Licence agreement for commercial property

There are various reasons why you might not want to offer someone a lease over a property. A licence to occupy land or buildings, unlike a lease, does not convey exlusive right over the property.

licence agreement

A licence to occupy agreement allows you, as the landlord, to charge rent for use of a property without giving up your rights over it. As a result,a licence agreement is usually a far simpler document than a lease.

Stamp duty land tax - licence agreement

Stamp duty land tax (SDLT) is due on the grant of a lease. The amount payable is based on the net present value (NPV), i.e. the value in today’s money of all the rent payable under the lease over its full term. Where the NPV exceeds £150,000 SDLT is due at the rate of 1% of the excess up to £5,000,000 and 2% above that.

If you let your company occupy a property owned by you personally in return for a rent, HMRC could argue that you have granted a lease, even where there is no paperwork to prove that you have done so. If it treats it as a lease, then it could seek to collect the overdue SDLT plus interest and penalties. However, this can be avoided by using a Licence Agreement instead of a lease. A licence cannot be sold or given away, whereas a lease can be assigned to someone else.