While many
generations of lawyers and surveyors have been taught that, in order to be
valid, a lease must be for a term which is certain or ascertainable at its
commencement, this is a principle which has given rise to considerable
difficulties in recent months. It has long been accepted that, if a lease is to
be granted for a single term, then that term must be fixed and certain, eg for
10 years. For many the most memorable example of a lease which failed this test
is that in Lace v Chantler [1944] 1 All ER 305 which was granted
for ‘the duration of the war’.
and periodic tenancies
While the
application of the doctrine of certainty to single-term leases has been
relatively settled, its effect on periodic tenancies has proved more
problematic. This is because a periodic tenancy is usually regarded as one for
a period which will automatically renew itself unless terminated by an
appropriate notice to quit. Accordingly, it is arguable that it is not
‘certain’ at the commencement of such a tenancy how long it will last. The
original answer to this was that periodic tenancies fitted into the doctrine of
certainty on the basis that the ability of either party to serve a notice to
quit meant that the overall term could be rendered certain. This meant that the
ability of both sides to serve a notice to quit was fundamental to the validity
of a periodic tenancy so that any fetter or restriction on the right to
terminate would be invalid. However, this approach was rejected by the Court of
Appeal in Charles Clay & Sons Ltd v British Railways Board
[1971] 1 All ER 1007. There it was decided that the doctrine of certainty does
not apply to periodic tenancies; accordingly it was held that a restriction on
the defendant’s right to serve a notice to quit, even though operative for an
uncertain period, did not render the tenancy void for uncertainty, nor could it
be struck out as repugnant to a periodic tenancy. This principle was
subsequently accepted in Centaploy Ltd v Matlodge Ltd [1973] 2
All ER 720, although in that case it was decided that a term in a weekly
tenancy under which the landlord had agreed never to serve a notice to quit
must be struck out as repugnant.
prevails
Thus by the
mid-1970s the law, from a property point of view, was in a mess. An example
might help to demonstrate. If L attempted to grant to T a lease ‘until L
requires the, land for development’ this would be void for uncertainty (Lace
v Chantler). However, assuming that T was in possession and paying rent,
a court would treat T as an implied periodic tenant and would have no
difficulty in reading into that tenancy a term under which L could not serve a
notice to quit unless he required the land for development (Charles Clay).
From a contract point of view all was well, since L was being held to an
agreement which he had clearly entered into.
This scene
was further confused by the Court of Appeal decision in Ashburn Anstalt
v Arnold [1987] 2 EGLR 71. Here it was, in effect, held that an
agreement that the defendant could occupy property until served with a notice
that the plaintiff was ready to proceed with redevelopment was a lease which
was not void for uncertainty. Despite the absence of any express terms to this
effect, the court was prepared to assume that the tenant had some right to
terminate and that the case therefore fitted in with the principle established
in the Charles Clay case.
The Prudential
case
This is the
background to the recent House of Lords decision in Prudential Assurance Co
Ltd v London Residuary Body [1992] 2 EGLR 56. Here, the LCC had in
1930, as highway authority, acquired a strip of land with a view to
implementing a road-widening scheme at some time in the future. In the
meantime, they leased it back to the former owner at a fixed annual rent of
£30. The terms of this agreement were that ‘the tenancy shall continue until
the said land is required by the Council for the purposes of the widening of
Walworth Road . . . and the Council shall give two months notice to the Tenant
. . .’. The road-widening scheme had long since been abandoned and the lease
was now vested in the plaintiffs who had sublet the whole of the property,
together with land lying to the rear, to the London Electricity Board, at a
substantial rent. The LCC, and their successor the GLC, had thought that they
could neither increase the rent nor terminate the lease. However, the London
Residuary Body to whom the reversion then passed were made of sterner stuff and
they were now seeking to terminate.
The trial
judge had taken the view that the agreement gave rise to a yearly periodic
tenancy under which the landlord had restricted its right to serve a notice to
quit. Since this was merely a restriction it could not be struck out as
repugnant. However, he held that, once the reversion passed into the hands of a
landlord which was not a highway authority (ie with the capability of
implementing a road-widening scheme) the restriction ceased to apply.
Accordingly, the current landlords had served an effective notice to quit.
The Court of
Appeal did not agree. Scott LJ concluded that the agreement purported to grant
a single term measurable by an uncertain event, ie the future road-widening
scheme. To his mind the case therefore fell within the rule in Lace v Chantler
and the lease was void for uncertainty. He expressed serious doubts about the
correctness of the decision in Ashburn which, in his view, did not
involve a periodic tenancy to which the Charles Clay principle could be
applied; he thought that it was an agreement for occupation until an uncertain
event occurred and thus should have been regarded as void.
He then
considered the present position of the parties in the light of the above
conclusion. The former owner, and thereafter the plaintiffs, had, by taking
possession and paying rent, become yearly tenants on such terms of their
agreement as were consistent with a yearly tenancy. He ruled that the landlord
could serve notice only if the land were required for the purposes of a
road-widening scheme and, in contrast to the trial judge (who had considered
the same question via a different route), that this restriction continued to
apply to a landlord which was not a highway authority.
Lords view
The House of
Lords has categorically restored this area of the law to its former property
orientation. Having considered the authorities ancient and modern, Lord
Templeman had no doubt that the basic common law view was that any lease,
whether fixed term or periodic, had to comply with the doctrine of certainty of
term. This was reinforced by the statutory definitions contained in the Law of
Property Act 1925. Thus the decision in Lace v Chantler was
perfectly in accordance with principle, while those in Charles Clay and Ashburn
Anstalt were not and were overruled.
Having
reverted to the conventional wisdom on the doctrine of certainty the result was
clear. The original agreement was an attempt to create an uncertain term and
was void. The grantee was, therefore, to be treated as a tenant under an
implied tenancy from year to year. There can be no fetter (at least not one
which is linked to an uncertain event) on either party’s right to serve a
notice to quit. Accordingly, irrespective of the implementation of any
road-widening scheme, the landlord was entitled to determine the tenancy by the
service of a notice to quit.
There is no
doubt that this decision restores the law to a simpler, more predictable and
more logically consistent position. However, what Lord Templeman did not
consider was whether the reversion to ancient property principles is the
correct direction in which to move. He clearly felt that the application of
these principles would not have disturbed the essence of the bargain struck by
the parties. Of the Charles Clay case he said ‘there was no ‘clearly
expressed bargain’ that the term should continue until the crack of doom if the
demised land was not required for the landlord’s undertaking: of the Prudential
he opined that ‘there was no ‘clearly expressed bargain’ that the tenant shall
be entitled to enjoy his ‘temporary structures’ in perpetuity if Walworth Road
is never widened’.
However,
there will be those who disagree. It is perfectly possible to argue that, in
both instances, the landlords positively agreed that they would terminate the
leases only in the specified circumstances. As the law now stands this is a
commercial undertaking to which they will no longer be held. It is fair to note
that, in the only other speech, Lord Browne-Wilkinson expressed his
reservations and suggested that this is a matter which could be considered by
the Law Commission. In the meantime, practitioners must appreciate that
restrictions on the right to terminate a lease must be carefully formulated so
as not to fall foul of the new law.
