LEASE OR LICENCE?

It is important for occupiers of commercial properties to be fully aware of the legal basis of their occupation.  The most common methods of occupation are pursuant to the terms of a Lease or a Licence.  There are important differences between a Lease and a Licence and serious implications can arise if occupiers are unsure or are unaware of their legal rights and obligations.

LEASE

A Lease is a property interest granted by a landlord to a tenant.  Landlords often grant Leases to tenants to occupy properties for many years which usually contain detailed provisions.  Like a freehold interest in land a leasehold interest can be bought and sold. 

A Lease provides a tenant with a right to the "exclusive possession" of a property for a determinable period of time.  Exclusive possession means that subject to any rights of entry by the landlord contained in the Lease, the tenant can exclude all others from the property.

The law provides that if an agreement grants exclusive possession for a fixed period of time at a rent it is a Lease and not a Licence.

A Lease offers the certainty of a fixed rental period for a landlord and the security of a fixed period of occupation for a tenant. 

Tenants of business premises may also benefit from statutory protection under the Landlord and Tenant Act 1954.  This Act gives rights to certain business tenants who occupy premises under a Lease.  Such rights entitle business tenants to remain in occupation of the premises after the expiry of the Lease.  In effect the Lease continues automatically after its expiry until brought to an end in one of the ways specified in the Landlord and Tenant Act 1954.  It is possible for the parties to exclude the statutory protective provisions of this Act expressly by agreement before entering into a Lease.

LICENCE

A Licence is a personal right granted by a licensor to a licensee, often to occupy a property for a short period of up to 6 months.  Unlike a Lease a Licence cannot be bought and sold.  There is no right of "exclusive possession" granted to the licensee therefore the licensee cannot exclude all others from the property.

A Licence provides no security of occupation so subject to its terms it may be revoked at any time and the licensee will be obliged to vacate the property.  If the licensor sells the property the Licence will cease to be effective and the licensee's personal right to occupy the property will come to an end. 

Unlike Leases, the statutory protection provided to certain business tenants under the Landlord and Tenant Act 1954 does not apply to Licences. However property owners must be particularly careful when granting Licences.  If exclusive possession is mistakenly granted to a licensee, the Licence may be considered to be a Lease meaning the licensee benefits from the statutory protection provided by the Landlord and Tenant Act 1954.  The property owner may then find it more difficult to end the occupation of the licensee and obtain vacant possession of the property.

One of the main advantages with Licences is that they can be granted quickly and cheaply, often where only short term occupation is preferred.  A Licence offers flexibility for a property owner as it can be terminated easily.

For an occupier such flexibility may not be as attractive.  The occupier's business may be disrupted and suffer if the occupier is required to vacate the property on short notice then look for suitable alternative business premises.

As set out above there are important differences to consider for both property owners and occupiers when deciding whether a Lease or a Licence is suitable.

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If you would like to discuss any of the issues above please contact our Commercial Property team, or complete our online enquiry form.