Property Lease Agreement

Question 1

Amir being the registered proprietor of Tong Court has the right to deal with the property as he pleases subject to the overriding interests under the law of property. Therefore, he is well within his rights as a proprietor to issue part of the property as a lease to David. The initial agreement involved a grant of five of an outbuilding years by Amir to David. In law a lease entails the grant of exclusive possession for a period of time which is certain for the payment of rent. This is the position as set by Lord Templeman in Street v Mountford in the classical distinction between an agreement amounting to either a lease or a license. In the present scenario the lessor, Amir granted a fixed term lease to the lessee for a period of five years. This aspect of the lease fulfils one of the key essentials of a valid lease which is that it must be for a certain period of time. It is further stated that the lease was for an outbuilding. The assumption here is that the outbuilding which is part of the Tong Court is a defined premise for purpose of the five-year lease. It follows that the initial agreement between the parties is a valid lease in accordance with common law and the Law of Property Act 1925.

Initially, Amir allowed David to store his quad bike and fishing equipment in the old stable but this changed when a new lease was issued in 2016. David stored the fishing equipment and quad bike in the old stable under an arrangement that was not expressly included in the grant of lease. The said implied arrangement or agreement under the initial lease was not transposed into the new lease granted to David in 2016. In David’s defence he could argue that the storage arrangement was an implied term of the lease issued to him 2011 and that it still an implied term under the new lease. In such a case, David would further argue that the implied agreement would survive the initial lease unless expressly excluded in the agreement between them. This would then require Amir to live up to both express and implied terms of the lease, a failure of which results in breach of the said terms. David would then be entitled to compel Amir to continue providing storage space for his fishing equipment and quad bike.

Normally, lease or tenancy agreements contain clauses providing for parking spaces for the tenants and lessees. The right to park a car has long been considered by the House of Lords to be an easement in the case of Moncrieff v Jamieson. David could then argue that as a lessee he has the right of easement to store or park his quad bike and fishing gear in the old stable. Taking into account the court’s interpretation of cases like Re Elleborough, the above situation reflects the presence of an easement in the circumstances. In Wright v Macadam, the defendant leased the top-floor flat to Mrs Wright and further permitted her to store coal in a shed. When the lease was renewed upon expiry the defendant demanded that Mrs Wright pays for storage in the shed. The Court of Appeal held that on the renewal of the lease to Mrs Wright, there was an implied easement to store coal in the coal shed into the renewed lease. It was further explained that section 62 of Law of Property Act 1925 effectively converted Mrs Wright’s privilege into a full easement.

According to section 62 of the LPA 1925, an easement is implied where there is a grant of lease or freehold and there is diversity of ownership or occupation of the dominant and servient land before the grant of a lease or freehold. In this scenario, there was a grant of lease to David for five years and there is a diversity of ownership of the old stable and the outbuilding. Therefore, the relationship between David and Amir implies the existence of an implied easement in accordance with Wright v Macadam.

Accordingly, David can rightfully claim entitlement to the right to store his fishing equipment and quad bike in the old stable by virtue of an implied easement in line with section 62 LPA 1925. Further, such an implied easement is considered to be an overriding interest under schedule 3 paragraph of Land Registration Act 2002. Under the first lease, Amir permitted David to use the said storage and only changed his mind after the renewal of the lease for another five years. The right to use the old stable for storage passed to David as an easement under section 62 LPA 1925 on grant of lease in 2016. In any event David’s use of the old stable for storage does not appear to be too extensive as to negate the existence of an easement. As a result, the remedy available for David is an injunction against Amir compelling him to provide a storage space in the old stable. In the end Amir cannot prevent David from using the stable buildings to store his fishing equipment and quad bike.

