Exclusive possession in the sharing economy?
11 / 02 / 2016
How can property law be updated so that it is relevant in a world that is becoming ‘shared’?
It’s one of the first things we learn about landlord and tenant law: Street v Mountford teaches that a lease requires exclusive possession.
The other clauses, whether they be term, rent, or covenants, are all left to the parties to negotiate. Exclusive possession, being the right to exclude the world from your space, elevates a mere licence to one of the two great estates in land which have survived to the modern day.
How much longer will we have our two great estates?
Dramatic changes – disrupters – have taken place since copyhold was abolished and the internet was invented. We now live in a world where the largest taxi company owns no cars, the largest provider of overnight accommodation owns no rooms and the largest retailer owns no stores. I refer, of course, to Uber, Airbnb and Amazon.
These changes are no mere flash in the pan: PwC estimates the main sharing-economy sectors generate £9 billion in global revenues already. By 2025, £9 billion will be the size of those sectors in the UK alone. No surprise then, that Hilton hotels is rumoured to be a shareholder in Airbnb.
Change is inevitable. What should solicitors be doing for themselves and their clients, to make sure our documents and businesses are fit for purpose in future?
Well, we could stick with leases, just very short ones. For example, the residents of SW19 are well used to renting out their homes to the tennis world at the end of June each year. To me that feels like the equivalent of hoping that a Victorian library can survive for another 100 years – without modernisation. Leases in their current form don’t work too well in the context of the outsourcing, sub-contracting and co-working which characterises modern working in so many fields.
How can a tenant assemble a project team including its lawyers, accountants and other specialists without breaching a covenant against sharing possession? I’ve been told by other lawyers that everyone just turns a blind eye to this type of occupation. But to my mind what’s needed is a fresh look at leases. Tenants still need the right to exclude whom they choose.
However, they also need the balancing right to admit whom they choose.
Let’s go back to Airbnb (other providers of shared accommodation are available). There’s a high degree of trust required in letting a stranger share your home – or in staying at the home of a stranger. To the extent that this model attracts like-minded individuals, the concept is self-policing. It remains to be seen if Airbnb will become mainstream, or survive the transition to normal.
But can we broaden that concept to commercial leases? We have serviced office providers; institutional landlords seem comfortable with the concept, and the provider’s ability to obtain vacant possession at the end of the term. The space can be a bit impersonal and feel transitory. One step on from brands like Regus are Orega who will take your surplus office space and share it with you, as well as with their serviced office clientele.
Moving further along the scale we find the innovative Second Home London, which does not sublet but instead ‘curates members’, picking the occupier mix carefully to generate synergies and spark innovation. Second Home members enjoy a sense of community fostered by a shared canteen, coffee shops and an eclectic range of speaker events.
Black skinny jeans and hipster beards might not be your cup of flat white, but the Second Home concept looks set to grow and grow.
Both Orega and Second Home, and companies like them, are restricted by legal concepts and by custom. A landlord or bank, for instance, will want to look at its tenant’s covenant strength. Valuers will assess a hotel by its occupancy rates – but not a serviced office provider.
Landlords will want to be sure they can achieve vacant possession at the end of the tenant’s term, and run shy of permitting sharing possession. Why not simply exclude the Landlord and Tenant Act 1954 from sub-tenancies? There’s no denying this has become easier – now we only need a declaration, simple or statutory.
Yet even this level of formality seems disproportionate to a start-up, who can go from a space at Second Home’s shared desk to an office for a few staff to an office for 12 in less time than it takes to acquire security of tenure. We should look again at the 1954 Act: the Law Commission sees no reason why it should apply to leases of telecoms apparatus, and in forthcoming legislation, parliament is expected to agree.
Location is key for retailers, less so for offices. Maybe offices should be presumed outside the security of tenure provisions of the 1954 Act, rather than presumed in.
Less dramatically, if nemo dat quod non habet (no-one can give what they do not have), how can a sub-tenant acquire the security of tenure which its own landlord does not possess? A legislative tweak to the statutory protection regime could do so much to ease collaborative working – and economic growth.
The leasehold concept needs to develop in order to flourish in the sharing economy. Lawyers often fight shy of change, comforted by precedents and what has gone before. But we are duty-bound to act in our clients’ best interest.
That broad duty must surely include identifying the need for reform. George Bernard Shaw said: progress is impossible without change, and those who cannot change their minds cannot change anything. Ossified structures survive best in museums.
Let’s change landlord and tenant law, to keep it in the modern world.