Murray Lee Eiland
Critical Evaluation of Bruton v London & Quadrant Housing Trust
Introduction
This essay will critically evaluate the reasoning adopted by Lord
Hoffman in Bruton v London & Quadrant Housing Trust[1] in reference to
contractual and estoppel tenancies. This recent and controversial case has
created a new kind of "non-proprietary" lease that is purely contractual.
If the reasoning of this case is followed it will mark a drastic change in
the law of property.[2]
Considering that the appeal was successful, it is necessary to examine
the prior ruling of the Court of Appeal in the same case - specifically
Millet L.J.[3] - to place the statements of Lord Hoffman into context.
Lord Hoffman found that this case was not distinguishable from Street v
Mountford.[4] The "three critical steps" outlined by Millet L.J. and
delineated by Lord Hoffman will be carefully considered. In Street the
grantor had a legal estate from which a tenancy could be created. In Bruton
the grantor had no estate, yet the court did not decide that an estoppel
should be ordered.
Tenancies
A brief summary of the facts of Street is required to define the nature
of a proprietary tenancy. The main issue revolved around an agreement to
grant what was stated to be a licence. A licence[5] gives only a personal
privilege to use land, whereas a lease is a legal estate.[6] The grantee
appealed against the decision of the Court of Appeal that found that a
license had been created. The House of Lords found that a tenancy had been
created despite the wording of the document.[7] The critical features of a
tenancy were defined as exclusive possession for a (fixed or periodic) term
certain in consideration of a premium or periodic payments.[8] The
decision in Street, unlike Bruton, did not consider if the grantor had a
right to grant an estate. The grantor did have an estate. The Bruton case
is quite distinctive on the basis of the facts as well as the final
decision.
Estoppel Tenancies
An estoppel arises in the absence of a legal interest in land. The
doctrine arose from the common law principle that a grantor could not
dispute the validity of their grant.[9] The classic five point test is
outlined in Willmott v Barber.[10] Briefly (1) the claimant must mistake
their legal rights and (2) act on the belief. The owner must (3) know of
the right (4) and the mistaken belief (5) and encourage the claimant. The
essence of the test is the degree of reliance by the claimant and/or fraud
by the owner. A more recent case, Taylor's Fashions Ltd. v Liverpool
Victoria Trustees Co Ltd[11] has considerably enlarged the scope of the
Willmott v Barber test. An estoppel does not confer an actual estate on the
tenant, but it operates in the same way until the land reverts to the true
owner. Against the person estopped it has all the elements of a real
title.[12] When rights are claimed by estoppel, the remedies are fluid,
ranging from turning over the property to the claimant, granting a life
license, a cash payment, or perhaps awarding nothing at all.[13] The Court
of Appeal ruling did not find any estoppel in Bruton, and the House of
Lords held that a tenancy was created.
The Bruton Case
In the light of the two types of tenancies previously outlined, the
question naturally moves to Bruton. The facts are that a housing trust was
granted a licence to use a block of flats owned by a local authority for
temporarily housing homeless people. This is unusual as local authorities
usually employ leases. It is likely that because the property was slated
for redevelopment, a licence had to be used.[14] The agreement between the
Trust and local authority was held by both parties to be a licence. Under
Part II and s. 32 of the Housing Act 1985 it would have been ultra vires
for the local authority to grant the Trust any estate in land except with
the permission of the Secretary of State. The agreement between the Trust
and Mr. Bruton clearly stated that pending the development of the property,
the Trust, who held the property on licence from the council, offered the
property for short term accommodation. Mr Bruton lived in the property for
10 years. During that time, his flat was to be vacated upon reasonable
notice, not normally less than 4 weeks, and Trust staff would be allowed
access.
