When is a licence a lease?

Commercial Property | 25th September 2018

It is often the case that owners of commercial property want to allow occupation of their property on an informal basis, without the time and expense of involving lawyers to negotiate a lease. A licence to occupy is by definition not a lease: it is a mere personal right or permission.

The essential distinguishing feature of a lease, as opposed to a licence, is that the tenant has exclusive possession of the let property. The label that the parties give to the relationship or document is not the determining factor in this context. If the “licensee” has exclusive possession, then labelling the document a “licence” will not prevent it from being a lease. This creates a danger that such licences which are 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.

A licence will usually provide that the licensor may move the licensee to another part of the building on notice, but if this does not actually happen, the inclusion of such a provision may not be enough to prevent a lease arising.

In London College of Business Ltd v Tareem Ltd, the college occupied premises in Essex under a series of licence agreements. However, a dispute arose regarding amounts owing under the current licence agreement, the owner of the premises terminated the licence, changed the locks, and excluded the college from the premises. The college claimed that its exclusion from the premises was unlawful on the basis that it was a tenant, occupying for business purposes.

Despite the fact that the agreement was called a ‘Licence Agreement’, granted personal permission to occupy and included an agreement that the licence was not to be construed as a tenancy, the court agreed that the agreement created a tenancy. Damages (albeit at somewhat lower than the college claimed) were awarded against the owner for unlawful eviction.

This is not legal advice; it is intended to provide information of general interest about current legal issues.

Celia Watts

Consultant Solicitor, Commercial Property

Celia has a wealth of experience in commercial property and in particular in acquisition of developments sites, acting for both landlord and tenants o...