Posted by: RM | November 9, 2011

Leases: Certainty of Term

It’s been quite a day for property lawyers – as well as the judgment in Kernott -v- Jones today saw judgment in the case of Berrisford -v- Mexfield Housing Co-operative [2011] UKSC 52. As decisions go it was perhaps not quite as “exciting” as Kernott -v- Jones but, nevertheless, the fact that a judicial committee of seven was convened to hear the case should give some indication of its importance, albeit on a topic which attracts rather less attention that the proper apportionment of interests in the family home in circumstances where the couple is not married.

The crucial issue in Berrisford -v- Mexfield, at least as far as I am concerned, was the relatively short point (which I am going to keep very short for now!) that it is well established that there can be no lease where there is no certainty of term (Lace -v- Chantler [1944] KB 368 (CA), Prudential Assurance Co Ltd -v- London Residuary Body [1992] 2 AC 386). Lord Neuberger, giving the leading judgment, said this (beginning at paragraph [33] – sorry, paragraph numbers left out of quote itself for technical reasons!):

Following the decision of the House of Lords in Prudential [1992] 2 AC 386, the law appeared clear in its effect, intellectually coherent in its analysis, and, in part, unsatisfactory in its practical consequences. The position appears to have been as follows. (i) An agreement for a term, whose maximum duration can be identified from the inception can give rise to a valid tenancy; (ii) an agreement which gives rise to a periodic arrangement determinable by either party can also give rise to a valid tenancy; (iii) an agreement could not give rise to a tenancy as a matter of law if it was for a term whose maximum duration was uncertain at the inception; (iv) (a) a fetter on a right to serve notice to determine a periodic tenancy was ineffective if the fetter is to endure for an uncertain period, but (b) a fetter for a specified period could be valid.

If we accept that that is indeed the law, then, subject to the point to which I next turn, the Agreement cannot take effect as a tenancy according to its terms. As the judgment of Lady Hale demonstrates (and as indeed the disquiet expressed by Lord Browne-Wilkinson and others in Prudential [1992] 2 AC 386 itself shows), the law is not in a satisfactory state. There is no apparent practical justification for holding that an agreement for a term of uncertain duration cannot give rise to a tenancy, or that a fetter of uncertain duration on the right to serve a notice to quit is invalid. There is therefore much to be said for changing the law, and overruling what may be called the certainty requirement, which was affirmed in Prudential [1992] 2 AC 386, on the ground that, in so far as it had any practical justification, that justification has long since gone, and, in so far as it is based on principle, the principle is not fundamental enough for the Supreme Court to be bound by it. It may be added that Lady Hale’s Carrollian characterisation of the law on this topic is reinforced by the fact that the common law accepted perpetually renewable leases as valid: they have been converted into 2000-year terms by section 145 of the Law of Property Act 1922.

However, I would not support jettisoning the certainty requirement, at any rate in this case. First, as the discussion earlier in this judgment shows, it does appear that for many centuries it has been regarded as fundamental to the concept of a term of years that it had a certain duration when it was created. It seems logical that the subsequent development of a term from year to year (ie a periodic tenancy) should carry with it a similar requirement, and the case law also seems to support this.

Secondly, the 1925 Act appears to support this conclusion. Having stated in section 1(1) that only two estates can exist in land, a fee simple and a term of years, it then defines a term of years in section 205(1)(xxvii) as meaning “a term of years … either certain or liable to determination by notice [or] re-entry”; as Lord Templeman said in Prudential [1992] 2 AC 386, 391B, this seems to underwrite the established common law position. The notion that the 1925 Act assumed that the certainty requirement existed appears to be supported by the terms of section 149(6). As explained more fully below, this provision effectively converts a life tenancy into a determinable term of 90 years. A tenancy for life is a term of uncertain duration, and it was a species of freehold estate prior to 1926, but, in the light of section 1 of the 1925 Act, if it was to retain its status as a legal estate, it could only be a term of years after that date. Presumably it was converted into a 90-year term because those responsible for drafting the 1925 Act thought it could not be a term of years otherwise.

Thirdly, the certainty requirement was confirmed only some 20 years ago by the House of Lords. Fourthly, while not a very attractive point, there is the concern expressed by Lord Browne-Wilkinson, namely that to change the law in this field “might upset long established titles” – [1992] 2 AC 386, 397A. Fifthly, at least where the purported grant is to an individual, as opposed to a company or corporation, the arrangement does in fact give rise to a valid tenancy, as explained below. Finally, it has been no part of either party’s case that the Agreement gave rise to a valid tenancy according to its terms (if, as I have concluded, it has the meaning for which Mr Wonnacott contends).

So, there we have it. Notwithstanding the criticism that has been leveled at the requirement for there to be certainty of term in order for a lease to be valid, the Supreme Court has refused to depart from that position on this occasion. My own view is that this was the right decision so today’s results produce a 50% rate of satisfaction from my perspective!


Responses

  1. An interesting article. Unfortunately, the Court did not address the numerous questions that surround the continued role of the doctrine of certainty… Perhaps an opportunity missed.

  2. Proves yet again that commercial property law is far more technical than meets the eye, and an area where good legal advice is paramount.

  3. A really interesting blog article, thank you for sharing and bringing us up to date with this latest ruling on certainty of term.

    Regards

    Steve

  4. There is the question of how well the commercial lease market could adapt to uncertain terms with regard to valuation – a valuer’s opinion would be welcome!


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