Mr. Bruton alleged that the Trust was in breach of its obligation to
repair the flat which is an obligation (s.11 of the Landlord and Tenant Act
1985) that existed only if he had a lease - or a tenancy by estoppel -
rather than a licence. The Court of Appeal upheld the ruling of the County
Court that Mr. Bruton was only a licensee. The Trust did not purport to
grant a tenancy, and there could be no estoppel. The House of Lords was
unanimous that Mr. Bruton was a tenant. Lord Hoffman applied what he
thought to be the reasoning in Street. He found that Mr. Bruton had a right
to exclusive possession[15] for a fixed term in return for monetary
consideration. The court will not uphold the labels various parties attach
to an agreement and will view the matter in an objective light. Yet
assuming that a tenancy had been created is another issue.[16] Indeed, this
is where the case takes on a revolutionary aspect. According to Lord
Hoffman, limited rights of access in favour of the grantor emphasised the
relationship of the landlord and tenant. He held that a license
arrangement would not need to expressly state these rights.
The basis of Lord Hoffman's decision rests upon the notion that there
was either a valid estate in land held by the Trust, or that an estate
could be formed even if there was a 'break in the chain'. In the previous
Court of Appeal decision Millet L.J. dealt with the issue and defined three
critical steps.[17]
1. A legal estate in land must bind the whole world
Lord Hoffman was particularly critical of this step because it severely
reduces the ways in which an estate can be appreciated. According to
Millet L.J. the Trust did not have an estate and could not pass on a legal
estate. A critical part of a valid estate is exclusive possession with the
legal right to exclude the whole world. Lord Hoffman states that this view
effectively puts the "cart before the horse". He goes on to state that:
"...the term 'lease' or 'tenancy' describes a relationship between two
parties who are designated 'landlord and tenant'. It is not concerned with
the question of whether the agreement creates an estate or other
proprietary interest which may be binding on third parties".[18] He
understands an estate as more of a relative concept.
The statement above holds that the terms 'lease' and 'licence' are
immaterial in determining what legal relationship was in fact created.
While this observation is supported by Street and many later cases, it does
not follow that a grantor with no legal interest can create a relationship
like that of a 'landlord' and 'tenant.' Lord Hoffman states that: "A lease
may, and usually does, create a proprietary interest, called a leasehold
estate or technically 'a term of years absolute.' This will depend on
whether the landlord had an interest out of which he could grant it...But
it is the fact that the agreement is a lease which creates the proprietary
interest".[19] The latter part of the statement (underlined for clarity)
clearly diverges from the reasoning employed by Millet L.J. in that in
using terms employed in a lease, he suggests that a lease is created.[20]
The Trust pointed out that although they granted exclusive possession
for a term for rent, it should not be considered a tenancy. The Trust had
agreed with the council not to grant tenancies, and Mr. Bruton had entered
into a license agreement. The Trust itself held the property under a
license, and it could therefore not exclude the legal owner, the Council,
from entering. The Trust raised the decision in Lewisham Borough Council v
Roberts.[21] As Denning L.J. summarizes: "Once possession is taken the
Crown can...licence other people to use the premises...but it cannot grant
a lease or create any legal interest in the land in favour of any other
person because it has itself no estate in the land out of which to carve
any interest".[22] Lord Hoffman states that he understands Denning was not
suggesting that the Crown was prevented from entering into a
landlord/tenant relationship without an estate of its own. Lord Hoffman
does not go on to suggest what Denning L.J. meant by this statement. It
seems that these rather straightforward words may be easily interpreted to
contradict Lord Hoffman's assertion. Any other interpretation would be
difficult to construe.
In the case of Minister of Agriculture and Fisheries v Matthews[23]
Cassels J. cites the reasoning in Lewisham in considering the power of a
Minister:
Apart from possession, the Minister has no interest in the land which
he could convey. He has no lease, for instance, the whole or part of
which he could grant or assign. He could only part with possession.
He has statutory possession and his only power was to make a contract
for the statutory occupation or use of the land...if...he was
purporting to grant a tenancy, then he was acting ultra vires because
he could only act within his powers and could only part with what he
had, and that was possession of the land.[24]
The decision above clearly supports Denning's reasoning in Lewisham.
