Uncertain terms

The Supreme Court in Berrisford (FC) v Mexfield Housing Co-operative Ltd [2011] UKSC 52 ruled that an occupancy agreement that could not be valid as an express tenancy because it was of uncertain duration, nevertheless took effect as a lease for 90 years. The lease was determinable by the landlord on one month's notice on the tenant's death or in accordance with the terms of the parties' agreement. Although this forms the ratio of the decision, the court also alluded to the possibility of giving effect to a void lease of uncertain term as a personal licence under ordinary contract principles. It is this intriguing aspect of the case that deserves further consideration.

An equitable lease?

Wilson LJ, in the minority in the Court Appeal in Mexfield (see [2010] EWCA Civ 811), also accepted the argument raised on behalf of Ms Berrisford: that the agreement, despite being void at common law in line with the House of Lords' ruling in Prudential Assurance Co Ltd v London Residuary Body [1992] 2 AC 386, could, nonetheless, be enforceable in equity so as to prevent Mexfield (as one of the contracting parties) from seeking possession against Ms Berrisford in breach of the terms of the lease. In Prudential, because the dispute arose between the successors in title to the original landlord and tenant, the current landlord could only retain possession of the relevant strip of land if it could establish a property right in respect of it. This the landlord could not do as the lease lacked the necessary certainty of term.

The Prudential ruling, therefore, did not address the question whether equity could intervene to enforce the terms of the contract between the original parties to the failed lease.

Interestingly, a number of cases provided support for the contention that equity would enforce the original parties' contract in such circumstances (see Doe d. Warner v Browne [1807] 8 East 165; Parker v Taswell [1858] 27 LJ (Ch); Re King's Leasehold Estates [1873] LR 16 Eq 521; Zimbler v Abrahams [1903] 1 KB 577; and Siew Soon Wah v Yong Tong Hong [1973] AC 836 (PC)).

In Mexfield, Wilson LJ, adopting this line of authority, concluded that, as Ms Berrisford had provided consideration for the written agreement, equity would come to her aid (if necessary) in the form of an injunction against the landlord not to seek possession against her save in the specified circumstances set out in the agreement. In Wilson LJ's view, therefore, the earlier case law pointed to only one conclusion, namely, that 'failure, for whatever reason, of an agreement to create a valid lease in no way precludes its specific performance as between those bound by it so as to carry into effect its obvious intention'.

The majority in the Court of Appeal, however, (Aikens and Mummery LJJ) took a different view. In short, because the tenancy was, by virtue of the relevant clause, uncertain in terms of its duration and, therefore, void at law, this meant that any contractual relationship created by the tenancy was also invalid and could not be saved by equity '“ in effect, the contractual element of the occupancy agreement could not be separated from its proprietary element. In the words of Aikens LJ: 'It seems to me that, as a matter of principle, it is both illogical and unsound to suggest that a contract which aims to grant an interest in land, which grant fails because it is of uncertain term, can nevertheless survive as a separate and freestanding contract which can be enforced as if it were the lease which cannot be made because of an uncertain term.'

So far as the earlier case law was concerned (which suggested the opposite view), this could be distinguished or interpreted differently. For example, Parker was only decided the way it was because of the lack of a deed and was not, therefore, authority for the proposition that equity would enforce a contract where a formal lease would fail altogether because of uncertainty of term. Further, none of the other cases supported the broad proposition that equity would specifically enforce a contract which purported to grant an interest in land for an uncertain term. Thus, according to Mummery LJ: 'If an interest in land'¦ exists at law, that is what also exists in equity. If a claimed interest in land does not satisfy the basic legal requirements for its existence, then it will not, as a general rule, exist as an interest in land either at law or in equity.'

In Mexfield, the occupancy agreement was incapable of creating a valid lease at law (not because of lack of formality but because of a more fundamental flaw going to its very existence) and so equity could not validate it by ordering specific performance or an injunction. To do so would require equity to contradict the law when it would otherwise follow the law.

A contractual licence?