Question 2

Amir is the registered proprietor of Tong Court and therefore has the legal right to dispose of the whole or part of the property as he did to William. Covenants are private agreements between title holders which may compel a proprietor or his successor to do something or refrain from doing something to the land. Restrictive or Negative covenants requires the covenantor not to do the thing specified whether that is using the land for particular purposes or building upon it. Generally, covenants imposed by a seller for their own benefit are not enforceable by anyone else but covenant imposed by the owner of land intended to protect or benefit the unsold land runs with the land and are enforceable without express assignment. Amir sold part of the property to William who covenanted not to conduct any commercial undertaking on the premises. This kind of covenant connotes a restrictive one since it limits William’s use of the self-contained part he bought. The covenant requires that William should not engage in any commercial undertakings in the premises for the benefit of Amir’s land. It is clear that William abided by the covenant until he subsequently sold his part of the property to Charles. On his part, Charles has decided to conduct commercial trading on the land as a timber merchant contrary to the restrictive covenant.

The big question here is whether Charles is bound by a covenant made between Amir and William. Charles will be bound by the covenant if the said covenant runs with the land. the burden of the restrictive covenant against William may be enforced against Charles in the title where the said land benefits from the covenant, the burden of the covenant was intended to run, and the successor in title to the covenantor has notice of the covenant. Under section 78 LPA 1925, a restrictive covenant made on or after 1 January 1926 is presumed to be made with the successors in title as long as the covenant touches on and concerns the land it is intended to benefit, it is easily identified and capable of being benefited, and there is no express contrary intention. In Tulk v Moxhay, there was a covenant restricting construction of buildings on Leicester Square. This covenant was successfully enforced against the defendant who was not the original covenantor but a purchaser. The above case supports the position that a successor in title will be bound by a restrictive covenant which can be enforced against him accordingly.

The Court of Appeal in Crest Nicholson Residential (South) Ltd v McAllister noted that for section 78 LPA 1925 to apply the land which is intended to be benefited must be easily ascertainable. This means that there should be sufficient description, plan or other reference that can identify the land as described. The upshot of the above case is that the person claiming the benefit must show the land that is intended to be benefited by the conveyance at the date of the conveyance. As a result, Amir must show that the covenant was intended to benefit Tong Court and not himself as the proprietor. Amir may also need to produce external evidence such as plans to sufficiently identify Tong Court as the land benefited by the covenant. In light of the above, Charles will be bound by the covenant made between Amir and William as a successor in title hence Amir can stop him from using the premises for trading. However, there are instances when a restrictive covenant may not be binding on the successor in title especially where the covenant was meant to benefit the proprietor and not the land and it is subsequently sold. Additionally, where the benefit was meant for the unsold part of land and it is subsequently sold, it will not be binding on the successor in title as per Norwich City College of Further and Higher Education v McQuillin.

There is also a positive covenant under the same conveyance requiring William to pay contribution towards the maintenance of a shared track. It is generally accepted that the benefit of positive covenants automatically passes with the interest in land but the burden does not. This benefit and burden principle has been decided in Halsall v Brizell where the question before the court was the enforceability of a positive covenant. In this case, there was a covenant requiring homebuyers to pay for repairs of estate roads, drains and sea walls that they enjoyed. The Court held that the successors in title could not claim the right to enjoy the facilities without having to pay for them. More importantly, the decision clarified that positive covenants that require a successor in title to maintain or repair infrastructure are annexed to a right to enjoy and use the infrastructure. Therefore, a beneficiary of such infrastructure cannot double back on the basis that positive covenants are not enforceable. Interestingly, the above case was approved in Rhone v Stephens but distinguished by the same court pointing out that the defendant in Halsall v Brizell had the option of not using the infrastructure thus not paying for the same. In Rhone v Stephens, Lord Templeman held that the positive covenant could not be enforced.

In view of the diverse jurisprudence on the enforceability of positive covenants, it appears that the position in Halsall v Brizell would be more relevant to the present scenario. There is a shared track that leads to both properties and is clear that Charles enjoys the use of the infrastructure. It would therefore be absurd for Charles to enjoy the use of the shared track without paying for its maintenance. In accordance with the above case law, Charles, a successor in title, is bound by the positive covenant between Amir and William. Amir is thus entitled to enforce the maintenance covenant and compel Charles to contribute towards the repairs.

