Lease or Licence - what is the difference?

A lease or a licence is the most common way of documenting a third party's right to occupy property. Although both a lease and a licence grant a third party the right to occupy property, issues can arise if the incorrect document is used.

What are the main differences between a lease and a licence?

Lease

A key element of a lease is that a lease grants the tenant exclusive possession. A person has exclusive possession if it can exercise the rights of the tenant but can also exclude both the landlord and third parties from the property (save for any rights the landlord may have reserved over the land).

A lease will be for a fixed term (unless any rights to terminate the lease early are agreed between the parties) and a rent is likely to be payable for the duration of the lease.

The benefits of granting a lease (rather than a licence) are:

• If the parties agree to opt out of the provisions of the Landlord and Tenant Act 1954, and the correct procedures are followed, there will be no uncertainty at the end of the lease term as the tenant will not benefit from any statutory right to a renewal. This avoids any potential risk that a tenant could acquire rights to remain on the property as a business tenant and benefit from security of tenure under the Landlord and Tenant Act 1954 (which is essentially a right to remain on the property when the lease has come to an end).
• A lease offers greater security for a landlord as the property will be occupied for the agreed term, the Landlord will be receiving rent for that duration and a lease is not easy to terminate if there are no agreed break rights

Licence

A licence is simply permission for a licensee (the third party) to do something on the licensor's (the landowner) property for a short period of time. A licence does not grant exclusive possession of the property but is a personal right to do something on the licensors property.

The benefits of granting a licence (rather than a lease) are:

• A licence is more suited for short term arrangements
• As a licence is less complex than a lease, a licence can usually be agreed more quickly
• A licence is easier to terminate than a lease, and the licence could include provisions for both parties to terminate the licence at any time during the licence term
• This is more suitable where the occupier is sharing the property with other third parties (and therefore does not have exclusive occupation)
• As no exclusive possession is granted under a licence, the landowner has a right to enter onto the property at any time during the licence term

Issues can arise when a document which is labelled as a licence is put in place but the occupation of the third party is more akin to a lease based on the position 'on the ground'. The occupation could be deemed to be a lease and security of tenure could be inadvertently granted which would allow the Tenant the right to remain in the property after the lease comes to an end. If you are unsure whether to grant a lease or a licence, it is always best to obtain legal advice.

If you would like to know more about the difference between a lease and a licence and how this may impact an occupier of your property, please contact Ela Evans in our Commercial Property team on 0117 3145625, or complete the form below.