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(c)You know the box is there, and it is sealed, but you believe it contains cabbages. Would it make any difference if you thought it contained (i) prescription drugs lawfully acquired by your friend or (ii) jewellery stolen by your friend?
(d)You believe the box contains the controlled drug, but in fact it contains only cabbages.
(2)Is the distinction drawn between differences in kind and differences in quality satisfactory in this context? Can you suggest a better test to apply in deciding whether a person in possession of a container is in possession of its contents?
(3)Is the Post Office in possession of the contents of parcels entrusted to it for delivery?
7.2. Possession of land
7.2.1. Leases and licences
We have seen that possession means intentional exclusive physical control. However, it is possible to be in intentional exclusive physical control of land without being in possession of it. Here the essential distinction to be drawn is between possession (in this context usually referred to as ‘exclusive’ possession, although the ‘exclusive’ is redundant – as we saw earlier, possession is necessarily exclusive) and occupation. A person granted the right to possession of land acquires a property interest, whereas a person granted a right to occupy it – even if it is exclusive occupation – acquires only a personal right. Specifically, if L, the fee simple owner of land, grants T the right to possession of the land for a limited period of time, then T acquires a lease of the land. One of the rights that T enjoys by virtue of having possession as a tenant is the right to exclusive occupation of the land during the lease – i.e. the right to occupy it to the exclusion of L and of any third party. In this context, then, ‘possession’ includes, but means something more than, exclusive occupation.
The fee simple owner can of course grant someone a personal right to occupy the land for a limited period without granting him possession of the land. Such a right – a ‘licence’ – might be exclusive in the sense that it gives the grantee a personal right to exclude the owner for the duration of the permission. Nevertheless, the right will be purely personal and not proprietary, and it will not be enforceable against anyone other than the grantor. So, for example, the grantee will have no right to bring an action against a stranger who evicts him – only the owner will be able to do this (see Hill v. Tupper (1863) 2 H&C 121; 159 ER 51, Extract 5.1 above).
7.2.1.1. Why the distinction matters
For a number of reasons, it is important to be able to distinguish between a lease and a licence to occupy. The first is that a lease, characteristically of private property interests, is in principle assignable and enforceable against third parties, whereas a licence is not. In a lease, the landlord and tenant may have agreed to a
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contractual restriction on the tenant’s right to assign the lease, but this will be effective in contract only. In other words, a transfer of the lease by the tenant to a third party will always be effective to pass the title to the lease to the transferee, even if the transfer is in breach of contract. If the assignment does amount to a breach of contract, the landlord’s primary remedy will be to take action against the transferee, who has now become the tenant. As for enforceability against third parties, this means not only that the tenant can defend his possession against intruders, as we saw above, but also that, if the landlord sells its interest in the land, the lease will be fully effective and enforceable against the landlord’s buyer (assuming any land registration requirements are satisfied: see further Chapter 15 for the circumstances in which leases require registration). By contrast, because a licence to occupy is personal to the grantee, it is neither assignable by the licensee nor enforceable against third parties such as buyers of the licensor’s interest, except through the very limited mechanisms applicable to any other contractual right.
The second reason why it is necessary to distinguish leases and licences is that statutory protection for occupiers (whether residential, business or agricultural) has traditionally been available only for tenants, not licensees. In the case of residential premises in particular, landowners have sought to disguise leases as licences in order to avoid giving occupiers the rent control, security of tenure and protection against unlawful eviction conferred on tenants by the Rent Acts. This reason is less pressing than it once was. This is partly because a dramatic decrease in statutory protection for residential occupiers has made the issue less important from the landlord’s point of view, and partly because some of the more recent statutory protection has been drafted so as to cover those who occupy residential premises as licensees as well as tenants. However, there continue to be important statutory rights which are available only to tenants and not to licensees – see, for example, the enfranchisement rights conferred on tenants by statutes from the Leasehold Reform Act 1967 to the Leasehold Reform, Housing and Urban Development Act 1993, and the statutory covenants for structural and exterior repair implied into residential tenancies by the Landlord and Tenant Act 1985 as amended (the source of the problem in Bruton v. London & Quadrant Housing Trust [1999] 3 WLR 150, HL, discussed in Notes and Questions 17.5 below).