Question 3

Zainab is apparently the fiancé to Amir who contributed a portion of the purchase price of Tong Court. The court is their family home and Amir needs the signature of Zainab for a mortgage on that property. Zainab is described as a fiancée and there is reference to a family home and her signature is needed for the family home to be mortgaged. She is therefore a third party to a transaction between Amir and the financial institution. As a third party, there are risks relating to the manner in which her consent may be obtained in the transaction. Furthermore, it is indicated that Amir has been vague about the exact amount involved in the transaction. The bank concerned is obligated to ensure that the consent obtained from a spouse of their client has not been obtained by either coercion or undue influence. A bank or a lender should be put on inquiry as to the possibility of misrepresentation or undue influence to Zainab by Amir. As a result, they are obligated to insist that Zainab obtains an independent legal advice on the transaction given that a spouse will be standing as a guarantor for the debt of their partner.

In the event that Zainab proceeds to sign the documents without a solicitor or without obtaining independent legal advice on the transaction, she may lose the family home in case Amir defaults on the mortgage. However, the courts have considered such cases and in Barclays Bank v O’Brien, the House of Lords held that a bank will be fixed with constructive notice of presumed undue influence in special circumstances such as the one highlighted above. In such scenarios as the one above, the bank cannot realise the security under the mortgage unless it can show that the third party was not under undue influence when he or she consented to the use of the said security for the mortgage. It follows that if Zainab signs the documents without independent legal advice there will be a presumption of undue influenced exerted upon her by Amir and this will preclude the bank from enforcing its security. It means that that in the event of default by Amir, the bank will be unable to enforce security by taking the family home for its failure to ensure that Zainab as a third party receives independent legal advice on the transaction to dispel any inference of undue influence. In essence, banks stand to suffer most where there are cases of undue influence in mortgage transactions involving spouses and one of them stands as a guarantor to debt issued to either of them.

As a result, banks have become cautious and now follow the court’s pronouncements in Barclays Bank v O’Brien and Royal Bank of Scotland v Etridge. In transactions where a bank is put on enquiry as the present one, a prudent bank must therefore take steps to satisfy themselves that the spouse has been appropriately advised. First, the bank can discharge this by confirming with a solicitor that Zainab has been properly advised before she gave her consent for the guarantee. Second, concerned solicitor must then explain to Zainab the nature of the documents and the consequences of signing them including losing her family home. Third, the solicitor must then proceed to point out the seriousness of the risks involved including the amount of money involved and any other alternatives to the family home. Fourth, the solicitor should state in clear terms that Zainab has a choice to either consent or refuse. Finally, the solicitor should confirm with Zainab whether she still wishes to proceed with the transaction and only give confirmation to the bank with her authority. At all times during the solicitor’s session with Zainab, he should use simple language and preferably have a face-to-face meeting with her. The above steps are not only important for the protection of the bank but also individuals in positions susceptible to undue influence.

Bibliography

Table of Cases

• Barclays Bank v O Brien [1994] 1 AC 180 (House of Lords)
• Crest Nicholson Residential (South) Ltd v McAllister [2004] EWCA Civ 410
• Halsall v Brizell [1957] Ch 169
• Moncrieff v Jamieson [2007] UKHL 42
• Norwich City College of Further and Higher Education v McQuillin [2009] EWHC 1496 (Ch)
• Re: Ellenborough Park [1956] Ch. 131
• Rhone v Stephen [1994] UKHL 3
• Royal Bank of Scotland v Etridge [1998] 4 All ER 705
• Street v Mountford [1985] AC 809
• Tulk v Moxhay [1848] 41 ER 1143
• Wright v Macadam [1949] 2 KB 744

Table of Statutes

• Land Registration Act 2002
• Law of Property Act

Journals

• Ferris G, Restrictive covenants in Xanadu. (Liverpool Law Review 2012): 77-89
• Jordan M, Repairing Facade Easements: Is This the Gift That Launched a Thousand Deductions. (Akron Tax J. 2007): 101.
• O'Connor P, Careful what you wish for: positive freehold covenants. (2011 SSRN)