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Lease or Licence – Why You Should Care

Gavin Whitney, Partner and Katherine Tweed Associate in the property department at Fladgate LLP, comment

The two terms ‘lease’ and ‘licence’ are bandied around and often used interchangeably. Knowing the difference is the key to avoiding lengthy, costly proceedings which go hand in hand with any dispute.

It is common for heads of terms to refer to a licence when the agreed terms would actually be construed as a lease. Case law has taught us that labelling a document as a licence will not necessarily mean that it is a licence; if certain elements (e.g. exclusive possession) are present then the document will technically be a lease, with all that that entails.

What is the difference?
 “A lease gives a tenant an interest in land for a set period of time, usually in return for payment of rent, and allows the tenant to exercise rights as an owner of that land. A licence, on the other hand, is a personal right or authorisation to occupy the owner’s (or licensor’s) property; without the consent of the licensor the licensee’s occupation would amount to trespass. Generally speaking, it is considered best to have an interest in land (i.e. a lease) rather than a mere personal interest (i.e. a licence).”

Why should you care?
The Landlord and Tenant Act 1954 sets out how an occupier of commercial premises can obtain security of tenure, i.e. an automatic right of renewal on the same terms as the previous tenancy and an automatic right to remain at the end of the term. A licence will not give the licensee security of tenure whereas, as a rule, a lease of more than six months will grant the tenant these rights. Importantly, a tenant’s occupancy rights are not affected by a change in ownership of the landlord’s premises, whereas a licensee would not have any rights against a new owner of the land unless the previous owner had sold the land subject to their licence (something they are not obliged to do).

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