LEASE

A lease is a document that creates an interest in a property or land for a fixed term of years usually (but not necessarily) in consideration of the payment of rent. The interest created is called a term of years, but it is also often referred to as a lease or a leasehold interest. Leases are used to describe long term grants.

In a lease, the consideration flowing from the lessor (landlord) to the lessee (tenant) is the demised premises. The consideration paid by the lessee is the rent and the observance of any condition or covenant in the lease.

It should however be noted that title to the land is not conveyed, only the use and occupation of the property is given out; the property reverts back to the lessor after the expiration of the term. The owner of the property who makes the grant is the lessor or landlord/landlady, whilst the person who takes over the exclusive use of the demise is the lessee or tenant.

The difference between a lease and a tenancy is that while the former last for a long term, the latter is for a short term.

PARTIES TO A LEASE

This refers to the capacity of parties. They must be natural or juristic persons having the capability to sue or be sued.

Capacity is always a key issue. A holder of a right of occupancy can create a term of years subject to conditions in the Land Use Act. Any term created under the right of occupancy is a sub-lease.

At common law, a lease created by an infant is voidable and may be avoided by the infant within a reasonable time after attaining majority. An infant may take a lease but is entitled to repudiate it on attaining majority – section 14 Edict No 4 Rivers State 1988; and section 18 Edict No. 17 Kaduna State 1990. An infant cannot create a tenancy in respect of residential premises but the parent or guardian or the High Court upon application may do so on his behalf.

A registered company under CAMA may create or take a lease as authorised by its memorandum and Articles of Association.

Parties are to be identified by their full names, addresses and occupation. In the case of a limited liability company, it is usual to say “registered under CAMA” and then state its registered office. In the case of a natural person, you may want a reference on him from his employer or former landlord to determine if he can pay rent.

A single lady letting the premises may be asked to produce a surety who will also stand as a guarantor in case of default of payment of rent. It should however be noted that a surety will be equally liable for the payment of rent. If a company, the guarantors may be the directors.

The parties to a lease can either be called a landlord/tenant; lessor/lessee and where the lessor is a lady, a landlady. You may wish to extend the meaning of the definition. But there are provisions of the law that make it unnecessary to extend the definition of the parties to include successors-in-title – section 102 and 103 PCL, and section 58 and 59 Conveyancing Act 1881. Successors-in-title can also enforce covenants in the document.

TYPES OF A LEASE

1.      Periodic tenancy – This is created for a term renewable at the end of the term by payment of rent by the tenant and reception of rent by the landlord.

2.      Tenant for a fixed period – This is created to last for a fixed term and to expire at the end of such fixed term. This type of lease is not renewable.

3.      Lease of reversion – This is created to run concurrently with an existing lease. Lessee of reversion does not take possession unless the existing lease is brought to an end; he merely steps into the shoes of the lessor in relation to the current lease.

4.      Lease in reversion – This is created to take effect at the expiration of a current lease.

5.      Tenancy at will – This is created where the tenant holds over at the end of a current term with the consent of the lessor for an undefined term subject to termination by either of the parties.

6.      Tenancy at sufferance – This is created where the tenant holds over without the consent of the lessor.

7.      Tenancy at estoppels – This is created where tenancy is made by a grantor who has no good title.

8.      Statutory tenancy – This is created where a tenant’s term has expired but protected from summary eviction by the provisions of the relevant recovery of premises law.

MODE OF CREATION OF LEASES

This can be done through any of the following:

1)      Parol/Oral lease – This is an agreement of mere words. Under section 4 of Statute of Fraud of 1677; sections 78 and 79 of the PCL, it is permissible as having of a lease at will. It must however have the following elements in order for it to be valid –

a)      it must reserve the best rent obtainable (not premium or rack rent);

b)      it must be for a period not exceeding three (3) years; and

c)      possession must be given to the lessee – Foster v. Reeves (1892) 2 QB 255 at 257; Okoye v. Nwulu (2001) All FWLR (Pt. 350) 214.

While parol/oral leases are permissible, they usually present difficulties in proving the essential terms agreed to by the parties; for “a party alleging an oral agreement is duty bound to prove such an agreement to the hilt – Odutola v. Papersack (Nig.) Ltd. (2007) All FWLR (Pt. 350) 1214.

