Freehold and Leasehold Estates

English land law is based on the doctrine of estates — the Crown owns all land, and individuals hold estates (rights to possession for a period of time). Since the Law of Property Act 1925, only two legal estates can exist: the fee simple absolute in possession (freehold) and the term of years absolute (leasehold).

The fee simple absolute in possession is the largest estate in land. "Fee" means it is inheritable, "simple" means it can pass to any heir (not just direct descendants), "absolute" means it is not subject to conditions, and "in possession" means the holder has a present right to enjoy the land.

A lease (term of years absolute) is an estate in land that grants the tenant exclusive possession for a certain term at a rent (though rent is not strictly essential). The leading case on the distinction between a lease and a licence is Street v Mountford [1985] AC 809, where Lord Templeman held that the three hallmarks of a tenancy are: (1) exclusive possession, (2) for a term, (3) at a rent.

Exclusive possession is the decisive factor. The court looks at the substance of the agreement, not its label. In Street v Mountford, an agreement labelled a "licence" was held to be a lease because it conferred exclusive possession. Conversely, in Bruton v London & Quadrant Housing Trust [2000] 1 AC 406, a "licence" granted by a housing trust was held to create a tenancy.

Certainty of term: The duration of the lease must be certain or capable of being rendered certain. A lease "for the duration of the war" was held void for uncertainty in Lace v Chantler [1944] KB 368. However, periodic tenancies (e.g., weekly, monthly) satisfy the certainty requirement because each period is of certain duration.

A licence is merely a personal permission to enter or use land. Unlike a lease, it does not create an estate in land and is not binding on third parties. The distinction is crucial because tenants have statutory protections (e.g., security of tenure, rent control) that licensees do not.

Courts will look beyond the label of the agreement to its substance. Sham arrangements designed to avoid creating a tenancy will be disregarded. In AG Securities v Vaughan [1990] 1 AC 417, four separate "licence" agreements for the same flat were held to be genuine licences because the occupiers did not have exclusive possession collectively. However, in the companion case of Antoniades v Villiers [1990] 1 AC 417, two "licence" agreements for a couple sharing a flat were held to be a sham — in reality, the couple had exclusive possession and therefore a joint tenancy.

The formalities required depend on the length of the lease:

Leases of 7 years or less: May be created by deed (s.52 LPA 1925) but are exempt from the requirement of registration.

Short leases (3 years or less): Under s.54(2) LPA 1925, a lease taking effect in possession at the best rent reasonably obtainable without a fine (premium) can be created orally without any writing. This is the most common exception to the general requirement of a deed.

Leases exceeding 7 years: Must be created by deed (s.52 LPA 1925) and registered at the Land Registry (s.27(2)(b) Land Registration Act 2002). Failure to register means the lease takes effect only as an equitable interest.

Equitable leases: Where a lease fails to comply with the formalities for a legal lease but satisfies s.2 of the Law of Property (Miscellaneous Provisions) Act 1989 (a written contract signed by both parties), it may take effect as an equitable lease under the principle in Walsh v Lonsdale (1882) 21 Ch D 9.