Whatever the position governing equitable leases (the Supreme Court did not express any view on this), it seems that a resort to purely contractual principles may save the substance of the lease regardless of the nature of the invalidity rendering the lease void at law. Significantly, Lord Neuberger in the Supreme Court opined that, if Ms Berrisford's agreement had not given rise to a life tenancy, she would have been entitled to enforce her rights under the agreement as a matter of pure contract. He said: 'If the agreement does not create a tenancy for technical reasons, namely because it purports to create an uncertain term, it is hard to see why, as a matter of principle, it should not be capable of taking effect as a contract.'

On this reasoning, the agreement would give rise to a contractual licence determinable pursuant to the terms of the parties' agreement and it did not matter that the parties had intended to create a tenancy. The view, therefore, expressed by Lord Greene MR in Lace v Chantler [1944] 1 KB 368, relied on by all members of the Court of Appeal in Mexfield, that the court was not justified in treating the parties' bad lease as something different from what the parties intended, was not correct. Lord Neuberger said: 'The fact that the parties may have thought they were creating a tenancy is no reason for not holding that they have agreed a contractual licence any more than in Street v Mountford [1985] AC 809, the fact that the parties clearly intended to create a licence precluded the court from holding that they had, as a matter of law, created a tenancy. So too in Milmo v Carreras [1946] KB 306, the Court of Appeal (led by Lord Greene) held that what was plainly stated and understood by the parties to be an underlease operated as an assignment of the lease as a matter of law, because the duration of the purported underlease equalled or exceeded that of the lease.'

Lord Mance was also prepared to treat the agreement as a contractual licence, adding that the failed lease could not be reinterpreted as a personal tenancy in the Bruton sense as the requirement of certainty of term (common to all tenancies) was missing from the agreement. Lord Clarke reiterated that the contract between the parties could be enforced by the remedy of injunction and Lord Dyson also accepted that the agreement 'was enforceable as a contract according to its terms like any other contract'. The fact that the licence, like the failed lease, would run for an uncertain period did not matter. A licence is not subject to the doctrine of certainty of term, and, therefore, could run for an uncertain duration (see, for example, Tanner v Tanner [1975] 1 WLR 1346 '“ contractual licence to occupy a house with children so long as they were of school age and required the accommodation).

Missed opportunity

There are, of course, other significant differences in characterising the failed lease as a contractual licence rather than as an agreement enforceable in equity. The latter will not give rise to an equitable lease unless the contract is in writing pursuant to section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 (see Hardy v Haselden [2011] EWCA Civ 1387). That said, the equitable lease will, at least in principle, be capable of binding successors in title by reason of registration or overriding status. The contractual licence, on the other hand, will be enforceable only as between the original parties as lacking any proprietary interest (see Strand Securities v Caswell [1965] Ch 958) unless the third party is bound in conscience by a constructive trust to give effect to the licence (see Ashburn Anstalt v Arnold [1989] Ch 1).

Like the equitable lease, however, the contractual licence offers a significant measure of protection to the licensee. Not least by virtue of the implied undertaking by the licensor to afford quiet enjoyment to the licensee during the period of the licence (see Smith v Nottinghamshire County Council [1981] The Times, 13 November) and the implied term that the premises are fit for the purposes envisaged by the licence (see Wettern Electric Ltd v Welsh Development Agency [1983] QB 796). More significantly, the implication of a negative contractual term in restraint of revocation (enforceable, if necessary, by injunction) and the statutory protection against eviction (afforded under section 2B of the Protection from Eviction Act 1977), means that in most cases the contractual licence will provide a virtually functional equivalent of the failed lease. The general law of contract, which permits the enforcement of the parties' contract according to its terms, may provide a welcome alternative route to securing the parties' intentions where the agreement is otherwise void as a result of the technicalities of landlord and tenant law.

What, however, is a pity is that the Supreme Court did not also take the opportunity to clarify the law as to whether equity can directly rescue a void lease at law for an uncertain term as an equitable lease capable of specific performance. As things stand, the majority view in the Court of Appeal in Mexfield points strongly to the conclusion that equity cannot enforce an agreement for an uncertain duration as this would simply create an uncertain lease with the same inherent flaw. The upshot, therefore, is that equity may enforce the agreement as if it were merely a personal contract between the parties but not as giving rise to any interest in land.