2)      Written lease – This is a mere agreement in writing, and applicable to leases not exceeding three years. It is signed by the parties to it only, and binding on them as a contract and it is enforceable. In Odutola v. Papersack (Nig.) Ltd (supra), Niki Tobi JSC, observed that “it is generally accepted practice that tenancy agreement is made in writing; but I can say that it is mostly made in writing.” The advantage of a lease in writing over oral lease is that a lease in writing are easily ascertainable and enforceable.

3)      Lease by Deed or under seal – It is mandatory and not conditional for a lease above three (3) years to be by deed. And it must be Signed, Sealed and Delivered. Under section 3 of Statute Fraud Act of 1677; and section 77(1) of PCL, a lease which is required to be in writing is void for the purpose of conveying or creating a legal estate unless made by deed. In Anwasi v. Chabasaya (2000) 6 NWLR (Pt. 661) 408, the Court held that a contract under seal is a written document which is required to be signed as well as sealed by the party bound thereby and delivered by him, to or for the benefit of the person to whom the liability is incurred. However, by the rule in the old case of Walsh v. Lonsdale (1882) 21 Ch. D 9, an agreement to create a lease (with all the essential elements) will still operate as a lease, notwithstanding that it is not created under seal. This is based on the maxim that “equity looks at the intention of the parties and not the form” and “equity regards as done that which ought to be done.”

ESSENTIAL ELEMENTS OF A LEASE

In Odutola v. Papersack (Nig.) Ltd (supra), Niki Tobi JSC, stated thus:

“…[For] a lease to be valid and enforceable, [it] must contain the following – the parties concerned, the property involved, the term of years, the rent payable, the commencement date, the terms as to covenants, and the mode of its determination.”

From the above, essential element of a valid lease are:

1.      The parties concerned;

2.      The property involved;

3.      The term of years;

4.      The rent payable;

5.      Date of commencement;

6.      The terms as to covenant; and

7.      The mode of its determination.

The above elements are important for a valid lease which shall be discussed briefly:

1.      The parties concerned – Parties must be juristic persons (that is, having the capacity to sue and be sued) and adequately prescribed. There must be a lessor who is capable of creating a lease and a lessee who is capable of taking the demise.

2.      The property involved - The property must be in existence at the commencement date otherwise, nothing is demised and the agreement is void. In other words, the property must be described and known by both parties.

3.      Terms of years - There must be definite time frame. A lease to be valid must be for a definite or fixed period with a fixed or ascertainable date of commencement. In terms of duration, it must have a certain beginning and a certain end e.g. weekly, monthly, quarterly, or yearly. The lease cannot enure in perpetuity – U. B. A v. Tejumola & Sons Ltd (1988) 2 NWLR (Pt. 79) 662; 5 SCNJ 173. In Lace v. Chantler (1944) KB 364 at 368, the court held that a lease for the duration of the war or until cessation of hostilities did not create a good leasehold interest as the term created was uncertain.

4.      The rent payable – The rent (amount) to be paid must be stated, known and agreed by both parties.

5.      Date of commencement - The lease must take effect from a specified date or upon the happening or occurrence of an ascertainable future event or contingency which is certain in time – U. B. A v. Tejumola & Sons Ltd (supra). In Okechukwu v. Onuorah (2000) 12 SCNJ 146; (2001) FWLR (Pt. 33) 219 and Bosah v. Oji (2002) 6 NWLR (Pt. 762) 137, the question arose on whether leases that had no commencement date, but which were said to commence on “the day the Onitsha Local Government Council issued to the lessees a certificate of occupancy in respect of the premises”, were valid commencement dates? The court answered to the affirmative and concluded that the commencement date which is deponent upon the occurrence of a future contingency (issuance of a certificate of occupancy) was valid and the lease became absolute and enforceable the moment the event in question occurred.

6.      The terms as to covenant - There must be exclusive possession. It is the essence of a lease that a tenant should be given the right to exclusive possession. That is, the right to exclude all other persons from the premises. Where exclusive possession is not confirmed, it is called a licence. Exclusive possession connotes occupation or physical control of land either personally or through an agent, proxy or servant. It also means exclusive power of using the right given in land, retain same and be entitled to undisputed enjoyment of it against all persons except the person who can establish a better title. If one does not have exclusive possession of the property, then what one has is not a lease but licence. Lessee must therefore have exclusive use and control of premises.

7.      The mode of its determination – There must be the cessation of an estate or interest.

DIFFERENCE BETWEEN A LEASE AND A LICENCE

1)      A lease has an estate in the demised premises whilst a licence has no estate but only a right to do a thing on the land.