The case is all the more relevant to Bruton as Cassels J. states: "It
almost seems, in fact, that whoever drafted the agreement had left nothing
out which could make it look more like a tenancy agreement".[25] Despite
this observation, the court decided that no tenancy was created because of
the general proposition that one cannot grant a legal interest greater than
one had. A case with a similar judgement, citied in Street, was Marcroft
Wagons Ltd. v Smith[26] where Roxburgh J. notes that: "Generally speaking,
when a person, having a sufficient estate in land, lets another into
exclusive possession, a tenancy results, there is no question of a
licence".[27] The judgements in both Smith and Street held that an
interest in land was required to grant a tenancy. Although Lord Hoffman
partially follows Street in Bruton, his point of departure is unsupported
by previous authority. His judgement in Bruton created a new kind of
'exclusive possession' between the grantor and grantee only.[28]
2. Tenancy by Estoppel
Lord Hoffman states that Millett L.J.: "...may have been misled by the
ancient phrase 'tenancy by estoppel' into thinking that it described an
agreement which would not otherwise be a lease or tenancy but which was
treated as one by virtue of an estoppel. In fact, as the authorities show,
it is not the estoppel which creates the tenancy, but the tenancy which
creates the estoppel".[29]
This is a very bold statement reverses the positon held by Millet L.J.
These issues are not well developed by Lord Hoffman, perhaps because a
detailed consideration of estoppel would have made his reasoning less than
convincing. He makes the assertion that: "The basis of the estoppel is
that having entered into a agreement which constitutes a lease..."[30]
Previous authorities support the contrary. In the absence of the power to
create the legal estate the lease does not exist until an estoppel is
imposed by the court.
Lord Hoffman cites the case of Morton v Woods[31] to support his
contention that a tenancy creates estoppel. The case dealt with a written
deed where the intention of the parties is made clear by the use of the
terms 'landlord' and 'tenant'. In Morton Kelly C.B. stated that: "...it is
the creation of the tenancy, or the estoppel, which arises from the
creation of the relation of landlord and tenant by agreement between the
parties, that makes the actual legal estate unnecessary..."[32] In Morton
the court gave great weight to the intention of the parties to create a
tenancy. The court was not suggesting that because a tenancy existed an
estoppel thereby arose. The word "arises" therefore refers to the decision
it just made to impose an estoppel.
3. Inconsistency between what the Trust purported to do and its denial of
a tenancy
Lord Hoffman held - contrary to Millet L.J.- that there was an
inconsistency between what the Trust purported to do and their denial that
a tenancy was created. The Trust did not recognize they created a tenancy.
The word "purport" then takes on great importance. According to the
Concise Oxford Dictionary the word means to "profess" or "be intended to
seem".[33] The word must be appreciated in the context in which it was
used. Because there is no doubt that the Trust intended to only grant a
licence, and it is almost certain that Mr. Bruton understood the terms of
his accommodation to be a licence, their intention at the time was in
harmony. It appears that Millet L.J. had the correct view. Lord Hoffman,
in his judgement, then stated that the Trust would be estopped from denying
a lease as in his view it is the lease that comes first. This is a very
new way of appreciating estoppel, and the effects of this ruling remain to
be seen.
Conclusion
Lord Hoffman's reasoning seems unsupported by an objective analysis. In
order to grant a legal estate in land a grantor must first have a legal
estate. Lord Hoffman's citation of cases dealing with tenancy by estoppel
also raises concerns. The doctrine that an estoppel is the product of a
lease is hard to reconcile with previous cases, as it appears that an
estoppel cannot come into being if there is a lease. By suggesting that the
Trust intended to create a tenancy he is reconstructing what - in his view
- the Trust should have done. There is no evidence this is the case.
