Lease or Licence – do you know the difference?

The most common ways to occupy a property are by a tenancy at will, licence, or lease. It is important that tenants, as well as landlords, know the difference between these types of occupation and are able to choose the most suitable for their requirements.

Tenancy at will
By its very nature, this arrangement is the most flexible between landlord and tenant. It can be terminated at any time by either party, for any reason. A tenancy at will does not create a legal interest in land and therefore should only be used on a short-term basis. This type of arrangement is suited to allowing a tenant immediate access to a property, whilst lease negotiations continue.

Licence
A licence, like a tenancy at will, does not create a legal interest in land. It is merely a permission to use the premises for a particular purpose, and can be for a fixed term or ongoing. A licence does not grant exclusive possession.

A licence must be carefully drafted. If the terms of the licence actually make it, in substance, a lease, then the courts will treat the agreement as a lease. This creates a danger that licences, which are not correctly drafted and granted for longer than six months, could earn the tenant a claim for protection under the Landlord and Tenant Act 1954. This protection provides security of tenure to business tenancies, granting them the right to remain on the premises following expiry of the contract, and to request a renewal on the same terms.

Lease
A lease is a legal contractual arrangement where the lessee (tenant) agrees to pay the lessor (landlord) rent for exclusive occupation of a property for a fixed term. A lease provides the tenant with the right to possession of the property, to the exclusion of all others including the landlord. A lease creates a legal interest in the property and therefore any sale of the property, during the term of the tenant’s lease, would be subject to the tenant’s lease.

Seek advice
A court will always look at the substance of an agreement rather than just its name, in order to interpret the true intention of the parties. It is therefore important for both landlord and tenant that occupation arrangements are regularised and properly documented. This is a complex area of law and legal advice should be sought on drafting and negotiating terms.

If you need advice on any aspect of this article please contact Alex Wilson-Jones at awj@blasermills.co.uk or 01494 478 681.