Lease or Licence: what is the difference?

By Louise Burgess on

If you grant somebody permission to use your property, you could be granting them an interest in the property itself. There are a number of ways to allow someone to use your property; the most common of which are leases and licences. A licence grants a personal right to use the property or part of the property in a certain way. A lease, on the other hand, is the grant of a right to the exclusive possession of land for a determinable period of time. 

It is important for both parties to understand the type of agreement into which they are entering. Even if a document is drawn up and labelled as a ‘lease’ or a ‘licence’, it does not necessarily mean the courts will interpret the document to be as such. The courts will look behind the document to work out what the parties’ intentions were.

What is a lease?

The leading case of Street v Mountford (1985) helps to distinguish between a lease and a licence:

  • A lease is likely to give the right of exclusive possession
  • A lease is likely to give a fixed term
  • A rent is likely to be payable for a lease

 

A key element of a lease is that it gives the tenant exclusive possession. You have exclusive possession if you can exercise the rights of the landowner and exclude people from the land. This is excepting any rights that the landlord may have under the lease to enter the land to carry out works, for example.

What is a licence?

A licence is permission for someone to do something on another’s property. The permission essentially prevents the permitted act from being a trespass and offers little security to the licensee.

A licence can still attract a rent and be for a fixed term. However, if it purports to grant the licensee exclusive possession, it will be a lease, even if the agreement labels it as a licence.

For example, an agreement is likely to be a lease if it grants a tenant a right to live in a property exclusively whilst paying rent. However, if a landlord gives permission for a friend to live in his property temporarily whilst he is also living there, the agreement is likely to be interpreted as a licence.

Similar problems with interpreting agreements may happen with rights such as the use of a parking space; did the agreement allow a right to park in any parking space within an area or was the right for use of one particular parking space? These are points which the courts would explore when deciding whether there is a lease or a licence in place.

Obligations when creating a lease

When a lease is created, whether for a residential or commercial property, there are significant obligations imposed on both parties. Furthermore, many land owners may wish to avoid creating lease interests as they can be more difficult to end once created. Leases granted for over seven years will be registered at the Land Registry, and noted against the land owner’s property title. This can cause problems if the land owner wishes to sell the land but the tenant has various statutory rights to stay and extend the lease.

Leases will ordinarily grant rights to the landlord to terminate it. Further, granting certain types of lease or tenancy (for example, Assured Shorthold Tenancies) will ensure that a landlord has statutory rights to terminate the agreement. However, the correct procedures must be followed.

If you are a residential or commercial landlord or tenant and wish to discuss a lease or licence, our specialist property teams can help. Call us today on 0800 988 7756.