Prudential Assurance Co Ltd v London Residuary Body [1991] UKHL 10

House of Lords
Between
Prudential Assurance Co LtdAppellantLondon Residuary BodyRespondent
Before
Lord Templeman
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal of the 1st day of November 1991 complained of in the said Appeal be, and the same is hereby. Set Aside and that the Order of Mr. Justice Millett of the 16th day of January 1991 be, and the same is hereby, Restored: And it is further Ordered, That the Respondents do pay or cause to be paid to the said Appellants the Costs incurred by them in the Court of Appeal and also the Costs incurred by them in respect of the said Appeal to this House, the amount of such last-mentioned Costs to be certified by the Clerk of the Parliaments if not agreed between the parties: And it is also further Ordered, That the Cause be, and the same is hereby, remitted back to the Chancery Division of the High Court of Justice to do therein as shall be just and consistent with this Judgment.Cler: Parliamentor:

Judgment: 16.7.92

HOUSE OF LORDS

PRUDENTIAL ASSURANCE COMPANY LIMITED (RESPONDENTS)

v.

LONDON RESIDUARY BODY AND OTHERS (APPELLANTS)

Lord Templeman Lord Griffiths Lord Goff of Chieveley Lord Browne-Wilkinson Lord Mustill

LORD TEMPLEMAN

My Lords,This appeal arises out of a memorandum of agreement dated 19 December 1930 and said to have created a lease for a term which was not limited to expire by effluxion of time and cannot now be determined by the landlord.By the agreement, the London County Council let to one Nathan a strip of land with a frontage of 36 feet to Walworth Road, a thoroughfare in Southwark, and a depth of 25 feet at a rent of £30 per annum from 19 December 1930 "until the tenancy shall be determined as hereinafter provided." The only relevant proviso for determination is contained in clause 6 which reads as follows:
"The tenancy shall continue until the said land is required by the Council for the purposes of the widening of Walworth Road and the street paving works rendered necessary thereby and the Council shall give two months' notice to the tenant at least prior to the day of determination when the said land is so required and thereupon the tenant shall give vacant possession to the Council of the said land . . ."
By the agreement, the tenant was authorised to erect "temporary one storey shops or buildings of one storey and for the retention of such shops or buildings as temporary structures" until the land was required for road widening and he was then bound to remove the temporary structures and clear the land. The Council agreed to pay all the costs of road making and paving works. The agreement was clearly intended to be of short duration and could have been secured by a lease for a fixed term, say five or ten years with power for the landlord to determine before the expiry of that period for the purposes of the road widening. Unfortunately the agreement was not so drafted. Over 60 yearslater Walworth Road has not been widened, the freehold is now vested in the appellant second and fourth defendants, who purchased the property from the first defendant London Residuary Body after it had issued a notice to quit, the defendants have no road making powers and it does not appear that the road will ever be widened. The benefit of the agreement is now vested in the respondent plaintiffs, the Prudential Assurance Co. Ltd. The agreement purported to grant a term of uncertain duration which, if valid, now entitles the tenant to stay there for ever and a day at the 1930 rent of £30; valuers acting for both parties have agreed that the annual current commercial rent exceeds £10,000.A demise for years is a contract for the exclusive possession and profit of land for some determinate period. Such an estate is called a "term". Thus Coke on Littleton 19th ed. (1832), para. 45b said that:
"'Terminus' in the understanding of the law does not only signify the limits and limitation of time, but also the estate and interest that passes for that time."
Blackstone in his Commentaries, 1st ed. (1766), Book II, said, at p. 143:
"Every estate which must expire at a period certain and prefixed, by whatever words created, is an estate for years. And therefore this estate is frequently called a term, 'terminus', because its duration or continuance is bounded, limited and determined: for every such estate must have a certain beginning, and certain end."
In Say v. Smith (1530) 1 Plowden 269 a lease for a certain term purported to add a term which was uncertain; the lease was held valid only as to the certain term. Anthony Brown J . is reported at p. 272 to have said that:
"Every contract sufficient to make a lease for years ought to have certainty in three limitations, viz. in the commencement of the term, in the continuance of it, and in the end of it; so that all these ought to be known at the commencement of the lease, and words in a lease, which don't make this appear, are but babble . . . And these three are in effect but one matter, showing the certainty of the time for which the lessee shall have the land, and if any of these fail, it is not a good lease, for then there wants certainty."
The Law of Property Act 1925, taking up the same theme provided that:
"1(1) The only estates in land which are capable of subsisting or of being conveyed or created at law are -
An estate in fee simple absolute in possession;A term of years absolute." Section 205(1)(xxvii) was in these terms:

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'"Term of years absolute"' means a term of years . . . either certain or liable to determination by notice, re-entry, operation of law, or by a provision for cesser on redemption, or in any other event (other than the dropping of a life, or the determination of a determinable life interest); . . . and in this definition the expression 'term of years' includes a term for less than a year, or for a year or years and a fraction of a year or from year to year;"The term expressed to be granted by the agreement in the present case does not fall within this definition.Ancient authority, recognised by the Act of 1925, was applied in Lace v. Chantler [1944] K.B. 368. A dwelling house was let at the rent of 16s.5d. per week. Lord Greene M.R. (no less) said at pp. 370-371:
"Normally there could be no question that this was an ordinary weekly tenancy, duly determinable by a week's notice, but the parties in the rent-book agreed to a term which appears there expressed by the words 'furnished for duration,' which must mean the duration of the war. The question immediately arises whether a tenancy for the duration of the war creates a good leasehold interest. In my opinion, it does not. A term created by a leasehold tenancy agreement must be expressed either with certainty and specifically or by reference to something which can, at the time when the lease takes effect, be looked to as a certain ascertainment of what the term is meant to be. In the present case, when this tenancy agreement took effect, the term was completely uncertain. It was impossible to say how long the tenancy would last. Mr Sturge in his argument has maintained that such a lease would be valid, and that, even if the term is uncertain at its beginning when the lease takes effect, the fact that at some future time it will be rendered certain is sufficient to make it a good lease. In my opinion that argument is not to be sustained. I do not propose to go into the authorities on the matter, but in Foa's 'Landlord and Tenant' 6th ed., p. 115, the law is stated in this way, and, in my view, correctly:
'The habendum in a lease must point out the period during which the enjoyment of the premises is to be had; so that the duration, as well as the commencement of the term, must be stated. The certainty of a lease as to its continuance must be ascertainable either by the express limitation of the parties at the time the lease is made, or by reference to some collateral act which may, with equal certainty, measure the continuance of it, otherwise it is void . . ."'
The Legislature concluded that it was inconvenient for leases for the duration of the war to be void and therefore by the Validation of War-time Leases Act 1944 Parliament provided that any agreement entered into before or after the passing of the Act which purported to grant a tenancy for the duration of the war:
"1(1) ... shall have effect as if it granted or provided for the grant of a tenancy for a term of ten years, subject to a right exercisable either by the landlord

