If it quacks like a duck
The legal distinction between lease and licence relationships is an important one – and not determined by how the agreement is labelled. Una Woods sorts the ducks from the drakes
The classification of a residential occupation agreement as a lease/tenancy as opposed to a licence confers significant rights on the tenant and imposes increasingly onerous obligations on the landlord.
Accordingly, the legal distinction between the two relationships is an important one and not determined by how the agreement is labelled.
As legal practitioners may recall, the land law topic dealing with the lease/ licence distinction also represents a firm favourite of law students.
This is unsurprising, as many students are renting a property for the first time, but also the case law is replete with visceral and memorable judicial metaphors.
As Lord Templeman famously remarked in the English case Street v Mountford: “The manufacture of a five-pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade.”
In a similar vein, Bingham LJ noted in Antoniades v Villiers: “A cat does not become a dog because the parties have agreed to call it a dog.”
The Irish courts have yet to be presented with circumstances equivalent to those in Street v Mountford (where the occupant signed the agreement presented by Mr Street, a Bournemouth solicitor, which was couched in licence terminology with a view to evading the protections conferred by the Rent Act 1977).
The House of Lords ruled that if the agreement presented all the proprietary elements or hallmarks of a tenancy – namely, exclusive possession for a term at a rent – a tenancy was to be presumed, regardless of expressions of a contrary intention.
In the residential sector, the Residential Tenancy Tribunals, which resolve most landlord and tenant disputes, are more likely to be presented with the issue than the courts.
Also, given the minefield of statutory regulation of residential tenancies facing putative landlords and the shortage of rental properties available to prospective tenants, it seems inevitable that disputes raising this issue will become more common.
As a result of recent reforms to the Residential Tenancies Act 2004, landlords now face the prospect of tenancies of unlimited duration and restrictions on rent increases and, at the same time, obligations requiring high standards of property maintenance and annual registration.
A property owner may insist that a prospective occupant signs an agreement that is labelled a licence and includes certain key clauses typically associated with a licence, in the hopes of evading these regulations.
The current housing crisis means that those seeking residential accommodation are likely to be desperate enough to sign any document presented to them.
Irish case law
Most of the Irish case law in this area involves a business occupant of a garage premises or a shop claiming an entitlement to a new business tenancy on the basis that his licence agreement operates, in substance, as a tenancy.
Where the written terms of the agreement unambiguously express an intention to create a licence, especially where the occupant has received independent legal advice, the courts have typically respected these expressed intentions by adopting a ‘contractual approach’ to the classification of the agreement.
Clauses that clearly state that there is no intention to confer a tenancy, that exclusive possession is not conferred, or the inclusion of a clause reserving the right to move the occupant to a different premises (sometimes referred to as a ‘mobility clause’) have all been treated as expressions that strongly indicate an intention to create a licence agreement.
In Gatien Motor Company Ltd v Continental Oil Company of Ireland Ltd, Griffin J, in ruling that a caretaker agreement amounted to a licence, noted that the parties had negotiated at arm’s length, both were fully legally advised, and that the arrangement expressed the intention of the parties and was entered into at the behest of the solicitors for the tenant.
Similarly, in National Maternity Hospital v McGouran, Morris J noted that there were certain clauses, including a mobility clause, in the agreements that made it clear beyond doubt that what was being granted by the hospital was no more than a licence.
In Kenny Homes & Co v Leonard, a carefully crafted agreement was held by the High Court to confer a licence, and the Supreme Court affirmed this ruling, noting that the terms of the agreement were “crystal clear”.
More recently, in Esso Ireland Ltd v Nine One Ltd, McGovern J commented: “The court should be slow to look behind the clear terms negotiated by the parties at arm’s length and in circumstances where each was legally represented.”
There have been two Irish cases where the courts adopted an approach more akin to that set out in Street v Mountford, which looked beyond certain expressed terms to identify the hallmarks of a tenancy.
