Lease or Licence – what’s the difference?

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This is a dilemma that landowners and occupiers of commercial property may face when trying to document the occupation of a property on a short term basis.

In short, a lease is an interest in land that the law recognises as being different to a purely personal arrangement and it allows the occupier to have exclusive possession of the property for a determinable period of time. In contrast, a licence is simply permission for a licensee to do something on a licensor’s property.  A licence is by definition not a lease: it is a personal right or permission.

It is extremely important for a property owner and the proposed occupier of that property to ensure that they are singing from the same hymn sheet at the outset as the courts are not interested in what you call the arrangement – they want to know the facts! The courts will take into account all of the circumstances, the rights and obligations which are agreed between the parties and what their intentions were when they entered into the agreement.

Often, problems arise because the intentions of the owner and occupier are different. If the arrangement is to be for longer than a very short period, then it is usually appropriate that a lease should be entered into to document the terms of the occupation. This is the only way to ensure that the landlord has control over the way in which the property is used and the date on which it is to be returned.  In particular, if an owner does not want an occupier to obtain security of tenure under the Landlord and Tenant Act 1954, it is recommended that the occupier occupies under a contracted out lease.

There have been numerous cases over the years on the lease/licence distinction but the leading case is still the House of Lords’ decision in Street v Mountford [1985]. In this case it was determined that the fact that an agreement purports to create a licence does not mean that it will be construed as a licence, and not a tenancy.  The House of Lords held that the court should look at the substance as well as the form of the agreement in deciding whether an agreement is a licence or a tenancy.

Some examples of where a licence to occupy may be encountered could be a “concession” arrangement in a department store or where short term, serviced office space is made available.

In deciding which relationship to create the parties should look at their existing and future plans. For the reasons noted above the parties should take expert legal advice to look at their respective interests and which form of arrangement best suits them.

For more information on the different ways of occupying commercial property or for advice on commercial property matters generally, please contact our Commercial Property Team on Freephone 0800 689 0831 or send any questions through to Forbes Solicitors via our online Contact Form.

Stacey Lakeland

About Stacey Lakeland

Stacey Lakeland is a Trainee Solicitor within the Property department at Forbes Solicitors. Stacey’s blogs cover general property matters relating to both residential and commercial property matters such as updates to legislation affecting the property sector, landlord and tenant matters, topics which relate to the construction and development sector and also issues relating to property disposals and acquisitions, to name a few.
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