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or the tenant to determine the tenancy, if the war ends before the expiration of that term, by at least one month's notice in writing given after the end of the war; ..."Parliament granted the fixed and certain term which the agreements between the parties lacked in the case of tenancies for the duration of the war and which the present agreement lacks.When the agreement in the present case was made, it failed to grant an estate in the land. The tenant however entered into possession and paid the yearly rent of £30 reserved by the agreement. The tenant entering under a void lease became by virtue of possession and the payment of a yearly rent, a yearly tenant holding on the terms of the agreement so far as those terms were consistent with the yearly tenancy. A yearly tenancy is determinable by the landlord or the tenant at the end of the first or any subsequent year of the tenancy by six months' notice unless the agreement between the parties provides otherwise. Thus in Doe d. Rigge v. Bell (1793) 5 Durn. & East 471 a parole agreement for a seven year lease did not comply with the Statute of Frauds but the tenant entered and paid a yearly rent and it was held that he was tenant from year to year on the terms of the agreement. Lord Kenyon C.J. said, at p. 472:
"Though the agreement be void by the Statute of Frauds as to the duration of the lease, it must regulate the terms on which the tenancy subsists in other respects, as to the rent, the time of year when the tenant is to quit, etc. . . . Now, in this case, it was agreed, that the defendant should quit at Candlemas; and though the agreement is void as to the number of years for which the defendant was to hold, if the lessor choose to determine the tenancy before the expiration of the seven years, he can only put an end to it at Candlemas."
Now it is said that when in the present case the tenant entered pursuant to the agreement and paid a yearly rent he became a tenant from year to year on the terms of the agreement including clause 6 which prevents the landlord from giving notice to quit until the land is required for road widening. This submission would make a nonsense of the rule that a grant for an uncertain term does not create a lease and would make nonsense of the concept of a tenancy from year to year because it is of the essence of a tenancy from year to year that both the landlord and the tenant shall be entitled to give notice determining the tenancy.In Doe d. Warner v. Browne (1807) 8 East 165 there was an agreement to lease at a rent of £40 per annum and it was agreed that the landlord W. Warner should not raise the rent nor turn out the tenant "so long as the rent is duly paid quarterly, and he does not expose to sale or sell any article that may be injurious to W. Warner in his business." The tenant duly paid his rent and did not commit any breach of covenant. The landlord gave six months' notice and it was held that the notice was good. These were the days when it was possible to have a lease for life. Lord Ellenborough C.J. asked, at p. 166:

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"What estate the defendant was contended to have? And whether he were not in this dilemma; that either his estate might enure for life, at his option; and then according to Lord Coke such an estate would, in legal contemplation, be an estate for life; which could not be created by parol: or if not for life, being for no assignable period, it must operate as a tenancy from year to year; in which case it would be inconsistent with, and repugnant to the nature of such an estate, that it should not be determinable at the pleasure of either party giving the regular notice."
Lawrence J. said:
"If this interest be not determinable so long as the tenant complies with the terms of the agreement, it would operate as an estate for life; which can only be created by deed . . . The notion of a tenancy from year to year, the lessor binding himself not to give notice to quit, which was once thrown out by Lord Mansfield, has been long exploded."
In Cheshire Lines Committee v. Lewis & Co. (1880) 50 L.J.Q.B. 121 an agreement for a weekly tenancy contained an undertaking by the landlord not to give notice to quit until the landlord required to pull down the demised buildings. Lush J. after citing Doe d. Warner v. Browne (1807) 8 East 165 said of that case, at p. 124:
"This reasoning applies with at least equal force to the present case. This is not a mere constructive tenancy as that was. It is as explicit as words can make it that the defendants are to hold 'upon a weekly tenancy at a weekly rental, and that the tenancy is to be determined by either of the parties on giving a week's notice to the other.' There is this difference between the two cases, that in Doe d. Browne v. Warner the lessor engaged not to turn out the tenant so long as he observed the conditions, and in this case Radcliffe engages that the tenant shall hold until the company require to pull down the buildings. But, as that is an event which may never happen, the distinction is merely between the contingency of the tenant breaking the conditions and the contingency of the company wanting the premises in order to pull them down. The restriction is as repugnant to the nature of the tenancy in the one case as is in the other. It is therefore no legal answer to the ejectment to say that the contingency provided for has not happened."
These authorities indicate plainly enough that the agreement in the present case did not create a lease and that the tenancy from year to year enjoyed by the tenant as a result of entering into possession and paying a yearly rent can be determined by six months' notice by either landlord or tenant. The landlord has admittedly served such a notice. The Court of Appeal have however concluded that the notice was ineffective and that the landlord cannot give a valid notice until the land is required "for the purposes of the widening of Walworth Road" in conformity with clause 6 of the agreement.