In Irish Shell and BP Ltd v Costello Ltd, the court ruled that a licence agreement in relation to a garage premises amounted to a tenancy on the basis that the occupant had exclusive possession of the premises at a rent (although it was referred to as a payment for the hire of equipment).
This approach, while difficult to reconcile with the case law discussed above, was warranted in the circumstances, as there were significant ambiguities in the terms of the agreement, rendering the contractual approach unsuitable.
The parties had entered into a number of agreements over the years and, while earlier versions of the agreement had included clauses negating exclusive possession or an intention to create a landlord and tenant relationship, the agreement before the court did not include these clauses.
The agreement was also inaccurate in delineating the premises to be occupied: it failed to include a workshop that had been built to be occupied by the defendants and was, in fact, so occupied.
The second and more recent judicial foray into the realms of Street v Mountford was arguably less appropriate.
In Smith v CIE, a very experienced businessman, following legal advice, had entered into a clearly drafted licence agreement in relation to a shop in Tara Street Railway Station. He admitted in evidence that he understood he was only getting a licence.
Peart J, relying heavily on Street v Mountford, held that it amounted to a tenancy on the basis that exclusive possession had been conferred.
This decision was criticised by the Law Reform Commission in 2003 and led to proposals for legislative clarification that the courts should give effect to the express agreement of the parties on this issue, provided they have received independent legal advice.
While these proposals have yet to be implemented, the need for such reform is arguably less pressing since a 2008 amendment of the Landlord and Tenant (Amendment) Act 1980 that permits a tenant to contract out of his entitlement to a new business tenancy, provided they have received independent legal advice.
It will be interesting to see if licences of commercial premises continue to be as popular in the aftermath of this legislative intervention. It is highly possible that the lease/licence distinction will become more important in the residential context in the future.
Residential Tenancy Tribunal
It is not unusual for the lease/licence distinction to come before Residential Tenancy Tribunals.
It will need to be determined where a putative landlord seeks to evade his statutory obligations by relying on one or more clauses typically indicative of a licence agreement.
Lodger scenario
The landlord may include a clause reserving a right to reside in the property for himself or a family member. Section 3(2)(g)-(h) of the Residential Tenancies Act 2004 clearly excludes such lodger arrangements from the ambit of the legislation.
However, in Leonard v McHugh, the tribunal was not satisfied on the evidence submitted that the landlord did, in fact, reside in the property, bringing the matter within its jurisdiction. In addition to detecting sham clauses, the tribunals have on occasion gone further.
In quite a bold move, the tribunal in O’Sullivan v Conlan severed a clause that had been agreed between the parties and that allowed the landlord and his family to stay in the premises with the tenant on weekend visits for matches, over the summer, and at Christmas.
The landlord’s family had stayed in the premises for 18 days over a 20-month period. The tribunal found that the clause was in breach of the landlord’s duty to afford the tenant peaceful and exclusive occupation of the dwelling.
Provision of services
A landlord might reserve the right to access the premises to carry out various services – for example, cleaning, linen change, or refuse collection.
While I could not locate any tribunal decisions where this was a definitive issue, in the English case Crancour Ltd v Da Silvaesa, it was held that such a clause meant that exclusive possession was not conferred and so it was indicative of a licence.
In Aslan v Murphy, however, the court struck out such a clause on the basis that it was a ‘pretence’ and found that the true bargain was for a lease.
Rules, inspections, mobility clauses
Another common situation is where the landlord imposes rules – for example, restricting the hours of visitors or allowing for inspections for cleanliness. Inherent in the right to exclusive possession is freedom from this type of supervision or regulation.
In Deans Hall Student Accommodation v McGuinness and King, the tribunal found that an agreement containing such rules did not confer exclusive possession and therefore amounted only to a licence.
However, in O’Connor v Flynn, the tribunal examined how an arrangement including similar clauses operated ‘on the ground’ and concluded that, in substance, the tenant had exclusive possession.
