Residential tenancy or licence?
Terminology: tenancy or a lease
In law, there is no real difference between a lease and a tenancy. Statutes about residential occupancy tend to use the word "tenancy" and those regulating commercial occupancy use the word "lease". We all follow that usage. So we talk about residential tenancy agreements and business property leases.
This article discusses residential property law. We have a similar article on the difference between a lease and a licence for business property here.
Why it matters
The distinction is ancient. Today it matters because governments try to protect the people they see as the underdog - occupiers of someone else’s property.
Over the last 100 years, a whole mountain of regulations, forms, qualifications, notices, has grown up to protect tenants and prevent a landlord from wriggling out of his “obligations”.
The bottom line is that you can call your deal a licence (or nothing at all), but if it looks like a tenancy, the Court will treat it as a tenancy. So then the landlord has a deal where he has lost his rights, but the tenant has lost none of his.
It is by far best to get it right in the first place.
The difference between a tenancy and a licence
It is largely about the term "exclusive possession". If the house owner says: “Here you can take over my house to occupy it as if it was your own, for just one year and only as long as you stick to my rules”, then you have a tenancy. On the other hand, if the house owner says: “You can come in and out of this house, only on the days I say it is OK, or only when I am not around”, then you have a licence.
From that simple start it has become increasingly complicated. But let us move on to explain the practical effects of this mountain of law.
What deal do you want?
A sensible start is to accept that if you want someone to pay you for living in your house, your deal will almost certainly be a tenancy and not a licence. The law says it is a tenancy unless you can show that it is a licence. The indications for a licence are:
- the agreement itself contains none of the restrictions usual in a tenancy agreement (what you call the document is absolutely irrelevant)
- the licensee does not have "exclusive possession" of any particular space. That is, there is nowhere he can lock the door behind him and be sure he alone has the right to enter.
- the owner maintains the property and probably provides furniture, white goods and fittings
- the owner retains and exercises the right to access any part of the property at any time (the occupier does not have exclusive occupation)
- the occupier may use the property for specific, limited activities
- the owner may cancel the agreement at short notice
- the occupation is for a short period of time - the licence agreement says the licensee must go after say, two weeks
- the landlord lives in the property as his own accommodation at the same time
- the licensee does not live there at all times, but irregularly
- the license fee includes all services. The licensee has no obligation to maintain the premises.
If a conflict arises, the Court will start with the assumption that your deal is a tenancy. It is up to you to prove it is a licence. If you fail, then your problems have begun.
The situation if you accidentally create a tenancy
You have created a common law tenancy, so cannot take advantage of the "assured shorthold tenancy" provisions.
The agreement you have is very limited because you thought it was a mere licence, so you have not provided the usual terms that are normal landlord protection in a tenancy agreement. So your tenant will not be obliged to undertake repairs or comply with any other obligations. He will have to wreck the place before you can get him out.
You cannot get your tenant and you cannot increase the rent out without tedious means that are likely to involve legal help with a system designed long, long ago.
So when can I safely use a licence agreement?
Even that simple question cannot be answered with complete accuracy, but you are safe with:
- a lodger in your home (see our agreements here)
- hostel type services
- holiday accommodation where the occupier has another home and firmly intends to return, preferably within say, 12 weeks.
That means you need an assured shorthold tenancy agreement for everything else, including accommodation where some rooms are shared but each resident has his or her own room with a lock.
What about student accommodation?
Landlords assume that because a student has exclusive possession only of a bedroom, the fact that other facilities are shared must make him a licensee. In some cases that may be true, in other circumstances it will not. Do not risk it. Use an assured shorthold tenancy agreement and put all the tenants on the one document together.
If you let individual rooms, that is a difficult call. It depends on the actual arrangement, but the Court has tended in recent years to prefer an AST - so should you. That means there are no circumstances where you can use a licence agreement safely for student accommodation. We have a longer article about how best to let a room that provides a fuller explanation.
You can find documents for both these situations and general tenancies here.
As a passing comment, do always bring into the agreement all of the people who will occupy your property. That will make them all liable together for rent and compliance with the terms.
Please note that the information provided on this page:
- Does not provide a complete or authoritative statement of the law;
- Does not constitute legal advice by Net Lawman;
- Does not create a contractual relationship;
- Does not form part of any other advice, whether paid or free.
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