2)      A lease can be assigned while a licence cannot be assigned.

3)      In a lease, a lessee can maintain action for trespass against anybody including the lessor while in a licence, a licensee can only sue others and not the licensor for trespass because he occupies the property at the pleasure of the licensor who may come upon the land at any moment he wishes.

4)      A lease is inheritable while a licence cannot be assigned.

5)      A lease cannot be revoked while a licence is revocable either expressly by the licensor or by the death of the parties or by assignment of the property.

DIFFERENCE BETWEEN A LEASE AND AN ASSIGNMENT

1)      A lease is granted for a period of term while in an assignment, the assignee receives the entirety of the assignor.

2)      In a lease, grantor has reversionary interest while in an assignment, there is no reversionary interest retained by grantor.

3)      In a lease, all covenants in the head lease (express and implied) bind parties to a lease while in an assignment only covenants that touch and concern the land in the head lease binds assignees (not express covenants as there is no privity of contract between head lessor and assignee.

4)      In a lease, it may not require deed depending on the duration and mode of creation while in an assignment, it always require a deed for legal title to be passed to the assignee.

RENT

This is the consideration (compensation) paid by the tenant to the landlord for the term granted. Payment of rent is however not a strict requirement of a valid lease. For instance, a tenant at will does not pay rent yet he is a tenant. A main feature of a lease is lawful occupation by tenant whether a person pays regular rent, subsidized rent or no rent at all is immaterial – African Petroleum Ltd. v. Owodunni (1991) 8 NWLR (Pt. 210) 391 at 419.

TYPES OF RENT

In practice, there are three kinds of rent payable in lease namely:

1)      Ground Rent – This is the rent paid by the holder of the grant (grantee) for the use of the ground, whether the land is developed or not is immaterial. – G. B Olliviant v. Alakija (1950) 13 WACA 63. This rent is paid annually and it is subject to periodic review. For example, rent paid to the Governor of a State (Government) upon the grant of a Right of Occupancy and subsequently every year – section 5(1) of the Land Use Act, 1978. The amount payable varies depending on where the land is situated or located, and the size of the land. It is usually a small amount and it is subject to a revision period of 5 years or more.

2)      Rack Rent – This is the most popular type of rent also called ‘economic rent’ because it is the landlord’s returns on his investment. This rent is paid by the lessee. It is the rent for the full value of the property or a value near it. The amount payable varies depending on the location of the property and quality of the property. It may be paid monthly, annually or for a fixed sum. Though, it normally fluctuates depending on the change of circumstances in market value.

3)      Premium – This is a lump sum which is paid as rent in addition to the other kinds of rent. For example, the holder of a Right of Occupancy pays both ground rent and premium to Givernment. It is also payable in a long lease.

A premium is regarded as a fine, and prohibited in some States – Section 4 of the Rent and Control and Recovery of Residential Premises Law of 2003 (Lagos). Where a premium is prohibited, the landlord may charge rent in advance, if that is not also prohibited – section 6(1) of Rent and Recovery of Premises Edict No. 4 of 1997 (Plateau State) prohibits rent in advance. However, where payment of premium is required or allowed, it attracts stamp duties payment and it is charged as income tax.

FACTORS TO BE CONSIDERED IN FIXING RENT PAYABLE IN A LEASE

1.      Tax implications – This can be found under section 3(3) of the Personal Income Tax Act (PITA), 2004. It provides that a landlord who collects rent in advance for a period exceeding five (5) years is liable to pay higher tax than when the rent is for five years or below. It is therefore advisable that landlords should not charge rent in advance exceeding five years. This is also made available in the provisions of section 4(2)(c) of the Income Tax Management Act (ITMA), 2004

2.      Inflation – Where a landlord collects many years rent in advance, it may turn out to be disadvantageous because inflation may make the rent collected virtually useless.

At common law, where a lease has expired but the lessor continues to accept rent, the lessor would be deemed to have renewed the lease on the same terms and rent as the expired lease. This is because, in law, possession of an estate by a lessee and the receipt of rent by the lessor is evidence of a tenancy – Okoye v. Nwulu (supra).

