Tenancies and the different types of ownership property ownership

Renting property is becoming more and more the norm nowadays, with an increasing percentage of households living in rented accommodation.  

However, there is a lot of confusion over what a tenancy actually is.  In this article, I am going to take a step back and look at land law generally and the different types of rights that people have when they live in or own land.

The two types of land ownership 

Let’s start by looking at the Law of Property Act 1925.  1925 is a long time ago now and we have forgotten what land law was like before this act was passed. It was a nightmare!

Before 1925 there were lots of different types of ownership of land, but the Law of Property Act reduced this to two:

  • ‘Estate in fee simple’ better known as freehold
  • Leasehold

Freehold is the nearest you can get to absolute ownership of land (bearing in mind that technically all land is held by The Queen).   

Leasehold is where you own the land or property for a specified period of time, after which it reverts back to the landlord.  

However for that time, you ‘own’ it and the rights of the freeholder are limited to the right to receive rent and the right to get the property back at the end of the lease (the ‘reversion’).

Owning land at the same time as someone else

You might say “How can the tenant own the property, if it belongs to the landlord?”

The answer is that land is different from everything else - and the law that has developed over the years cleverly allows several people to own (or perhaps we should more properly say own an ‘interest’), in the same property at the same time.  

So for example let’s consider an imaginary large house, with a big garden, called ‘Greenacres’, which has been divided into flats.  The following people could all own a legal ‘interest’ in the property:

  • Fred, who owns the freehold
  • Larry who owns a long 99 year lease of one of the flats
  • Lydia who owns another of the flats on a 99 year lease
  • Tanya who rents Lydia’s flat under a 12 month assured shorthold tenancy
  • Roger who lives next door and who owns a right of way over the bottom of the garden, and
  • The Megabank Ltd who own a mortgage of the whole property

The fact that two of the flats are leased does not mean that Fred stops owning the freehold. Likewise, the fact that Lydia has rented her house out to Tanya does not stop her from owning her lease.  But both Fred and Lydia have lost the right to use the flats while the lease or tenancy is continuing.

Many landlords do not realise that a short tenancy is a legal interest (or ownership) of property, and so think that they have the right to just walk in and out as they please.  But this is not the case.   

The tenant has strong rights and one of these is the right to keep out everyone, including the landlord, save in very exceptional circumstances (such as if the property is on fire).

Occupation which is not ownership

Occasionally a property, or more likely a part of a property, will be occupied where the tenant has a licence to occupy rather than a tenancy agreement.

For example, this will happen in the following situations:

  • If you rent a room to someone in your own home, and share other living accommodation with them (such as a bathroom and kitchen) – here they are normally described as a lodger.
  • In hotels and B&B’s where the hotel staff have the right to enter the room, for example to do cleaning and to change the bedding.
  • In hostels where people share a room (or dormitory) with other people.
  • Where a job, such as a nanny or housekeeper, requires an employee to live in the property.

Whether you have a license (permission to occupy the property which prevents you from being a trespasser) or a tenancy (a legal interest in the property) will depend upon the circumstances.

So, for example you can’t make someone a licensee just because you want to.  In a famous House of Lords decision in 1985 called Street v. Mountford, it was held that if someone has ‘exclusive occupation’ of a property at a rent, this will normally be a tenancy, whatever is written on the agreement that the occupier signs, unless the circumstances of the letting means it cannot be a tenancy.  

Such circumstances would include the situations given in the bullet points above.  It also includes lettings on boats, as a boat (even if it is permanently moored) is not ‘land’ and so cannot be the subject of a tenancy.

Leases and Tenancies

Finally let’s take a look at the different types of lease, looking just at residential leases. You will normally either have a fairly short ‘tenancy’, say for six months or a year, or you will have a long lease of say 99, or even 999 years.  

Although it is not laid down in statute anywhere, generally when we use the word ‘tenancy’ we mean a short let of three years or less, and when we use the word ‘lease’ we mean a let with a much longer term.

They are both ‘terms of years’ and there are similarities in the law in all leases, but there are also big differences.  

For example: 

  • A tenancy with a term of three years or less can be created without a written ‘deed’ (which is why if you let someone into your property on a handshake and accept rent, you will normally have created a valid tenancy)
  • A lease of over seven years must be registered at the Land Registry, and will not be subject to the landlord’s statutory repairing obligations as set out in s11-17 of the Landlord & Tenant Act 1985.

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Tessa Shepperson

Tessa Shepperson is the Director of Easy Law Training and the founder of the Landlord Law Blog. She is a lawyer with over 20 years of experience in residential landlord and tenant law.

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