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The notion of a tenancy from year to year, the landlord binding himself not to give notice to quit which was once rejected by Lord Mansfield and exploded long before 1807 according to Lawrence J. in Doe d. Warner v. Browne (1807) 8 East 165 at 167 was however revived and applied by the Court of Appeal in In re Midland Railway Co.'s Agreement [1971] Ch. 725. In that case a lease for a period of six months from 10 June 1920 was expressed to continue from half year to half year until determined. The agreement provided for the determination of the agreement by three months' written notice given by either party to the other subject to a proviso that the landlords should not exercise that right unless they required the premises for their undertaking. The successors to the landlords served a six months' written notice to quit under the Landlord and Tenant Act 1954 although they did not require the premises for their undertaking. The Court of Appeal, upholding Foster J., declared that the notice to quit was invalid and of no effect because the landlords did not require the premises for their undertaking. The Court of Appeal held that the decision in Lace v. Chantler [1944] K.B. 368 did not apply to a periodic tenancy and declined to follow Warner v. Browne (1807) 8 East 165 or Cheshire Lines Committee v. Lewis & Co. (1880) 50 L.J.Q.B. 121. Russell L.J. delivering the judgment of the court held that the decision in Lace v. Chantler [1944] K.B. 368 did not apply to a tenancy from year to year and said, at p. 733:
"... we are persuaded that, there being no authority to prevent us, it is preferable as a matter of justice to hold parties to their clearly expressed bargain rather than to introduce for the first time in 1971 an extension of a doctrine of land law so as to deny the efficacy of that bargain."
My Lords,I consider that the principle in Lace v. Chantler [1944] K.B. 368 reaffirming 500 years of judicial acceptance of the requirement that a term must be certain applies to all leases and tenancy agreements. A tenancy from year to year is saved from being uncertain because each party has power by notice to determine at the end of any year. The term continues until determined as if both parties made a new agreement at the end of each year for a new term for the ensuing year. A power for nobody to determine or for one party only to be able to determine is inconsistent with the concept of a term from year to year; see Warner v. Browne (1807) 8 East 165 and Cheshire Lines Committee v. Lewis & Co. (1880) 50 L.J.Q.B. 121. In In re Midland Railway Co.'s Agreement [1971] Ch. 725 there was no "clearly expressed bargain" that the term should continue until the crack of doom if the demised land was not required for the landlord's undertaking or if the undertaking ceased to exist. In the present case there was no "clearly expressed bargain" that the tenant shall be entitled to enjoy his "temporary structures" in perpetuity if Walworth Road is never widened. In any event principle and precedent dictate that it is beyond the power of the landlord and the tenant to create a term which is uncertain.A lease can be made for five years subject to the tenant's right to determine if the war ends before the expiry of five years. A lease can be made from year to year subject to a fetter on the right of the landlord to determine the lease before the expiry of five years unless the war ends. Both leases are valid because they

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create a determinable certain term of five years. A lease might purport to be made for the duration of the war subject to the tenant's right to determine before the end of the war. A lease might be made from year to year subject to a fetter on the right of the landlord to determine the lease before the war ends. Both leases would be invalid because each purported to create an uncertain term. A term must either be certain or uncertain. It cannot be partly certain because the tenant can determine it at any time and partly uncertain because the landlord cannot determine it for an uncertain period. If the landlord does not grant and the tenant does not take a certain term the grant does not create a lease.The decision of the Court of Appeal In re Midland Railway Co.'s Agreement [1971] Ch. 725 was taken a little further in Ashburn Anstalt v. Arnold [1989] Ch 1 (Ashburn's case). That case, if it was correct, would make it unnecessary for a lease to be of a certain duration. In an agreement for the sale of land the vendor reserved the right to remain at the property after completion as licensee and to trade therefrom without payment of rent "save that it can be required by Matlodge [the purchaser] to give possession on not less than one quarter's notice in writing upon Matlodge certifying that it is ready at the expiration of such notice forthwith to proceed with the development of the property and the neighbouring property involving, inter alia, the demolition of the property". The Court of Appeal held that this reservation created a tenancy. The tenancy was not from year to year but for a term which would continue until Matlodge certified that it was ready to proceed with the development of the property. The Court of Appeal held that the term was not uncertain because the vendor could either give a quarter's notice or vacate the property without giving notice. But of course the same could be said of the situation in Lace v. Chantler [1944] K.B. 368. The cumulative result of the two Court of Appeal authorities In re Midland Railway Co.'s Agreement [1971] Ch. 725 and Ashburn's case would therefore destroy the need for any term to be certain.In the present case the Court of Appeal were bound by the decisions In re Midland Railway Co's agreement [1971] 1 Ch. 725 and Ashburn's case. In my opinion both these cases were wrongly decided. A grant for an uncertain term does not create a lease. A grant for an uncertain term which takes the form of a yearly tenancy which cannot be determined by the landlord does not create a lease. I would allow the appeal. The trial judge, Millett J., reached the conclusion that the six months' notice was a good notice. He was of course bound by the Court of Appeal decisions but managed to construe the memorandum of agreement so as to render clause 6 ineffective in fettering the right of the landlord to serve a notice to quit after the landlord had ceased to be a road widening authority. In the circumstances this question of construction need not be considered. For the reasons which I have given the order made by Millett J. must be restored. The respondent must pay the costs of the appellants before the House and in the courts below.