The long term impact of the case is debatable.[34] In the future
trusts and charities may be reluctant to provide socially responsible
housing. At the very least they must take steps to preclude a licensee from
obtaining a tenancy (using guidelines established in Street) by clearly
demonstrating a lack of exclusive possession.[35] If the reasoning in the
case is followed it raises the possibility that a trespasser has the
ability to grant a personal tenancy despite having no legal right or
interest. If the House of Lords has created a new species of tenancy, it
may possibly be registrable as a minor interest if the land is registered,
or as a Class C Land Charge if the title is unregistered. There is also the
open question of if the Landlord and Tenant (Covenants) Act 1995 or the
Landlord and Tenant Act 1998 apply to this new kind of non-proprietary
lease. Because both Acts assume that leases bind third parties the answer
is probably no.[36] Because the case was decided at the highest level it
is unlikely to be revised for some period of time.
Bibliography
Statutes
Housing Act 1985
Land Registration Act 2002
Landlord and Tenant Act 1985
Landlord and Tenant Act 1998
Law of Property Act 1925
Books and Articles
Bright, S., 'Leases, Exclusive Possession, and Estates', (2000) 7 LQR 116,
8.
Driscoll, J., 'Distinguishing Tenancies from Licenses', (1999) 816 S.E.G.J.
817.
Haley, M., The Statutory Regulation of Business Tenancies (New York:
Oxford, 2000).
Morgan, J., 'Exclusive Possession and the Tenancy by Estoppel: "A Familiar
Problem in an Unusual Setting', (1999 Nov-Dec) 493 Conv. 495.
O.U.P., Concise Oxford English Dictionary (New York: Oxford, 2002).
Pawlowski, M.., 'Bruton: A New species of Tenancy', (2000) 119 Landtenrev.
4:6, 121.
Pawlowski, M., 'Contractual Licences, Personal Tenancies and Tenancies at
Will', (2001) 117 L & T Review 5:6, 119.
Pawlowski, M., 'Occupational Rights in Leasehold Law: Time for
Rationalisation', (2002 Nov-Dec) 550 Conv. 559.
Palowski, M., and Greer, S., 'Leases, Licences and Contractual Tenancies',
(1999) 85, Nott.L.J. 88.
Thompson, M.P., 'Estoppel and Clean Hands.' 406 Con (1986, Nov-Dec) 408.
Cases
Antoniades v Villiers [1990] 1 AC 417
Bank of England v Cutler [1908] 2 KB 208 at 234
Bruton v London & Quadrant Housing Trust [1998] QB 834
Bruton v London & Quadrant Housing Trust [2000] 1 AC 406
Camden v Shortlife Community Housing (1992) 25 HLR 330
Family Housing Association v Jones [1990] 1 WLR 779
Goodtitle v Bailey (1777) Cowp. 597 at 600-601
Lewisham Borough Council v Roberts [1949] 2 KB 608
Marcroft Wagons Ltd. v Smith [1951] 2 KB 496
Minister of Agriculture and Fisheries v Matthews [1950] 1 KB 148
Morton v Woods (1868-69) LR 4 QB 293
Prudential Assurance Co. Ltd. v London Residuary Body [1992] 2 AC 386
Street v Mountford [1985] AC 809
Taylor's Fashions Ltd. v Liverpool Victoria Trustees Co Ltd [1981] 2 WLR
576
Torbett v Faulkner [1952] 2 TLR 659
Westminster City Council v Clarke [1992] 2 AC 288
Willmott v Barber (1881) 17 Ch D 772
-----------------------
[1] [2000] 1 AC 406
[2] One of several proposals for reform in light of Bruton is:
Pawlowski, M., 'Occupational Rights in Leasehold Law: Time for
Rationalisation', (2002 Nov-Dec) 550 Conv. 559.
[3] [1998] QB 834
[4] [1985] AC 809
[5] Creating a licence rather than a lease is a valid avoidance
measure. Although the difference between a lease and a licence is easy to
draw in theory, in practice the courts can have difficulty. Haley, M., The
Statutory Regulation of Business Tenancies (New York: Oxford, 2000) p. 62.
[6] Section 1(1) Law of Property Act 1925 (hereafter LPA 1925)
lists a term of years absolute as one of two estates in land capable of
subsisting in law. The owner continues to be the legal owner of the land,
but is not in possession (LPA 1925, s.205 (1)(xx).
