Hutchison & Ors v B & DF Ltd

An oral agreement for a three-year lease may take effect as an immediate legal lease where possession is given, the term is at the best rent reasonably obtainable without a fine, and section 54(2) of the Law of Property Act 1925 applies. Such an agreement is outside the writing requirements of the Law of Property (Miscellaneous Provisions) Act 1989.

A five-year oral agreement for an interest in land is void under section 2 of the 1989 Act. Proprietary estoppel cannot be used to enforce an agreement which the statute declares void. Entry into possession under a void lease, coupled with rent paid by reference to a period, may create a periodic tenancy.

The freeholder claimants sought declarations that the defendant had agreed leases of several industrial units, orders requiring execution of leases, and rent, service charges and interest. The defendant denied any binding agreements and contended that existing leases continued under the Landlord and Tenant Act 1954, while the additional units were occupied as tenancies at will pending planning permission for an odour-control chimney.

The central issue was whether the negotiations created binding oral leases or merely temporary arrangements. A further issue concerned the legal effect of the five-year oral agreement alleged for unit 15 and the validity of the defendant’s notices terminating occupation.

1. Oral three-year leases. The court preferred the claimants’ evidence and found that binding oral agreements had been made for three-year terms in respect of the relevant units. Possession had been given and rent was payable at the best rent obtainable without taking a fine. Those agreements therefore became legal leases under section 54(2) of the Law of Property Act 1925 and did not require compliance with section 2 of the 1989 Act (paras 75, 80).
2. Unit 15. The alleged five-year oral lease was void for non-compliance with section 2 of the 1989 Act. Following the present view expressed by Lord Scott in Yeoman’s Row Management Ltd v Cobbe, [2008] UKHL 55, the court held that proprietary estoppel could not make the statutory void agreement enforceable. The estoppel claim therefore failed (paras 81–87).
3. Periodic tenancy. Entry into possession under the void agreement, followed by payment of rent by reference to the yearly rent, created a yearly periodic tenancy. The court distinguished the case where possession is taken merely pending agreement of lease terms. Here, the terms had been agreed and only the parties’ competing accounts were disputed. The notice served was ineffective because it did not expire on the required quarter day (paras 88–90).
4. Alternative analysis. Even if the defendant’s account had been accepted, occupation as a tenancy at will would have ripened into a periodic tenancy when rent became payable by reference to a period. The notices would still have been ineffective (para 92).
5. The claimants were entitled to the relief sought, including the consequences of the continuing tenancy and liability for rent (para 91).