Getting to grips with the tricky nature of leasehold agreements
When is a lease not a lease? If no rent is actually payable can it still be a lease? Does a lease need to be for a term or can it be for ever?
These and other related issues were ventilated by the Northern Ireland Court of Appeal in its recent judgment in the case of Northern Ireland Renewables Limited v Harry Carey (2016) NICA 30.
The case centred on the true nature of the landlord and tenant relationship and what ingredients must be present before an arrangement can constitute a lease.
The single most important piece of legislation governing leases in Northern Ireland is Deasy's Act of 1860. The case in point was a dispute between a landowner who had entered into an arrangement with a wind farm developer for the erection of wind turbines and related equipment on his land for a term of 25 years.
The landowner refused to sign the lease at the time when the contract between the parties required him to, and he contended that the document purporting to be a lease could not take effect as a lease at law, in accordance with section 3 of Deasy's Act, due to the lack of an actual rent being payable at the time the lease was to be granted.
The nub of the issue was that although no rent would actually be due at certain times during the life of the lease, for example before the time the turbines were installed, there was certainty as to the circumstances in which the rent would become payable and that certainty was sufficient to meet the requirement for rent under section 3.
The court judgment also discussed the other requirements for the landlord and tenant relationship to arise as set out in Deasy's Act, including the fact that no reversion is required, that is to say the lease does not need to be for a specific term of years (although it usually is) and can actually be 'for ever'. Under this arrangement the grantee holds the land from the grantor for ever in return for payment of a rent and subject to conditions which are very similar to those contained in more traditional leases for a term.
The judgment brings welcome clarity to lawyers practising in the area of landlord and tenant law in Ireland, although the judgment does leave open the question of whether a lease that does not provide for payment of a rent can create the relationship of landlord and tenant. The court would only say that it "prefers" the view that "it is probable" that rent is required for a lease to exist.
Graham Pierce is a partner at Worthingtons solicitors specialising in commercial property and can be contacted at firstname.lastname@example.org