Lesson Outcomes

At the end of the lesson, students would be able to:

1. State what a lease is
2. Identify parties to a lease
3. State the essential elements of a lease
4. Apply principles of elements of a lease to a case.
5. Distinguish a lease from sub-lease, licence, and an assignment
6. Mention types of rent and factors to be considered in fixing rent payable in a lease
7. State relevance of a rent review clause
8. Consider ethical issues arising from the above outcomes

 

Lesson Contents

1. Meaning of a lease
2. Parties to a lease
3. Types of a lease
4. Essentials of a lease
5. Distinguish a lease from a licence, and an assignment
6. Rent in a lease

 

 

 

Meaning of leases

In Lagos state the word tenancy is wider than lease under the tenancy law 2011 Lagos state.

 

General definition: Usually people refer to lease when it has a fixed term. If it’s uncertain there is no lease. When an owner of land gives another person possession of the land for a certain period of time. When that time expires the owner takes back the property.

Fixed leases do not require quit notice because they end on the expiration of time.

Rights to possession – this is also called reversionary interests so this is what the landlord has, rights of possession – belongs to the tenant the person who is entitled to enjoy exclusive possession of the property, the landlord has no right of possession.

For a right to be a lease, there needs to be exclusive possession.

The lessor grants the exclusive possession, while the person to whom the possession is granted is the lessee.

 If the lease is beyond three years the interest transferred is a legal lease that transfers legal interest.

A lease that is 3 years or below is an equitable lease and the interest transferred is an equitable interest.

Lease may be fixed and it expires by effluxion of time and when its not fixed, so the agreement doesn’t state that it will end on a particular day its called tenancy and the parties will be called tenant and landlord. In Lagos note that tenancy includes lease. When a lease is being created over a land that is covered by Certificate of occupancy, you’ll say sub-lessor and sub-lessee and the interest is a sublease. If its not covered by a C of O then it would be a lease. The rent clause is the reddendum. Any property that is the subject of a lease is called demised premises.       

When a landlord creates a lease in favour of a lessee, the landlord still has the right to the reversionary interests while the lessee is in occupation, the reversionary interest is interest that accrues to the lessor after the lessee’s term of years expire.

Landlord and tenant is usually used when the lease is not fixed and when the lease is not more than 3 years. If its beyond 3 years its lessee and lessor, if its covered by the C of O its sub lessor and sub lessee.

 

Guarantor in a lease

This is a person who is not the lessee or tenant but undertakes to ensure that the tenant keeps/ fulfils and observes all his covenants under a lease. Legal implication is that they are as liable as the tenant for the breach of any of the covenants in the lease.

 

Types of lease

1. Equitable lease – any lease that is 3 years or below. This type of lease need not be by deed because all it transfers is an equitable interest.
2. Legal lease – any lease that is above 3 years. This type must be by deed. It must be made under seal.

 

Essential of a lease/ conditions for a valid lease

These are things that must exist for lease to validly exist. If any is missing the interest that exists cannot be a lease

1. Exclusive possession – the lessee must have exclusive possession
2. Certainty of term - The term or duration created must be certain and ascertainable. This is to be determined by a commencement date or the happening of a certain future event/contingency.
3. Certainty of parties – the parties and their status must be so described as to easily ascertainable
4. Certainty of property – the property that is subject of the lease must be so clearly described as to make it easily ascertainable
5. Compliance with form – the lease transaction as well as document embodying it must comply with the relevant legal formalities. E.g. where the lease is beyond three years it must be created under seal.

 

Exclusive possession

The tenant must be the only one that has exclusive possession. Where there is no exclusive possession the interest created is a licence and not a lease.

 

Certainty of term

Note that for a term created in lease to be said to be certain,the lease must expressly indicate:

1. The duration created e.g. 5 years
2. The date of commencement
3. The date of expiration. See the case of Lace v Chantler, Okechukwu v Onuorah, UBA v Tejumola

Note also that the commencement date must not be speculative and must not be dependent on a speculative or uncertain contingency, else the term created will be deemed to be uncertain and the lease will be deemed to be invalid.

 Note however that where a particular commencement date is not stated but the lease goes ahead to indicate that it will commence on the happening of a contingency, the lease may still be valid and effective provided that contingency is reasonably certain to occur – UBA v Tejumola. Lace v Chantler

 

Certainty of property

For the property to be said to be certain 3 conditions must exist

1. The nature of the demised premises must be unambiguously described
2. The location of the property
3. Registration particulars if any of the property

 

Tenancy can be created by conduct and estoppel will prevent the landlord from treating him as less than a tenant or depriving him of such rights. E.g. a licence maturating into a lease after the licensee makes a habit of paying the owner money yearly, this can mature into statutory tenancy.

