Mark Pawlowski looks at the law on perpetually renewable leases and makes the case for a repeal of the Law of Property Act 1922
The consequences of converting a lease giving the tenant the perpetual right to renew into a 2,000-year term are harsh on the landlord. Apart from granting away his land for a ludicrously long term, the landlord is forced to accept a static rent throughout this period unless there is an express provision for review. Moreover, he is unable to break the term without the consent of the tenant. No doubt, the object of Schedule 15 to the Law of Property Act 1922 was to discourage landlords from granting perpetually renewable leases, but the reality is that most such leases are probably created unintentionally since, if the landlord had wanted to grant a lease for a fixed term of 2,000 years at a static rent, he would have (presumably) done so expressly.
An “unhappy position”
Despite parliament’s manifest intention to discourage perpetual renewals, the 1922 Act has prompted a number of cases where the courts have reluctantly given effect to the parties’ language so as to create a perpetually renewable lease (and, hence, a 2,000-year converted term) notwithstanding circumstances making it highly unlikely that such a construction would have been contemplated by the parties: see Northchurch Estates Ltd v Daniels [1946] 148 EG 385; Parkus v Greenwood [1950] 155 EG 132; Green v Palmer [1944] Ch 328.
In Caerphilly Concrete Products Ltd v Owen [1971] 222 EG 1951, Sachs LJ openly acknowledged that the courts had “manoeuvred themselves into an unhappy position” by holding themselves bound to conclude that the use of a certain set of words caused the lease to be perpetually renewable regardless of the actual intentions of the parties. Nourse J’s judgment in Marjorie Burnett Ltd v Barclay [1981] 1 EGLR 41 also provides the clearest indication of the court’s desire to avoid the far-reaching consequences of the 1922 Act. Apart from acknowledging the rule of construction which leans against perpetual renewals, Nourse J was also able to formulate the court’s approach to such cases by insisting on an express covenant or obligation for renewal in the lease as a prerequisite to conversion under the 1922 Act.
The human rights dimension
Several obvious difficulties present themselves in seeking to rely on Article 1 of the First Protocol of the European Convention on Human Rights, incorporated into our domestic law under Schedule 1 to the Human Rights Act 1998, in the context of a renewal option which is subject to conversion under the 1922 Act. In the first place, it is difficult to see what public activity is involved in the exercise of an option to renew contained in a private contractual agreement between landlord and tenant (section 6(3) and (5) of the 1998 Act). Secondly, any such renewal option would inevitably fall to be characterised as consensual and, hence, outside the scope of Article 1 for that reason: see Di Palma v United Kingdom [1986] ECHR 19. In this connection, it could be argued with some force that the occupying tenant is legally entitled to ownership since the contractual bargain between the parties already reflects the tenant’s right to perpetual renewal of his lease on the same terms as the original grant.
Reference may also be made to section 3 of the 1998 Act, which requires that legislation be read and given effect by the courts in such a way as to be compatible with Convention rights. Thus, if the state leaves in force a statute that operates so as to allow one property owner to expropriate the property of another, a claim based on that type of interference is potentially within Article 1. Here again, however, challenges based on deprivation of property involving two private owners have not met with success: see James v United Kingdom [1986] ECHR 2.
Possible reform
It would be a relatively simple step to repeal Schedule 15 to the 1922 Act altogether and convert existing perpetually renewable leases into freehold estates free from any existing covenants except, perhaps, the covenant to pay rent and any rent review clause expressed in the original lease. Such an approach would, at least, have the advantage of dispensing with the unpalatable notion (assuming an unconverted lease) of a tenant having an indefinitely long leasehold interest in the property.
On the other hand, an automatic conversion of such leases into freehold estates may be seen as working even more unfairly on the landlord. A better solution, therefore, for both existing and future perpetual leases, may be to repeal the 1922 Act and replace it with a statutory scheme which would limit the exercise of the renewal clause in the lease to a maximum number of renewals. Indeed, one renewal may be considered enough as this is probably what the parties would have intended anyway had they thought about it.
The most obvious way to avoid the consequences of the 1922 Act is to provide expressly in the lease that renewal is to be on the same terms as the current lease but excluding any further renewal covenant or option. No doubt, this is something that trained conveyancers would be expected to do, but the worry remains that there will continue to be cases where the parties will be unaware of the consequences of creating what turns out to be a perpetually renewable lease. A repeal of the 1922 Act and its replacement with a scheme which would limit the number of renewals would avoid such consequences and offer a welcome solution to an unhappy position.
Mark Pawlowski is a barrister and professor of property law at the School of Law, University of Greenwich