Thirdly, it is sometimes said that licences, unlike leases, are revocable by the grantor. However, this is misleading. The truth is that, in the case of leases, there are strict formal rules governing the permissible duration of the lease and the mechanisms by which it can be terminated. These are considered in detail in Chapter 17, but broadly the position is that there are two main categories of lease, the fixed-term tenancy where the lease is for a single fixed period stated in advance – for example, ten years – which automatically expires at the end of the period, and the periodic tenancy where the lease continues for recurring periods – for example, weekly, monthly or yearly – until terminated by a notice to quit of a
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prescribed length. There are two additional categories: the tenancy at will (where the tenant is allowed to remain in possession until required by the landlord to leave) and the tenancy at sufferance (where the tenant is in possession without the permission of the landlord but on sufferance) and as we see in Chapter 17 these are both terminable at will by either landlord or tenant. In the case of licences, on the other hand, the duration of the permission to occupy, and the question of whether (and if so how) it can be withdrawn, depend entirely on the contract agreed between the parties: see Winter Garden Theatre (London) Ltd v. Millennium Productions Ltd [1948] AC 173, HL. Whether or not the right is legally enforceable depends on ordinary contract rules, so, for example, a grant of a right to occupy land for a fixed period in exchange for a lump-sum payment or licence fee is no more revocable that a grant of a lease for an equivalent period. The remedies available to the grantee for a wrongful revocation may be different: a lessee has a wide range of property remedies available as well as contractual remedies such as damages, whereas a licensee can rely only on contractual remedies. However, even using only contractual remedies, a licensee may nevertheless still be able to restrain a threatened revocation of the licence in breach of contract (see the Winter Garden case and Verrall v. Great Yarmouth Borough Council [1981] QB 202 noted in Chapter 5 and extracted at www.cambridge.org/propertylaw/).
The final distinction between leases and licences to be noted here is that the caveat emptor principle generally applies to leases but not to licences. One important consequence of this is that, subject to limited exceptions, a landlord gives no warranties about the state and condition of the land or that it is fit for the purposes for which it is let. This is not true in relation to licences (see Wettern Electric v. Welsh Development Agency [1983] 2 WLR 897), so in this respect at least licensees of land can be in a stronger position than lessees.
7.2.1.2. Distinguishing leases from licences
If these are the reasons why it is important to be able to distinguish a lease from a licence, how easy is it to draw the distinction in practice? The first point to make is that ‘licence’ is a broad term covering any permission to make any kind of use of any thing. When used in relation to land as opposed to other things, it covers not only the grant of a personal right to occupy the land but also the grant of any right to make use of the land in any other way which is purely personal and not proprietary. The difficulty in distinguishing leases and licences of course arises only where the licence amounts to the grant of a full right to occupy land.
There have been many judicial attempts at identifying the essential difference between a personal right to occupy land and a right to possession of it. In Marchant v. Charters [1977] 3 All ER 918, CA (extracted at www.cambridge.org/propertylaw/), Lord Denning described the difference as one of ‘the nature and quality of the occupancy. Was it intended that the occupier should have a stake in the room or did he have only permission for himself personally to occupy the room?’ However, in later cases, the courts have preferred to rely on the exclusive possession test
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propounded by Windeyer J in the High Court of Australia in Radaich v. Smith (1959) 101 CLR 209 at 222:
What then is the fundamental right which a tenant has that distinguishes his position from that of a licensee? It is an interest in land as distinct from a personal permission to enter the land and use it for some stipulated purpose or purposes. And how is it to be ascertained whether such an interest in land has been given? By seeing whether the grantee was given a legal right of exclusive possession of the land for a term or from year to year or for a life or lives. If he was, he is a tenant. And he cannot be other than a tenant, because a legal right of exclusive possession is a tenancy and the creation of such a right is a demise. To say that a man who has, by agreement with a landlord, a right of exclusive possession of land for a term is not a tenant is simply to contradict the first proposition by the second. A right of exclusive possession is secured by the right of a lessee to maintain ejectment and, after his entry, trespass. A reservation to the landlord, either by contract or statute, of a limited right of entry, as for example to view or repair, is, of course, not inconsistent with the grant of exclusive possession. Subject to such reservations, a tenant for a term or from year to year or for a life or lives can exclude his landlord as well as strangers from the demised premises. All this is long-established law: see Cole on Ejectment (1857), pp. 72–3, 287, 458.
