Lease v Licence
Types of Licences
The terms of the licence are set by the contract. A key issue is whether the licence is revocable. Generally, the person granting the licence can terminate or revoke it.
The licence holder’s rights would be to compensation only. However in certain circumstances, a contract can be specifically enforced by Court Order. See our article on specific performance. In these circumstances, a licence cannot be terminated. In this case, ,the licence may come very close to a tenancy or lease.
Sometimes a Court will impose a licence, because it is just and reasonable. If a person is given to believe that they will be granted certain rights, and he acts to his detriment, (e.g. by incurring expenditure) in reliance, then the Courts may hold that the owner can no longer exercise the right to terminate the licence.
In these cases, the Courts impose an irrevocable licence as a just solution. The circumstances must be exceptional and the order must be proportionate to the injustice that would otherwise occur.
Lease / Licence Distinction
The difference between a licence and a tenancy may be a question of degree. The issue can be of great significance because licences do not qualify for most of the tenant rights, set out in this guide. Accordingly, attempts are sometimes made by a landlord to provide for an arrangement which resembles a lease in substance or in practice, in a document, which labels itself as a licence.
The Courts will look at the reality and substance of the position. The words in the document or labels used will not be definitive. If the arrangement, in substance and in practice has the characteristics of a tenancy, the Courts will deem the relationship to be a tenancy in substance and accord the tenant Landlord and Tenant Act rights.
A true licence creates personal rights only. Generally, the rights will be personal and may not be assigned or transferred. Exclusive possession is of key importance. If the licensee has exclusive possession and can exclude third parties, this will point towards a tenancy or lease.
If the arrangement is revocable at any time, this will point to a licence. Sometimes, a special relationship between the parties will point to there being a licence. The more formal the arrangement, the more likely it is to be deemed a tenancy.
The degree of control retained by the licensor is important. If the licensor can enter the premises at will and the licensee cannot exclude him, this will point to a licence. The Courts look at the totality of the circumstances to determine whether there is a icence. Obligations on the licensee such as to repair, pay rates, etc point to the existence of a tenancy.
Contest of Disputes
There have been cases, where persons have been let into possession of property under an arrangement labelled a licence, but later claim Landlord and Tenant Act rights after the relevant qualification period (usually five years), has expired. A licence may avoid a restriction on sub-letting in a Lease. However, most modern forms of lease prohibit licence on any sharing of possession including licences.
Several disputes have arisen in relation to petrol station arrangements between oil companies and occupiers. In some cases, the arrangement has been determined by the Courts to be a lease / tenancy with consequent tenant rights for renewal, assignment change of use, etc. The Landlord and Tenant Act rights of the types set out in this note.