Prudential Assurance Company Limited v London Residuary Body and others

The House of Lords held that an attempted demise which creates a term of uncertain duration does not create a legal lease. The memorandum of agreement of 19 December 1930, which purported to grant occupation "until the tenancy shall be determined as hereinafter provided" but left determination contingent on an event which may never occur (road widening), did not create a valid term of years. On entry and payment of yearly rent the occupier became a yearly tenant; a yearly tenancy is determinable by the landlord by six months' notice and cannot be fettered by a provision which prevents the landlord ever exercising that right. The court therefore restored the decision of Millett J that the landlord's six months' notice was effective and allowed the appeal.

The House applied and reaffirmed the requirement of certainty of duration (as in Lace v Chantler) and concluded that the Court of Appeal authorities In re Midland Railway Co.'s Agreement [1971] Ch. 725 and Ashburn Anstalt v Arnold [1989] Ch 1 were wrongly decided so far as they suggested that an uncertain term could create a lease.

This case concerned a memorandum of agreement dated 19 December 1930 by which the London County Council purported to let to Nathan a narrow strip of land for occupation "until the tenancy shall be determined as hereinafter provided". Clause 6 provided that the tenancy would continue until the land was required by the Council for road widening and that the Council should give two months' notice in that event. The arrangement allowed temporary single-storey shops to remain until required for road works. Over sixty years later the road had not been widened, successors in title held the freehold, the occupant (now the respondent) paid the low historical rent and the market rent was vastly higher.

Procedural history: At first instance Millett J held that the landlord's six months' notice was valid. The Court of Appeal on 1 November 1991 set aside that decision and held the notice ineffective. The matter was appealed to the House of Lords.

Nature of the claim and relief sought: The procedural issue before the House was whether the 1930 agreement created a lease of uncertain duration (thereby preventing the landlord from validly giving notice to quit) or whether, as a result of the agreement being void as to duration, the occupier was a tenant from year to year whose tenancy could be determined by six months' notice. The appellants sought restoration of the trial judge's order that the notice was effective; the respondents sought to uphold the Court of Appeal's contrary decision.

Issues framed:

• Whether a grant expressed to continue until an uncertain future event (road widening) created a valid term of years or was void for uncertainty;
• Whether entry and payment of yearly rent converted the arrangement into a yearly tenancy determinable by the landlord despite clause 6;
• Whether existing Court of Appeal authorities (In re Midland Railway Co.'s Agreement and Ashburn Anstalt v Arnold) justified upholding a fetter on the landlord's right to determine a periodic tenancy.

Reasoning and decision: The House reaffirmed the long-standing rule that a term must be certain in its maximum duration when created. An agreement which leaves determination to an event which may never occur does not create a legal lease. On entry and payment of yearly rent the occupier became a tenant from year to year and such a tenancy is inherently determinable by notice; a provision preventing the landlord ever being able to determine is incompatible with the nature of a periodic tenancy. The Court of Appeal cases were held to be wrongly decided in principle and could not displace the ancient rule of certainty. Accordingly the House allowed the appeal, restored Millett J's order that the landlord's notice was effective and remitted the cause to the Chancery Division consistent with its judgment. The House expressed concern about the unsatisfactory practical consequences of the rule and invited consideration by the Law Commission.

Appeal allowed. The memorandum of agreement did not create a legal term of uncertain duration; on the tenant entering and paying yearly rent he became a yearly tenant whose tenancy could be determined by six months' notice. The Court of Appeal's decision to the contrary was set aside and the trial judge's order restored because a grant for an uncertain term cannot create a lease and a provision preventing the landlord ever giving valid notice is inconsistent with a tenancy from year to year.

First instance: Chancery Division (Millett J) — order dated 16 January 1991 that the landlord's six months' notice was valid. Court of Appeal — order dated 1 November 1991 setting aside Millett J's order. House of Lords (Appellate Committee) — appeal allowed 16 July 1992; Court of Appeal order set aside and Millett J's order restored.