There are certain ways in which a tenant may occupy a property; either by lease, licence or a tenancy at will. But how do you tell the difference and why does it matter how the property is occupied? This article provides an overview on the key features and differences between these types of occupation and how their differences can affect your interest, whether you are a tenant or a landlord.
A lease is a legal contractual arrangement which also creates a legal interest in the land.
The contractual arrangement is between the lessee (tenant) and the lessor (landlord) in which the lessee agrees to pay the lessor rent for a fixed term for exclusive possession of the property.
A key feature to determine the existence of a lease is whether the tenant has exclusive possession of the property. Exclusive possession is identified by the tenant being able to exclude both the landlord and third parties from the land. An example of this would be that the doors are locked, the landlord does not retain a set of keys and the landlord and/or third parties cannot enter the property without the tenant’s permission.
The existence of a lease is not determinative by its label. Even if the document or oral agreement is labelled as a ‘lease’ this does not render the occupation to be that of a lease. The questions to ask yourself are:
- Is the tenant paying rent?
- Is the agreement for a fixed term?
- Does the tenant have exclusive possession?
If the answers to the above are yes, you are most likely to be occupying under a lease. If you are occupying under a lease whether it be residential or commercial the landlord will need to follow certain procedures to bring a lease to an end.
A licence does not create a legal interest in the land. A licence is simply permission given by the licensor (legal owner of the estate in land) to the licensee, for the licensee to do something on the licensor’s land.
As with a lease, even if a document is labelled ‘licence’, this does not mean that the occupation is that of a licence. The distinguishing feature of whether your occupation operates as lease or a licence, is whether the tenant has exclusive possession of the property. If the tenant does not have exclusive possession of the property, the occupation is likely to be that of a licence.
Examples of there not being exclusive possession:
- If the licensor is able to enter freely on to the land without the tenant’s permission;
- if the licensor retains a set of keys and regularly uses those keys to enter on to the land;
- If the landlord is able to move the tenant to different premises easily.
To bring a licence to an end, a notice to quit is all that is usually required.
A licence needs to be carefully drafted; if the terms of the licence, when operating, actually constitute a lease, the courts will treat the intended licence to be that of a lease. This creates danger, for example a commercial tenant’s may earn protection of the Landlord and Tenant Act 1954 which provides security of tenure to business tenancies, granting them right for their lease to continue following expiry of the contract and a right to request a new lease on the same terms.
Tenancy at Will
A tenancy at will is an arrangement between the landlord and tenant which can be terminated any time by either party and which does not create a legal interest in land. Tenancies at will by their nature, are generally used on a very short-term basis, usually when negotiations for a lease are on-going between the parties but the tenant needs to take up occupation immediately.
Tenancies at will also need to be carefully drafted, as what was intended as a tenancy at will, may instead be held to be a periodical tenancy which requires longer notice periods and procedures for termination.
If you require any help or assistance, whether you are a landlord or a tenant please do not hesitate to contact Danielle Dyer, a Solicitor in this firm’s Dispute Resolution Department.
This article is not a definitive statement of the law. It is designed as a free update on the law at the time of publishing. It is not a substitute for legal advice on specific facts and circumstances. BakerLaw LLP and/or the writer accepts no liability or responsibility for reliance on this article and recommends that you seek independent legal advice on your specific circumstances prior to taking any steps.