A mobility clause is another trick that may be found up the sleeve of a putative landlord. This is a clause reserving to the owner the right to move an occupant from one room to another.
In two tribunal decisions, Deans Hall v Mc Guinness and King and O’Driscoll v Mulvaney, such a clause was found to be indicative of a licence and not a tenancy.
House shares
A landlord may decide to recruit occupants at different times under separate agreements, so that there is a shifting population of occupants. Typically, each occupant is assigned exclusive use of a bedroom coupled with access to common areas, such as a kitchen.
I found several tribunal decisions in which such arrangements were found to give rise to individual licences but, in Stankiewicz v Darcy, such an arrangement was found to give rise to individual tenancies.
To confuse matters utterly, recently there were two conflicting decisions by differently constituted tribunals in relation to the same eight-bedroom house in Maynooth.
Individual agreements had been entered into in respect of each bedroom, which included access to a common area. In Andrew Browne Construction v Ennis, one such agreement was held to confer a licence.
The tribunal noted that, while bedsit accommodation was included within the ambit of the Residential Tenancies Act, a house share was not self-contained and so, unless it related to student accommodation (the Residential Tenancies (Amendment) Act 2019 extends certain rights to students who occupy student accommodation under a licence agreement), it was not within the remit of the Residential Tenancy Board.
In contrast, one week later, in Andrew Browne Construction Ltd v Young and McGaley, another tribunal adopted a more expansive definition of bedsit accommodation and reached a decision that an identical agreement in relation to a different bedroom in the same house did constitute a tenancy.
Guardianship agreements
It is worth briefly mentioning the growing proliferation of guardianship arrangements in England and Wales.
These agreements are typically entered into to protect vacant commercial property against squatters. Certain temporary renovations are made to facilitate residential occupancy and, while the occupants pay below-market rent, they are typically entitled to only a minimum of notice when required to leave.
The agreements include many of the clauses that have just been discussed, and the courts have, in general, held that such arrangements amount to a licence rather than a tenancy.
Ugly duckling
As is the case with commercial occupation agreements, the inclusion of certain clauses in a residential occupation agreement may be indicative of a licence and oust the jurisdiction of the Residential Tenancy Board.
However, there is also strong evidence to suggest that tribunals are more open to examining how the agreement operates in practice in determining if a tenancy exists. In making this examination, the presence of exclusive possession as a key hallmark of a tenancy is likely to be determinative.
The tribunals are astute in detecting shams and will look beyond or sever misleading contractual terms.
This is fair and appropriate in the context of residential tenancies where an agreement will often be presented to a prospective occupant on a take-it-or-leave-it basis, and independent legal advice is unlikely to be helpful.
If the Law Reform Commission’s proposed reforms to make the expressed intentions of the parties determinative are implemented, it would make sense to limit this statutory guideline to commercial occupancy agreements.
In the residential context, the introduction of a statutory rebuttable presumption of a tenancy where the hallmarks of a tenancy exist would be helpful in reflecting and clarifying what appears to be happening in practice.
In effect, there should be a dual system of statutory guidelines governing the lease/licence distinction.
Dr Una Woods is associate professor in the School of Law, University of Limerick.
LOOK IT UP
CASES:
RESIDENTIAL TENANCY TRIBUNAL DECISIONS
- Andrew Browne Construction v Ennis (March 2021) TR1020-004502
- Andrew Browne Construction Ltd v Young and McGaley (March 2021) TR1020-004501
- Deans Hall Student Accommodation v McGuinness and King (February 2015) TR0914-000847
- Leonard v McHugh (June 2007) TR44
- O’Connor v Flynn (November 2014) TR0814-000789
- O’Driscoll v Mulvaney (October 2016) TR0915-001354
- O’Sullivan v Conlan (May 2014) TR1113-000500
- Stankiewicz v Darcy (July 2015) TR0515-001156
LEGISLATION:
Dr Una Woods
Dr Una Woods is associate professor in the School of Law, University of Limerick.