The Business Legal Services Blog

Lease, Licence or Tenancy at will?

blue_bejull_panelWhat is a Lease?

A lease is a grant of a right of exclusive possession of land for a term of years certain and determinable. The defining feature of a lease is that it confers exclusive possession – that is to say that a person who has been granted a lease can exercise the rights of the landowner to the exclusion of the landlord and third parties (save where expressly reserved).

What is a Licence?

A licence is essentially permission for the licensee to do something on the licensor’s property – a personal right. The licensee does not have exclusive possession of the property but simply a permission to use it for a specified purpose. This therefore distinguishes a lease from a licence.

What is a Tenancy at Will?

A tenancy at will exists where a tenancy is in place and exclusive possession is granted, but not for a term of years certain. Either party can terminate at any time with immediate effect. To terminate the landlord must demand possession and the tenant must give up possession.

Distinction

The difference between a lease or tenancy and a licence is that a licence does not confer an interest in land; it is simply a personal privilege – exclusive possession is not granted. A lease confers exclusive possession for a term of years certain, a tenancy also confers exclusive possession albeit temporary; a licence does not.

A licence and a tenancy at will do not confer the security of tenure under part II of the Landlord and Tenant Act 1954 (LTA 1954) whereas a lease will, unless expressly excluded. Under this part, a tenant occupying property for the use of their business has a statutory right to renew at the end of the term. The landlord can only refuse on limited grounds.

What to use and when?

A lease offers an estate in land for a fixed term and therefore this provides the landlord with a secure period of income. Therefore, if the landlord has a tenant with a particularly good covenant strength, it would want to ensure that the tenant remains for as long as possible , subject of course to the tenants rights to assign and underlet. Likewise, the tenant is offered security and certainty which will aid it to develop its business.

A licence is a personal right and offers more security than a tenancy at will. A licence to occupy can be used in instances where serviced office space is made available for a short period of time or between exchange and completion of an Agreement for Lease / Contract for Sale and completion of the Lease / Sale where the tenant or buyer requires access to carry out works, for example. The aim is to regularise the temporary occupation. The licence will prescribe formalities in respect of termination which must be followed.

It is worth noting that calling a document a licence will not necessarily make it a licence; if the document confers exclusive possession or is for a fixed term or reserves a rent, it can be construed as a lease and thus be afforded the protection under part II LTA 1954. However, just because a document has these features does not automatically mean that it is not a licence. It is therefore important that the drafting is correct to give effect to the licensor’s intentions – legal advice must be sought prior to issuing.

A tenancy at will can be used where the parties are in negotiations for a lease to be granted for a fixed term and thus providing an agreement regularising occupation pending completion. A tenancy at will allows either party to terminate immediately and it is therefore attractive to a Landlord who wishes the property to generate a short term income with future plans pending; likewise it is attractive to a tenant that requires temporary occupation pending taking an interest in another property.

Legal advice again should be sought when drafting a tenancy at will as it could quite easily be construed as a periodic tenancy where the requirements to terminate are far more stringent.

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