Street v. Mountford [1985] AC 809.

Authored By: Izn Zahra

Denning Law School - University of London Program

Full Case Name: Street v. Mountford [1985] AC 809.

Citation: Street v. Mountford [1985] AC 809, House of Lords, 2 May 1985

Court: House of Lords

Date of Decision: 2 May 1985

Bench Composition: Street v. Mountford [1985] AC 809, House of Lords, (5-Judge Bench), Lord Scarman, Lord Keith of Kinkel, Lord Bridge of Harwich, Lord Brightman, Lord Templeman, decided 2 May 1985.

Introduction

Street v. Mountford was a landmark case that transformed the principles related to lease/license distinction in the UK. Historically, landlords would benefit more by granting licenses as compared to tenants. They made tenants sign ‘license agreements’ without tenants knowing the implications and terms that came with it. This eventually led to termination and injustice as the courts previously adopted a subjective approach, having no choice but to be bound by what’s written and already established.

It was for this reason that the courts in Street v. Mountford introduced a more objective approach where Lord Templeman created three crucial conditions through which rights could be capable of being a lease not withstanding what the agreement officially stipulated. These requirements were that there has to be a grant of exclusive possession to the tenant, a certain term, and rent should be charged. It was further decided that the courts would now look for ‘the true bargain’ between the parties and will ignore shams. This case has been appreciated for its straightforward application of an objective test which provided clarity for the matters pertaining to lease license distinction to a great extent.

Facts of the case

Lease is a proprietary right meaning that it is connected to the land and cannot be revoked at any time. It establishes a landlord-tenant relationship which obliges the landlord to provide basic amenities to the tenant. Contrary to this, license is a personal right which can easily be revoked, doesn’t develop a proper landlord and tenant relationship due to which landlord owes no basic amenities to the tenant.

This case involved Roger Street, a solicitor who owned a freehold property, and Mrs. Wendy Mountford, an occupant. Mrs. Mountford and her husband had already been living in the room in Mr. Street’s building for the past couple months under a written agreement which was explicitly a ‘license agreement’. On 7 March 1983, Mrs. Mountford and Mr. Street signed a new agreement which granted her the right to occupy two rooms in the house in exchange for a sum of £37 weekly, entitled as the ‘license fee’. This agreement could be abolished after fourteen days. It was also a mutual understanding between the parties that the agreement enabled Mrs. Mountford to have ‘exclusive possession’ of the authorized premises and that Mr. Street provided no services, such as attendance or cleaning, that would have required him to have unrestricted access to the premises.

Legal Issues

The primary issue pertaining to this case was whether the agreement dated 7 March 1983, which granted Mrs Mountford the right to occupy Rooms 5 and 6 at 5 St Clements Gardens in exchange for a weekly payment of £37 and was expressly described as a “license agreement,” created a tenancy or a license under the Rent Act 1977.

Another important area which required a proper analysis and judgment of the courts was whether the communicated intention of the parties during the time of the agreement and expressed by it, can prevent the creation of a tenancy if the agreement itself grants exclusive possession for a term at a rent

Arguments Presented

4.1 Respondents Argument:

The leading counsel for Mr. Street argued that the agreement made it explicitly clear that it was a license agreement as the payment was referred to ‘license fee’ and contained an explicit declaration signed by Mrs. Mountford acknowledging that the agreement did not create a lease tenancy ought to be protected by the Rent Acts. Court of Appeal perceived that since words like ‘landlord’, ‘tenant’ or ‘rent’ were avoided in the agreement, it was difficult to see whether there was an expressed, clear intention to create a license instead of a tenancy. The respondent also argued that every individual has a freedom of contract, therefore, a decision in favor of the agreement being a lease although expressly stated as license would interfere with this freedom of contract.

4.2 Legal Provisions Relied Upon:

Mr. Street’s counsel referred to Court of Appeal judgments where creation of contractual licenses was allowed despite the fact that exclusive possession was present. These key cases were:

Somma v Hazelhurst [1978] 1 WLR 1014.
Booker v Palmer [1942] 2 All ER 674. (Cited to support the interpretation that there was no intention to create a lease)
Marcroft Wagons Ltd v Smith [1951] 2 KB 496.
Errington v Errington and Woods [1952] 1 KB 290. (Lord Denning’s statement where he stated that although a person who has exclusive possession of the premises is prima facie to be considered a tenant, despite this, he will not be held to be so if the circumstances ‘negative any intention to create a tenancy’)
Cobb v Lane [1952] 1 TLR 1037. (Referred to show that there could be cases where an occupier is not a tenant even with exclusive possession if there is “no intention to create any legal relationship”)
Murray Bull & Co Ltd v Murray [1953] 1 QB 211.

