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LICENCE TO OCCUPY -VS- LEASE/TENANCY?

license to occupy or lease/tenancy

A template licence to occupy has recently been published by the British Property Federation for those who require occupying new premises on a short-term basis, amid increase of demands by the NHS and associated organisations to “help fight against COVID-19”. The template is very useful, and it is for general use (not limited to medical-related uses.)

If you are thinking about using the template or any other “licence to occupy” sample format, it is vitally important that you understand that a licence is not the same as a lease/ tenancy, and you need to ensure that all the parties are clear as to the exact terms of the licence and not to create any tenancy.

Q: What is a “licence to occupy”?

A licence to occupy is permission to allow occupation. It offers a licensee (who is permitted under an agreement) an easy-in easy-out access to the premises without the need to follow statutory procedures. Unlike a lease/ tenancy, a licence would not generally enjoy statutory protection such as the security of tenure (the right to stay on in the premises after the expiry of the contractual term).

Q: How a licence to occupy different from a lease/tenancy?

If the agreement is a licence to occupy, it would be relatively easier for the property owner to evict the occupier from the premises at the end of the term. If it is a lease/ tenancy, it is much less so.

The current case law says that the hallmarks of a tenancy are: –

  1. exclusive possession;
  2. of defined premises;
  3. for a term which is certain (either fixed term or periodic tenancy)

For commercial property, a lease will give a business occupier valuable rights under the Landlord and Tenant Act 1954 (“LTA 1954”). A licence to occupy will not benefit from them.

Q: What are the plus points of having a licence to occupy?

A licence to occupy is a quick way of occupying the premises. If you need the premises only on a temporary basis and need to occupy them as soon as possible, you might like to opt for a licence, rather than a lease. This is why a licence to occupy is often used, as a temporary agreement, when the parties wish to let the prospective tenant to begin trading or to carry out fit out works before completing a lease.

A licence to occupy may also be appropriate, where there will be no defined premises – for example, the use of hot desks in an office, or the location of kiosk within a shopping centre.

Q: What do we have to be mindful of in agreeing a licence to occupy?

The particular expression or terminology used in the agreement is not sufficient to determine what is a licence and what is a lease. The court will look at the parties’ intentions, their conduct, and the circumstances. Even the agreement clearly states it is a “licence”, and/or the parties did intend it to be a “licence” at the outset, it might be interpreted as a lease/ tenancy and the occupier to acquire statutory protections accordingly.

Where it is possible, the property owner should retain the right to move the licensee around within the area identified by the licence, so that there will be no particular area demised to the licensee as its own.

There are more issues you should note in granting a licence to occupy.

We would be very happy to discuss and assist you in respect of your commercial property issues – whether it is to review or prepare or advise on your licence, lease and/or other documents. Please feel free to drop me a line at mayumi.hawkes@cognitivelaw.co.uk

Mayumi Hawkes