Leases and Licences

October 23, 2014

Leases create legal interests in land. They create a contractual relationship between a landlord and tenant, and therefore must satisfy the principles of contract law. ¹ Case law indicates that there should be ;

• An intention to create legal relations;
• The tenant has exclusive possession of the land;
• It is for a fixed or periodic term at rent.

These requirements have also been affirmed by HM Revenue & Customs (HMRC). ² They apply to bothresidential and business premises. ³

Licences, on the other hand, do not confer any legal interests in the land, but are rather personal rights or privileges. This means that they are permissions granted to a licensee to use the licensor’s land for an agreed purpose which, without the permission, would be an act of trespass. This can include the permission to occupy the land. Permission to occupy, however, is different from exclusive possession. A tenant with exclusive possession is usually able to exercise all the rights of an owner (subject to statute/contract) and the landlord often only retains limited rights of access. Occupation does not offer the same degree of security or control over the land. 4

Both leases and licences can be created without a written document. However, the absence of such a document will make it difficult to determine whether the agreement is in fact a licence or a lease. 5 Generally, when looking at agreements the Court will look at the substance of the agreement and disregard any labels assigned to them. The key consideration is exclusive possession, as where there is no exclusive possession the agreement must always be a licence. 6

A further key difference between a lease and a licence is the security of tenure conferred on a business tenant under the Business Tenancies (NI) Order 1996. In Northern Ireland parties cannot contract out of this legislation. Under this Order, and providing the tenancy falls within the ambit of the legislation, the tenant of a lease enjoys certain protections that a licensee does not. Tenants have the right to renew their tenancy agreement at the end of the term if they are occupying the premises for the purposes of business, and there are limited grounds on which the landlord can oppose the renewal. As opposed to this, licensors have muchgreater freedom and flexibility to end their arrangement with the licensee. 7

This Article is for information purposes only and is not to be relied upon without further legal advice. For information please contact Patricia Cronin p.cronin@cfrlaw.co.uk


 

1 <http://uk.practicallaw.com/9-375-8981> accessed on 26 September 2014 2 <http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm24074.htm> accessed on 25 September 2014
3 <http://www.saplaw.co.uk/litigation/articles/licence_lease_use_right_one.asp> accessed 25 September 2014 4 N1
5 N3
6 N2
7 N3