These cases set a framework for landlords to avoid the Rent Act protection through carefully scrutinized and drafted license agreements. The respondents also relied on Marchant v Charters [1977] 1 WLR 1181 in which famous judge, Lord Denning stated that a license could exist even where the occupant has exclusive possession, depending on the “nature and quality of the occupancy” and the intention of the parties.

There was little statutory interpretation from the Rent Act that the respondent’s raised in their argument. They believed that it was not the Parliament’s intention to give a label to the agreement or expressly communicate if it is a license or a lease, instead, the focus was on literal terms of the contract and the legal relationship was to be decided by the parties themselves on behalf of their right to freedom of contract.

4.3 Appellant’s Argument:

On the other hand, Mrs. Mountford’s counsel argued that despite the wordings of the agreement, the rights that were communicated and she was granted established a tenant and landlord relationship, therefore entitling her to the protection under Rent Act 1977.

Counsel for Mrs. Mountford, Mr. Hicks, Q.C sought to ‘re-affirm and re-establish the traditional view that an occupier of land for a term at a rent is a tenant providing the occupier is granted exclusive possession’.[1] He also argued that ‘exclusive possession’ was the decisive test and that as per the agreement, Mrs. Mountford was granted exclusive possession to the two rooms. Due to having exclusive possession, Mrs. Mountford had the right to keep out the landlord according to the agreement’s reservation of rights to the landlord under clause 3 (right to enter for inspection and maintenance) which were merely reserved limited rights to enter and view and repair. Hence, this was more in line with being a lease rather than a license.

4.4 Legal Provisions Relied Upon:

The statutes that the appellants relied on were

The Law of Property Act 1925
Rent Act 1977

The counsel also relied on several past precedents in their argument such as:

Glenwood Lumber Co. Ltd v Phillips [1904] AC 405. (Cited to support the principle that it is “not a question of words but of substance” when determining whether a grant confers exclusive possession)
Allan v Liverpool Overseers (1874) LR 9 QB 180. (Cited to differentiate a lodger from a tenant.)

It was also argued by the appellants that the courts must refuse to let parties ignore statutory rights by labelling a tenancy as a mere “license” and that Rent Act should be applied accordingly to protect occupants.

Courts Reasoning and Analysis:

As a result of the arguments presented, the courts decided to allow the appeal. Lord Templeman laid down the legal definition of tenancy, which as per Law of Property Act 1925 was defined as ‘term of years absolute’. Contrastingly, a license “does not create an estate in the land but only makes an act lawful which would otherwise be unlawful.” [2] The courts established and laid down a clear test that there can be no tenancy unless the occupier has exclusive possession for a fixed term or period of time in exchange of payment or rent. The interpretation of the Rents Act was not relevant because it did not change the outcome or effect of the agreement that was signed.

Lord Templeman distinguished cases where exclusive possession existed but there was no lease between the parties, such as such as Booker v Palmer, Marcroft Wagons Ltd v Smith, and Errington v Errington[3], highlighting them as exceptional cases due to the fact that in the cases there were separate issues for e.g. the parties not intending to enter into legal relationships, the relationship was different from a landlord and tenant one, or the owner had no power to grant a tenancy. The present case did not meet any exceptional circumstances.

Additionally, the courts gave reference from the aforementioned case, Addiscombe Garden Estates Ltd v Crabbe, where Jenkins L.J. had stated that “whatever label may have been attached to it, if it in fact conferred and imposed on the grantee in substance the rights and obligations of a tenant… then it must be given the appropriate effect” [4][5]. This meant that courts would look at ‘substance over form’ and that a simple or mere label would be insufficient for the courts to decide the legal nature of the agreement.

Consequently, the courts rejected Mr. Street’s arguments. Lord Templeman made it clear that the outcome and consequences of the agreement can only be devised by the effect that it caused on the parties. The parties having communicated an intention to form a license agreement did not eradicate the legal consequences in the agreement which granted Mrs. Mountford exclusive possession, therefore, the only relevant intention that the courts would acknowledge was “the intention demonstrated by the agreement to grant exclusive possession for a term at a rent.”[6] Lord Templeman also debunked Mr. Street’s argument that Mrs. Mountford was a lodger. Since Mr. Street provided “neither attendance nor services” and only reserved “limited rights of inspection and maintenance”, Mrs. Mountford was a tenant, and not considered to be a lodger.