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LORD GRIFFITHS

My Lords,For the reasons given by my noble and learned friend Lord Templeman I agree that this appeal should be allowed, and I hope that some action might follow from the observations made by my noble and learned friend Lord Browne-Wilkinson, with which I agree.

LORD GOFF OF CHIEVELEY

My Lords,I have had the advantage of reading in draft the opinion of my noble and learned friend, Lord Templeman, and for the reasons he gives I too would allow the appeal.

LORD BROWNE-WILKINSON

My Lords,I agree with the speech of my noble and learned friend Lord Templeman that this appeal must be allowed for the reasons he gives. However, I reach that conclusion with no satisfaction.Before 1930, Mr. Nathan owned shop premises, 263-5 Walworth Road, with a frontage to the street. The agreement made in 1930 between the London County Council and Mr. Nathan was part of a sale and leaseback arrangement whereby a part of Mr. Nathan's land ("the strip") was sold to the L.C.C. for road widening. Mr. Nathan retained the freehold of the remainder of No. 263-5. By the agreement, the strip was leased back to Mr. Nathan for continued use, with the rest of 263-5 Walworth Road, until required for road widening. Up until today, the remainder of No. 263-5 together with the strip has been let and occupied as one single set of retail shop premises with a frontage to the Walworth Road. As a result of our decision Mr. Nathan's successor in title will be left with the freehold of the remainder of No. 263-5 which, though retail premises, will have no frontage to a shopping street: the L.C.C.'s successors in title will have the freehold to a strip of land with a road frontage but probably incapable of being used save in conjunction with the land from which it was severed in 1930 i.e. the remainder of No. 263-5.It is difficult to think of a more unsatisfactory outcome or one further away from what the parties to the 1930 agreement can ever have contemplated. Certainly it was not a result which their contract, if given effect to, could ever have produced. If the 1930 agreement had taken effect fully, there could never have come a time when the freehold to the remainder of No. 263-5 would be left without a road frontage.

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This bizarre outcome results from the application of an ancient and technical rule of law which requires the maximum duration of a term of years to be ascertainable from the outset. No one has produced any satisfactory rationale for the genesis of this rule. No one has been able to point to any useful purpose that it serves at the present day. If, by overruling the existing authorities, this House were able to change only the law for the future I would have urged your Lordships to do so. But for this House to depart from a rule relating to land law which has been established for many centuries might upset long established titles. I must therefore confine myself to expressing the hope that the Law Commission might look at the subject to see whether there is in fact any good reason now for maintaining a rule which operates to defeat contractually agreed arrangements between the parties (of which all successors in title are aware) and which is capable of producing such an extraordinary result as that in the present case.

LORD MUSTILL

My Lords,For the reasons given by my noble and learned friend Lord Templeman, I too agree that the appeal must be allowed. I would however wish to associate myself with the observations of my noble and learned friend Lord Browne-Wilkinson as to the unsatisfactory nature of this conclusion.

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