Ashburn Anstalt v Arnold [1988] EWCA Civ 14

The case of Ashburn Anstalt v Arnold is a pivotal decision in English land law that addresses fundamental concepts, including the distinction between leases and licences, the requirements for a tenancy, and the enforceability of such interests against subsequent property owners. This case provides clarity on several contentious issues, though parts of its judgment have been subsequently overruled.

Facts of Ashburn Anstalt v Arnold

The dispute concerned the occupation rights of Arnold & Co over a property at 126 Gloucester Road, Kensington, London. The chain of events leading to the case is as follows:

  1. Initial Agreement: Arnold & Co sold their lease of the property to Matlodge Ltd under an agreement that allowed Arnold & Co to remain on the premises rent-free as “licensees” until the property was redeveloped. Upon redevelopment, Arnold & Co were to receive a new lease for a shop in a prime location within the development.
  2. Chain of Ownership:
    • Matlodge Ltd sold the freehold and lease to Cavendish Land Co.
    • Cavendish Land Co was later acquired by Legal & General Assurance Society Ltd.
    • Legal & General sold the freehold to Ashburn Anstalt, subject to Arnold & Co’s agreement.
  3. Dispute: Ashburn Anstalt sought possession of the property, claiming that Arnold & Co’s agreement was a mere licence, which would not bind a subsequent owner.

Key Legal Issues

The key issues in Ashburn Anstalt v Arnold were:

  1. Did Arnold & Co have a valid lease over the property?
  2. If not, could the licence bind Ashburn Anstalt?
  3. Could a constructive trust arise to protect Arnold & Co’s occupation rights?

Ashburn Anstalt v Arnold Judgment

Lord Justice Fox delivered the leading Ashburn Anstalt v Arnold judgment, with Lord Justices Neill and Bingham concurring.

Lease or Licence?

The court in Ashburn Anstalt versus Arnold held that Arnold & Co had a valid lease rather than a licence, based on the following findings:

  • Exclusive Possession: The agreement granted Arnold & Co exclusive possession of the property. This is a key characteristic of a lease, as established in Street v Mountford [1985] AC 809.
  • Certainty of Term: The court controversially held that the “certainty of term” requirement for a lease could be satisfied if the lease terminated on a sufficiently certain event, such as redevelopment or the giving of notice. This aspect of the judgment was later overruled in Prudential Assurance Co v London Residuary Body [1992] 2 AC 386, which reaffirmed that leases must have a fixed or determinable maximum duration.
  • Rent: The court ruled that payment of rent was not essential for the creation of a lease. This contradicted the traditional understanding of leases but has not been definitively overruled.

Overriding Interest

As a leaseholder in actual occupation, Arnold & Co’s interest constituted an overriding interest under Section 70(1)(g) of the Land Registration Act 1925. This meant their lease was enforceable against Ashburn Anstalt, the subsequent property owner.

Licence and Constructive Trust

If Arnold & Co’s agreement were deemed a licence, it would not bind Ashburn Anstalt because:

  1. Licences do not create proprietary interests and cannot bind successors in title.
  2. A constructive trust would arise only if it was unconscionable for Ashburn Anstalt to deny Arnold & Co’s rights. The court found no evidence of unconscionability, as mere knowledge of the licence was insufficient.

Rejection of Errington v Errington

The court explicitly rejected the precedent set in Errington v Errington [1952] 1 KB 290, which suggested that a licence could bind successors in title if accompanied by actual occupation. This clarified that licences, by their nature, do not create proprietary rights.

Conclusion

Ashburn Anstalt v Arnold is a landmark case that clarifies key principles of English land law, particularly the distinction between leases and licences. While aspects of the decision—such as the certainty of term—have been overruled, the case remains an essential authority on overriding interests and the enforceability of licences. 

It underscores the importance of precision in drafting property agreements and the need for careful consideration of the legal implications of such arrangements. For practitioners, the case serves as a reminder to examine not only the substance of agreements but also the rights and obligations they create.

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