2, which provides that an interest belonging at the time of the disposition to a person in actual occupation is an overriding interest.

Conclusion

Ahmed can be asked to vacate the flat after being given due notice. However, he cannot be asked to vacate the shop as he has equitable lease of the shop. This equitable lease is an overriding interest enforceable against the purchaser.