Licence to occupy

You may want to allow a third party to share your business premises yet ensure you’re not stuck with someone that you can’t easily get rid of.
A licence may be the answer and give you
the best of both worlds.

Licence

The beauty of a licence is that it’s not a tenancy and therefore the Landlord and Tenant 1954 (“the Act”) doesn’t apply. This means that if you give someone a licence, they don’t have security of tenure and can be asked to leave just by service a notice to quit.

Caution

If it were this simple to avoid the effects of the Act, every landlord would issue a licence instead and not bother with a lease. In fact, the courts are fully aware of every trick in the book, and a licence only works if it’s a genuine licence and is not simply used as a device to avoid the Act, e.g. labelling a lease as a licence when in reality the agreement has all the characteristics of a lease.

Advice

The basic difference between a lease and a licence is that there’s no right to “exclusive possession” with a licence. This is the key test, and it means that the occupier has the right at all times to exclude everyone, including the landlord.

Tip 1

The concept of “exclusive possession” is a difficult one to understand, therefore there’s a lot of scope for getting things wrong and in reality, accidentally creating a lease when you meant to grant a licence. If you’re in any doubt, and don’t want a protected tenant on your hands, either grant a short lease of less than six months duration which contains no right to renew, or grant a longer lease but make sure the Act is excluded.

Tip 2

In order to minimise the prospect of your licence being construed as a lease, ensure that it’s always possible to change the area that the licensee occupies and also make sure that you don’t include any form of right of entry. In addition, don’t include terms that you’d normally find in a lease, e.g. payment of rent, covenant for quiet enjoyment, forfeiture provisions or covenants for repair or decorations.