RENT REVIEW CLAUSE

It is important to insert a rent review clause in a lease especially if the term of years granted is a long one. In the absence of such clause, and subsequent disagreement, the court may imply fair market or reasonable rent and this would always be a matter of evidence – Unilife Dev. Co. Ltd. v. Adeshigbin (2001) FWLR (PT 42) 114. The rent review clause is usually inserted in a lease to cushion the effect of inflation and keep to the money value realisable from the demised premises.

This allows the rent to be reviewed periodically.

A rent-review clause should contain the following

a)      Method of initiating the review. For example, a notice to be given by the lessor to the lessee in writing and the time within which the notice is to be given.

b)      The time frame for the review. For example, after every five (5) years of the lease and the date in which the new rent will become payable.

c)      The method of calculating the new rent. For example, whether a valuation by experts is required before the review.

d)     Procedure for resolving any dispute of the new rent. For example, by the use of arbitration clause or negotiation mechanism.

It should be noted that rent is not due until the expiration of the period created. In a monthly tenancy, the rent is due on the eve of the commencement of another periodic month – Re St. Andrews Allotment Association (1969) 1 All E.R. 147 at 151.

Rent is still payable even if the premises cannot be used. For example, due to destruction by fire. This is because the doctrine of frustration hardly applies to leases – E. O. Araka v. Monier Construction Co (Nig) Ltd (1978) 9/10 S.C. 9.

FACTS AND CASES REFERRED TO IN ACTIVITIES 2 & 3 OF LESSON NOTE

BOSAH v. OJI (2002) 6 NWLR (Pt. 762) 137

This is based on a question that arose on whether leases that had no commencement date, but which were said to commence on “the day the Onitsha Local Government Council issued to the lessees a certificate of occupancy in respect of the premises”, were valid commencement dates?

The court answered to the affirmative and concluded that the commencement date which is deponent upon the occurrence of a future contingency (issuance of a certificate of occupancy) was valid and the lease became absolute and enforceable the moment the event in question occurred.

OKECHUKWU v. ONUORAH (2000) 12 SCNJ 146

This is based on the question whether the essentials of a lease existed (particularly the date of commencement).

The court affirmed the essentials of a lease and held further that in the instant case, the words of demise are clearly spelt out in Exhibit 1, which is giving on lease a plot of land to be developed by the defendants to a clear specification and on a completion, to have portions of the building for the plaintiff’s use absolutely without charge.

U. B. A LTD. v. TEJUMOLA & SONS LTD. (1988) 2 NWLR (Pt. 79) 662

The question for determination in this case is whether it can be said on the evidence in this case that 1st May, 1982, the day said by the Plaintiff to be the commencement of the proposed lease, which no doubt is an essential term of an agreement for the lease, has been agreed to by the parties to this case.

The Court of Appeal, the lower court, agreed with the learned trial Judge as to 1st May, 1982 being the day of the commencement of the proposed lease. In coming to its decision the Court of Appeal considered all the relevant correspondence that passed between the parties on the point including Exhibits E and F. The lower court concluded:

“From these series of correspondence that I have examined, I cannot see in them where the date of 1st May as the date wherein the Appellant took physical possession as being in doubt.”

On appeal, the Supreme Court stated that neither the trial court nor the Court of Appeal, made a definite finding that the Defendant agree to 1.5.82 stated in Exh. F, the plaintiff’s letter to the defendant, as the commencement date of the proposed lease. The trial court said the Defendant did not rebut the averment. The Court of Appeal, for its part said that there was no doubt that 1.5.85 was the date of the commencement of the proposed lease. It did not say positively that the Defendant agreed to this date.

Nnaemeka-Agu, J.S.C. stated thus:

“There is one aspect of the ultimate suggestion made in the lead judgment on which I feel quite reluctant to go along with my learned brother. He suggested that, in view of the enormous expenses which the Respondents ran at the request of the Appellants, counsel on both sides should put their heads together to see how justice could be done to them. I cannot agree to this without pointing out that the Respondents were the architects of their own misfortune. With all the clear story which the quality and language of their correspondences tell, they still elected to act for themselves, for a transaction which could have been worth several millions of naira. It was only after they had ruined their case that it dawned on them that they should brief an experienced counsel, for the court case. This is a height of indiscretion. Yet, it is said that the quality of mercy is not strained. It is only on this ground that I associate myself with the suggestion that counsel should agree on what compensation should be paid to the Respondents for the expenses they ran at the request of the Appellants, inspite of the fact that there was no binding contract between the parties.” The Appeal was allowed.