Lease or licence – which do I need?
Introduction
All property transactions are subject to a very large amount of statutory regulation. Most regulation is designed to protect tenants. This article explains the law that you must be aware of when deciding which agreement best suits your needs.
The law protects only tenants of business property and tenants of residential property
Lease: Here are two examples of leases: If someone occupies your house as a holiday home, they are not protected by the legislation regarding leases. However, if they sell their house and come to live in your holiday home, they are protected under the lease agreement legislation! Similarly, if you let your land to a farmer, he is protected. If you let it to your neighbour to graze her horse, she is not protected. As you can see, each situation is unique. An arrangement whereby I allow you into possession of my property in exchange for a rent payment is, on the face of it, a lease or tenancy agreement (these words mean much the same thing). A lease constitutes a continuing agreement, not a short term one.
License: Outside of regulations, the situation is very informal. Such an arrangement is called a licence. A lease creates “an interest in land”; a license does not. With a license, the property owner is effectively saying “OK, you can occupy my property for a while, but I can interrupt at any time and ask you to leave.” To a property owner, the advantage of a license is that in certain circumstances, it is easier to exercise control. The disadvantage is that if the arrangement is to stay outside the regulated environment, it must not be dressed in the clothes of a lease. That is to say: if an issue about a licence comes to court, the judge will “prefer” treating it as a lease and so giving the protection to you licensee that he would have if he was a tenant. So, if you want your deal to be a licence, not a lease, you have to make sure you do not accidentally add terms, or even phrases, usually found in a lease.
Still confused?
Literally thousands of cases pass through the courts every year on matters relating to landlord and tenant disputes. It is hardly surprising that some general ideas have evolved as to when you should use a lease and when a licence. Net Lawman does not see it as part of their task to involve you in litigation - on the contrary, we try to keep you as far away from court as possible. All our documents are set up for a safe scenario. We do supply licence forms, but only for situations where the circumstance are “cast iron” in favouring the interpretation of licence.
While the label the parties put on the document is a factor, it is by no means conclusive. What matters is whether the terms of the transaction are characteristic of a license or of a lease. Unfortunately, there are no set rules. The court will look at each case separately, so just very roughly:
These indicators point to a lease:
- There is a written agreement setting out the terms of occupation
- The area of occupation is precisely defined;
- The occupier enjoys exclusive occupation - it is not shared (except with other tenants)
- There are no services included in the money paid for occupation - but they might be stated as a separate item;
- The money paid does not cover a host of property outgoings too.
- The property owner cannot terminate the occupation on very short notice?
- In the round, and subject to the terms of the arrangement, the occupier is in a position to say what goes on in the property.
These indicators point to a licence:
- The landlord has not set up the arrangement with a view to avoiding the obligations he would have if the arrangement was a lease;
- The area of occupation may not be precisely defined?
- The occupier shares some or all of the occupation, probably with the landlord;
- Some services are included in the licence fee - Council tax, electricity or ironing!
- Furniture, fixtures and fittings are included in the deal;
- The owner can terminate the occupation on little or no notice;
Which do I need?
If your situation is any of the below, you require a licence:
- a multi-let office building with shared facilities, such as “serviced offices”;
- a lock-up garage;
- a license by you or me to allow our own limited company to occupy a room in our house as an office;
- a license for a lodger to occupy a room in your house;
- a holiday letting - even for several months;
- occupation of land for leisure - such a grazing ponies.
All other applications are safest contracted through a lease document.
Relevant documents:
Here is our selection of commercial property documents.
Here is our selection of residential property documents.
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