Prudential Assurance Co Ltd v London Residuary Body

A purported lease must create a term whose maximum duration is certain when it begins. A term that continues until an event which may never occur is not a leasehold term, even if one party may end it earlier.

Where possession is taken and an annual rent is paid under such an ineffective grant, a yearly tenancy may arise. Its contractual terms apply only so far as they are consistent with a yearly tenancy. A provision that prevents the landlord from terminating the tenancy until an uncertain event occurs is inconsistent with that estate and is ineffective.

In 1930 the London County Council agreed to let a strip of land at an annual rent until it was required for the widening of Walworth Road. Clause 6 permitted determination only when the land was so required. Road widening had not occurred more than 60 years later, and the successors to the landlord served a six-month notice to quit.

Millett J held that the notice was valid. The Court of Appeal reversed him, treating clause 6 as an effective restriction on the landlord’s right to determine the tenancy. The House considered whether the agreement created a lease, or instead a yearly tenancy subject to an enforceable fetter on notice to quit.

1. The appeal was unanimously allowed. Lord Templeman delivered the substantive speech. Lords Griffiths, Goff, Browne-Wilkinson and Mustill agreed that the appeal should be allowed. The House set aside the Court of Appeal’s order, restored Millett J’s order, and remitted the cause to the Chancery Division.

2. Per Lord Templeman, a demise for years must have a certain duration. The maximum term must be ascertainable when the grant takes effect, whether by express words or by a collateral event capable of certain measurement. The agreement created a term lasting until road widening, an event which might never occur. It therefore did not create a lease or a term of years absolute within the Law of Property Act 1925.

3. The tenant’s possession and payment of the yearly rent nonetheless gave rise to a yearly tenancy on the agreement’s terms only where compatible with that tenancy. A yearly tenancy depends upon each party’s power to determine it at the end of a year by proper notice. Clause 6, insofar as it prevented the landlord from giving notice unless road widening occurred, was repugnant to that estate and could not fetter the landlord’s right to determine it.

4. Lord Templeman applied the certainty principle in Lace v Chantler [1944] KB 368 and followed the earlier authorities on periodic tenancies. He held that In re Midland Railway Co’s Agreement [1971] Ch 725 and Ashburn Anstalt v Arnold [1989] Ch 1 were wrongly decided. Those decisions could not validate an uncertain term by describing it as a periodic tenancy subject to a unilateral or conditional fetter on notice.

5. Lord Browne-Wilkinson, with whose observations Lords Griffiths and Mustill associated themselves, described the result as unsatisfactory and questioned the present utility of the ancient rule. He considered, however, that judicial departure could disturb established land titles and suggested consideration of legislative reform. The six-month notice was valid; it was unnecessary to decide the separate issue of construction on which Millett J had proceeded.

• House of Lords: Allowed the appeal, set aside the Court of Appeal’s order, restored Millett J’s order, and remitted the cause to the Chancery Division.

• Court of Appeal: On 1 November 1991, held the six-month notice to quit ineffective because clause 6 restricted termination until the land was required for road widening.

• Chancery Division: Millett J, on 16 January 1991, held that the six-month notice was valid.