Lease or licence - which is right for me?

Last updated: December 2020 | 5 min read
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This article has been written to help you choose whether you need a lease or a licence. Broadly speaking, the answer is that it is safer to go with the lease document, and not be put off by the increased about of regulation there is compared to a licence. The reason for this is that even if you choose a licence agreement because you think it’s a better option, what you decide doesn’t really matter – it’s what the court decides that counts.

Baring that in mind all property transactions are subject to a huge amount of statutory regulation. Most regulation is there to protect tenants.

What is the difference?

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, rather than a short term one.

Quick guide: Lease

Example one: If someone occupies your property as a holiday home, they are not protected by the laws regarding leases. However, if they sell their property and come to live in your holiday home, they are protected under lease agreement legislation!

Example two: If you let your land to a farmer, he is protected. If you let it to your neighbour to graze her goats, she is not protected. Each situation is unique. All the circumstances surrounding the parties’ situation have an impact on whether a court will decide in favour of a lease or licence.

Quick guide: Licence

The situation is very informal if the situation is governed by a licence. A lease provides “an interest in land”; a licence does not. With a licence, the property owner is effectively saying “OK, I’d like you to occupy my property for a while, but I can interrupt at any time and ask you to leave.” Very simply, the advantage to a property owner, of using a licence is that in most 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.

If an issue about a licence comes to court, the judge is more likely to treat it as a lease and so giving the protection to you licensee that he would have if he was a tenant. 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?

Many hundreds of cases are debated in court every year on matters relating to landlord and tenant disputes. Of course there are some general ideas as to when you should use a lease and when a licence. Net Lawman 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 agreements, but only for situations where the circumstances are “cast iron” in favouring the interpretation of licence.

The label the parties put on the document is a factor, however, 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 very braodly:

The following situations are better catered for in a lease:

  • Where there is a written agreement setting out the terms of occupation
  • Where the area of occupation is precisely defined;
  • Where the occupier enjoys exclusive occupation - it is not shared (except with other tenants)
  • Where there are no services included in the money paid for occupation – however, they could be added separately;
  • The money paid does not cover ‘additional’ property outgoings too.
  • The property owner cannot terminate the occupation on very short notice
  • Broadly speaking, the occupier is in a position to say what goes on in the property.

The following situations are better catered for in a license:

  • Where the landlord has not set up the arrangement with a view to avoiding the obligations he would have if the arrangement was a lease;
  • Where the area of occupation is not be precisely defined
  • Where the occupier shares some or all of the occupation, most probably with the landlord;
  • Some services are included, possibly - council rates, electricity or clothes washing!
  • Where furniture, fixtures and fittings are included;
  • Where 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.
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