• In the case of Ashburn Anstalt v Arnold 1988 2 All ER 147 2 it was found that the reservation of a rent is not necessary for the creation of a tenancy.

Facts of the Case

  • By an agreement of 28th February 1973, the second defendant sold its leasehold interest in shop premises which formed part of registered land.
  • The agreement provided by clause 5 that from the date of completion the vendor would be at liberty to remain at the property as licensee until 29th September 1973 without payment of rent.
  • From that date, the vendor would be entitled to remain at the property save that it could be required by the purchaser to give up possession on not less than one quarter’s notice.
  • Clause 6 provided that the purchaser warranted that it intended to redevelop the property and would grant to the vendor on completion of the development a lease of a shop on the site.
  • By an agreement of 9thAugust 1985, the claimant purchased, subject to the 1973 agreement, the freehold of the premises where the defendants carried on business.
  • The claimants attempted to claim possession of the shop.
  • The judge dismissed the claimants claim for possession on the basis that the 1974 agreement created a licence entitling the defendants to possession.
  • The claimants appealed.

Issues in Ashburn Anstalt v Arnold 1988 2 All ER 147 2

  • In this case the claimant had the issue of proving that it had a valid lease over the property which would bind the defendant by virtue of actual occupation with that being an overriding interest in accordance with the Land Registration Act 1952.

Held by Court of Appeal

  • Appeal dismissed.

Fox LJ

  • The appeal was dismissed because (1) although no rent was payable under it, the 1974 agreement gave the second defendant exclusive possession of the premises for a certain term and that created a tenancy, albeit that the agreement was expressed in terms of a licence, that the plaintiff held the land subject to the tenancy and that accordingly, the claim for possession failed.
  • (2) Since the second defendant was in actual occupation of the land, the rights conferred on the second defendant by the 1973 agreement took effect as an overriding interest under the Land Registration Act 1925, with the consequence that, although the second defendant could not restrain the claimant from proceeding with any development which did not provide suitable shop premises on the land actually occupied by the defendant, the second defendant could compel the claimant to offer to the second defendant a lease of a shop on that land if shop premises were in fact constructed thereon.
  • “The following propositions appear to me to be correct.
  • (1) Arnold & Co. cannot have any different rights against the plaintiff than Arnold & Co. had, as a matter of contract, against Cavendish. The overriding interest merely protects existing rights in respect of occupied land; it does not extend or otherwise alter them. Thus, suppose, for example, that Arnold & Co. had contracted for a lease of the whole of the development site but only had an overriding Q interest in respect of a small part of it. Arnold & Co. could not insist upon a lease of that part at an apportioned rent (though it may be, as Mr. Goodhart was willing to concede, that it could insist upon a lease of that part—at any rate if it was a substantial part—at the full rent).  
  • (2) Arnold & Co. has no enforceable rights at all under clause 6 over
    or in respect of that part of the development site to which its overriding interest does not extend. Accordingly, it has no rights in respect of any D land other than the Gloucester Road site.
  • (3) Clause 6 conferred no rights upon Arnold & Co. to require a shop to be built upon the Gloucester Road site. The only right conferred by clause 6 was on completion of the development to have a grant of a lease of a shop in a prime position, with certain special characteristics, for the term and at the rents and subject to the provisions stated in  
  • clause 6. It is entirely a matter for the plaintiff to decide where it sites shops on the development. It is asserted, as I understand it, that there never was an agreement to grant a lease but merely a warranty sounding in damages. I do not agree with that. I think that the “undertaking” given in clause 6 was a contract. Accordingly, to compel the plaintiff to build such a shop would be imposing upon the plaintiff a different liability to that for which it contracted in clause 6. “p.30 B-F