Generally payment of rent is not mandatory/indispensable in a lease, payment of rent is not a condition precedent for the effectiveness or validity of a lease, however for an oral lease to be valid, the person must be in possession and must have paid rent. Rent is necessary for oral lease.

 

Differences between lease and assignment

1. In a lease the landlord retains a right to the reversionary interest, in an assignment there is no reversionary interest. The entire interest in the property is assigned.
2. All assignments must be by deed, some leases don’t need to be executed by a deed.
3. In a lease only possessory interest is transferred. In an assignment proprietary interest in the property is assigned.
4. A lease needs no investigation to prove title. In an assignment it is very important to investigate title of assignor.
5. All covenants in the head lease will bind parties to a lease. Only covenants that touch and concern the land in the head-lease will bind the assignee.

 

A licence is a mere permission or privilege given by the occupier of land to a person to do an act upon his property which otherwise will amount to trespass.

A licence does not create proprietary (ownership) rights. ELIOCHIN LTD V MBADIWE

 

Distinction between lease and licence

LEASE	LICENCE
1. There is exclusive possession	There is no exclusive possession
2. Interest in the property is transferable through a sublease	There is no such right
3. Transfer of interest in property	There is no transfer of interest
4. The demised estate can survive the death of the parties.	The death of a grantor or licensee terminates the relationship
5. Lessee is entitled to statutory notices	Licensee is not entitled to statutory notices
6. Some covenants are implied	There are no implied terms or covenants in a licence
7. Lessee can maintain an action in trespass against a third party	Licensee cannot maintain an action in trespass

 

Rent in lease

Rent is the compensation/ consideration paid by the lessee/tenant to the lessor for use and occupation of the demised premises.

Payment of rent in leases is not mandatory.

 

Types of rent in a lease

• Rack rent is otherwise known as economic rent – this is the periodic payment paid by the lessee to the lessor for the use and possession of the demised premises in consideration of improvements or developments on the demised premises.
• Ground rent – this is the type of rent paid usually for use and occupation on the bare ground not in consideration of any improvement thereon. It is usually paid to the government for the bare ground and not in consideration of any improvement therefore.
• Premium- it is lump sum paid usually as a penalty in addition to other rents.

 

Factors a landlord shall consider in fixing or charging rent

1. Taxation – under the personal income tax act the higher they charge as rent, the higher the rate of tax they pay
2. Inflation – the value of property keeps appreciating, so collecting lump rent in advance may lead to a disadvantage for the landlord. Inflation affects the value of property
3. Statutory consideration – in some jurisdictions it is an offence to pay rent beyond a certain number of years e.g. 1 year. Under the tenancy law 2011 Lagos state a tenant must not pay rent in excess of 1 year, it is an offence. It is also an offence for the landlord or the lessor to charge rent in excess of one year. This position is not the same outside Lagos state, it is peculiar to Lagos.
4. Physical location of the demised premises.
5. Nature of the demised premises.

 

Negative effects of charging too many years rents in advance

1. Tax implications – s 3(2) personal income tax act Cap P8 LFN 2004, they may be liable to pay higher tax
2. Inflation – adversely affected by the effect of inflation
3. Violation of the law

 

Rent review clause

Rent clause is not the same thing as the rent review clause. Another name for the rent clause is reddendum, the rent clause says the amount of rent to be paid, how to pay rent, when the money is payable /due and the period of time the rent will cover and *acknowledgement that the rent has been paid. Rent review clause is a clause inserted in a lease to give the lessor the liberty to review the rent and maximise profit in the property as inflation occurs, because rent cannot be changed arbitrarily. The purpose of the rent review clause is to enable the lessor to take advantage of capital appreciation on the real property/demised premises bearing in mind the fact of inflation and the fact that the value of real property can only appreciate. It enables the landlord to fluctuate the rent to according to realities.

Definition - a rent review clause is a clause inserted into a lease or tenancy agreement to enable or entitle the parties to a periodic review (usually upward) of the rent chargeable on the demised premise

 

Content of the rent review clause

1. Period/time of review – this is when the rent will be reviewed e.g. every 2 years
2. Method of initiating the review
3. Method of reviewing/calculating the rent – this is the formula for reviewing the rent, so the evaluation formula. How the review will be computed.
4. Procedure for resolving any dispute: ADR clause – means of resolving any dispute that might arise during the time of review.