Judgment and Ratio Decidendi

Lord Templeman delivered the leading judgment of the case, alongside Lord Scarman, Lord Keith of Kinkel, Lord Bridge of Harwich, and Lord Brightman to follow along. The court finalized that the agreement created by both parties on 7 March 1983 created a lease agreement, not a license, which holds the capability of being protected by the Rent Act.

Ratio Decidendi:

In the event that an occupier is granted exclusive possession for a fixed periodic term in exchange or consideration of a fee or payment, and the landlord is not providing any sorts of attendance nor services, then the agreement is entitled to be a legal tenancy, regardless of the intent of the parties during communication or the fact that the agreement conveys or stipulates itself to be otherwise. Lord Templeman stated that “If the agreement satisfied all the requirements of a tenancy, then the agreement produced a tenancy and the parties cannot alter the effect of the agreement by insisting that they only created a license” and that only the intention to grant exclusive possession is the relevant intention that the courts will look at.

Moreover, the courts also listed some exceptions where an agreement loses its ability to be a lease even where exclusive possession is being granted. These were as follows:

A mortgagee in possession upon default of the mortgagor
A person who is in occupation by virtue of an enforceable contract of sale
Where no intention to create legal relation is present for e.g. between friends and family (Marcroft Wagons Ltd v Smith [1951] 2 KB 496[7] and Jones v Padavatton [1969] 1 WLR 328 (CA) [8]
Service Occupancy (Norris v Checksfield [1991] 1 WLR 1241)[9]
Lodgings, where services are provided

Critical Analysis

Lord Templeman’s decision in Street v. Mountford has proven to lay down a very clear and consistent legal framework to establish the distinction between a lease and license agreement. This case was particularly significant because it shed light onto one of the widespread and common practices of landlords to avoid leases by the careful wordings of their agreement, a trend that started growing exponentially and had to be addressed. As a result of this, the courts adopted a subjective approach where they decided to look at ‘substance over form’ and disregard the actual words conveyed on paper.

It’s impact has been significant on present and future cases due to the fact that they have provided clarity over legal disputes between tenants and landlords,[10] and prevented injustice to the tenants for what can be observed as ‘property fraud’.

However, despite the crucial changes and development this landmark case has made over the years, it has been criticized for how stern it is, as landlords granting residential premises to a tenant could find themselves unable to dispense them if a lease was accidentally created. Moreover, confusion is further observed in this law due to the concept of ‘Bruton tenancy’ that was established in the case of Bruton v London and Quadrant Housing Trust [2000] 1 AC 406[11]. This principle created a new concept of a ‘non-proprietary lease’ which is a lease that is not connected to the land but creates a landlord and tenant relationship, and therefore, can also be granted even if the landlord himself is merely a licensee. This rule created a lot of ambiguity as it acted as an irony to the clear and distinctive test established by the courts for lease and license. It has also been criticized by commentators like Martin Dixon who states that it has resurrected a “feudal phoenix” by creating a new branch of tenancy that blurs the distinction between a lease and a license. [12]

Conclusion

Street v. Mountford plays a vital role in distinguishing between a lease and license in UK Property Law. It has introduced an objective criterion which determines whether an agreement holds the capability of being a lease or not i.e. having exclusive possession, a certain term or periodic tenancy and rent charged. Moreover, the courts have displayed that the intentions of the parties during the time of agreement does not negate the legal consequences caused by the agreement, hence paying little heed to the intent factor.

The lasting impact of this decision is that it has created simplicity and provided clarity over an area of law that was very scattered before, and has provided tenants of the protection that they need to not be misused and compelled into signing agreements without knowing its terms and legal aftermath. However, despite this drastic change, judges and authors over time have also criticized some areas of it, particularly with regards to the Bruton tenancy concept through which non-proprietary leases can exist and besides this, the strict application of exclusive possession binds housing organizations that can’t refute an agreement made accidentally or without proper consideration.

Reference(S):

Statutes:

Rent Act 1977

Law of Property Act 1925

Cases:

Street v. Mountford [1985] AC 809.

Somma v. Hazelhurst [1978] 1 WLR 1014.

Booker v. Palmer [1942] 2 All ER 674.

Marcroft Wagons Ltd v. Smith [1951] 2 KB 496.

Errington v. Errington and Woods [1952] 1 KB 290.

Cobb v. Lane [1952] 1 TLR 1037.

Murray Bull & Co Ltd v. Murray [1953] 1 QB 211.