It is now taken as established by the House of Lords in Street v. Mountford [1985] AC 809 (extracted at www.cambridge.org/propertylaw/), that this exclusive possession test is conclusive: an occupier cannot be a tenant if he does not have exclusive possession. However, this test is not as straightforward as it might seem, and it has not always proved easy to apply.
There are a number of difficulties. First, can we take it that the converse is true – i.e. that any person granted exclusive possession must have a lease (or some other proprietary interest entitling the holder to possession) rather than a licence? In principle the answer ought to be yes, but, as we see in Chapter 17, the courts have not always been willing to accept this.
Secondly, there is a persistent tendency to confuse possession with exclusive occupation (see, for example, how often in the judgment of Lord Templeman in Street v. Mountford ‘possession’ is used when what is meant is ‘exclusive occupation’ and vice versa). It is certainly true that, if a grant does not confer on the grantee the right to exclude all others – if, for example, it requires the grantee to share occupation with the grantor or with others granted rights by the grantor – then the grantee cannot be said to be in possession and so cannot be a tenant (see the joined cases A. G. Securities v. Vaughan and Antoniades v. Villiers [1990] 1 AC 417, extracted at www.cambridge.org/propertylaw/). However, it does not follow that someone who is given exclusive occupation rights by a grantor necessarily has possession (or any other proprietary rather than personal right). His exclusive occupation rights may be simply personal (i.e. enforceable against the grantor only), in the same way as the exclusive right to put pleasure boats on Basingstoke Canal was enforceable only against the grantor in Hill v. Tupper (1863) 2 H&C 121;
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159 ER 51 (Extract 5.1 above) in which case he can only have a licence and not a lease. So we come back to the ‘nature and quality’ question posed by Lord Denning – when do exclusive occupation rights amount to possession and when are they merely personal rights to occupy? The courts have had particular difficulty with cases where the grantor is a social provider of housing (for example, a charity, as in Gray v. Taylor [1998] 1 WLR 1093, CA, extracted at www.cambridge.org/propertylaw/) or a local authority or housing association providing hostel accommodation or temporary housing for homeless persons. The courts have often expressed doubts as to whether the occupiers of such housing ought to have the full range of statutory rights conferred on tenants, but are faced with the difficulty that Parliament has not given social landlords wholesale exemption from the relevant statutory provisions.
Once it became established that exclusive possession is the conclusive determinant of a lease, landlords who wanted to disguise leases as licences adopted devices designed to ensure that their grantees did not have exclusive possession. Three such devices have received the attention of the House of Lords. The first two, considered by the House of Lords in the joined cases of A. G. Securities v. Vaughan and Antoniades v. Villiers [1990] 1 AC 417 (extracted at www.cambridge.org/ propertylaw/) depend on the notion that exclusive occupation is an essential ingredient of possession. They involve granting the occupant a right to occupy that is not exclusive, either by the landlord reserving to itself the right to move in and share occupation with the grantee at any time, or by the landlord reserving a right to grant third parties rights to come and share occupation with the grantee. The courts have found it relatively easy to deal with such cases. If such rights are genuinely reserved, then the grantee does not have a right to exclude and therefore does not have possession and therefore cannot be a tenant, but if the provision reserving such rights is merely a sham, not reflecting the intentions of the parties, it will be disregarded and the reality of the situation will be recognised (see Somma v. Hazelhurst [1978] 1 WLR 1014, discussed by Lord Templeman in Street v.
Mountford, and also Antoniades v. Villiers).
The second way of avoiding a grant of exclusive occupation depends on there being more than one intended occupier of the premises. Instead of granting all the intended occupiers a joint right to occupy the whole (which would have the effect of making them joint holders of an exclusive right to occupy the whole) the landlord grants each of them a separate right to occupy the premises, sharing occupation with the others. The courts have found this more difficult: there is no pretence here, in that each of the sharers is indeed sharing with the others. The sham – if there is one – lies only in treating the sharers as having separate interests in cases where in truth the intention was that they should jointly hold a single interest and be entitled as a group to exclusive occupation as against the landlord. The conclusion the courts have reached is that they will read the separate agreements as conferring a single joint interest when this is what the parties intended, but only where all the technical requirements for the creation of a joint interest are