Paralegal, June 2018

A Licence to Occupy represents a personal agreement between the landowner (the Licensor) and the occupier (the Licensee). It does not provide the Licensee with a legal interest in the land, rather, it allows the Licensee to have non-exclusive possession of the premises for a short period of time. The concept of non-exclusive possession means the Licensor may also occupy the premises, or, in the alternative, grant further licences to different occupiers.

Examples of where a licence to occupy property may be used include:

* Between a prospective landlord and tenant between exchange of an agreement of lease and the grant of a lease.

* Between a seller and buyer during the period between exchange and completion of a sale contract.

A Licence to Occupy is considered a less formal document than a lease. It can be prepared and completed more quickly and, therefore, is also cheaper. Further, the licence will not generally confer the right of security of tenure under Part II of the Landlord and Tenant Act 1954. This affords the Licensor greater protection and ensures the Licensee cannot remain on the premises following the contractual expiry date.

However, for the Licensor to enjoy these benefits, the key terms and provisions of the licence must be correctly drafted and must be carried through ‘on the ground’ i.e. actually reflected in the day to day arrangements between the Licensor and the Licensee. This is because a licence is not a licence simply because it calls itself a licence. This is a question of substance.

As established in the case Street v Mountford, the main characteristics of a lease are: that it grants exclusive possession to the occupier; is for a fixed term; and it reserves rent. Subsequently, a Licensor must ensure that the licence does not import these features into a licence; otherwise the Courts may hold that the document is a lease.

As noted above, it is of the essence of a Licensor/Licensee relationship that the Licensee does not have exclusive possession of the premises for a defined period of time. Exclusive possession is the right to exclude all others, including the owner. A tenant has exclusive possession, but a Licensee does not.

The danger with a poorly drafted licence is that the Licensor may have unintentionally granted a lease. This exposes the Licensor to a claim that the Licensee has ‘security of tenure’ under Part II of the Landlord and Tenant Act 1954; a statutory right to renew occupation to which the Licensor has very limited grounds to oppose.

There are good reasons for using licences, and they may be a pragmatic solution. That said, great care should always be taken to avoid unintended consequences.

If you have any questions about the matters arising in this note or seek assistance from one of our property law experts, then please do not hesitate to get in touch with us.