[7] Lord Templeman's famous statement, that a five pronged
implement is a fork even if the manufacturer suggests it is a spade,
signalled the court would interpret agreements without reference to labels.
In Antoniades v Villiers [1990] 1 AC 417 sham clauses were challenged.
[8] Although rent is normally present, and indicates a tenancy, it
is not required according to the LPA 1925 s.205(1)(xxvii).
[9] Goodtitle v Bailey (1777) Cowp. 597 at 600-601
[10] (1881) 17 Ch D 772
[11] [1981] 2 WLR 576
[12] Bank of England v Cutler [1908] 2 KB 208 at 234. According to
the Land Registration Act 2002 s.116(a) an equity by estoppel can be
registered. If the claimant is in occupation it is an overriding interest.
[13] Thompson, M.P., 'Estoppel and Clean Hands.' (1986, Nov-Dec) 406
Conv. 408.
[14] See Morgan, J., 'Exclusive Possession and the Tenancy by
Estoppel: "A Familiar Problem in an Unusual Setting', (1999 Nov-Dec) 493
Conv. 495. The maximum duration of a lease must be determinable from the
start: Prudential Assurance Co. Ltd. v London Residuary Body [1992] 2 AC
386.
[15] Camden v Shortlife Community Housing (1992) 25 HLR 330
considered a license arrangement and found that it would have been
inconceivable for the authority to grant exclusive possession and create a
tenancy because they were due to demolish the structure. This case was not
considered in Bruton and there is some question if it is still good law.
See Palowski, M., and Greer, S., 'Leases, licences and contractual
tenancies', (1999) 85 Nott.L.J. 88.
[16] In Torbett v Faulkner [1952] 2 TLR 659 a company with no estate
or interest in a house granted rights of occupation to a prospective
employee. Denning L.J. held that as the company had no interest, it could
no create a tenancy. In a case similar to Bruton: Family Housing
Association v Jones [1990] 1 WLR 779, Mrs. Jones lived in a flat on a
"licence" from the Association. Applying a test derived from Street, the
Court of Appeal held that she was a tenant. The fact that the Association
only held a licence to the property was apparently overlooked. Considering
the case in Bruton, Millett L.J. considered that a tenancy by estoppel was
created. Lord Hoffman used the case to support his decision.
[17] As defined by Lord Hoffman [2000] 1 AC 406, at 415
[18] Idem
[19] Idem
[20] We are not told how the concept of 'estate' fits into the
landlord/tenant relationship. See Bright, S., 'Leases, Exclusive
Possession, and Estates', (2000) 7 LQR 116, 8.
[21] [1949] 2 KB 608
[22] Ibid at 622
[23] [1950] 1 KB 148
[24] Ibid at 151
[25] Idem
[26] [1951] 2 KB 496
[27] Ibid at 507
[28] Pawlowski, M., 'Contractual Licences, Personal Tenancies and
Tenancies at Will', (2001) 117 L & T Review 5:6, 119.
[29] Op cit. n.1 at 415-416
[30] Ibid at 416
[31] (1868-69) LR 4 QB 293
[32] Ibid at 304
[33] O.U.P., Concise Oxford English Dictionary (New York: Oxford,
2002) p. 971.
[34] It is likely that litigation is not over in Bruton. The Trust
may now be in breach of a duty to return the premises to the authority with
vacant possession after their head licence comes to an end. Driscoll, J.,
'Distinguishing Tenancies from Licenses', (1999) 816 S.E.G.J. 817.
[35] Westminster City Council v Clarke [1992] 2 AC 288 may be
instructive. Mr. Clarke, a homeless man, signed a licence agreement with
the hostel so that he would have to share his room or move without notice.
Mr. Clarke claimed to have a secure licence under the Housing Act 1985
because he had exclusive occupation. The House of Lords decided that he
did not have exclusive occupation.
[36] Pawlowski, M.., 'Bruton: A New Species of Tenancy', (2000) 119
Landtenrev 4:6, 121.
