- Lease
- Licence
- A Tenancy at Will
A lease grants to the occupier an interest in land. A licence does not. A licence is just a personal right. If a tenant has exclusive possession under a lease of land then he is able to exercise the rights of an owner of that land. A licensee who does not have exclusive possession cannot call the land his own. It is just a permission. A tenancy at will is a flexible form of tenancy and it is sometimes difficult to tell a tenancy at will from a licence. A tenancy at will allows either party to terminate the tenancy at any time. If the landlord wants the property back then possession is to be given back immediately. The tenant will have a reasonable time to vacate the property. Tenancies at will are often used where the parties are negotiating for a lease to be granted for a fixed term and they want to document a short term occupational agreement pending completion of the lease.
Why is the distinction important?
A licence and a tenancy at will, provided that they have been properly drafted, do not confer any security of tenure on the occupier under the Landlord and Tenant Act 1954. Under that Act, a tenant who occupies premises for the purposes of a business generally has statutory rights to renew the tenancy at the end of the term. A landlord can only oppose renewal on certain limited grounds.
There are advantages and disadvantages of each type of arrangement.
- Leases confer a secure period of income for the landlord with certainty that at the end of the term they can regain possession. For the tenant there is a period of security.
- A disadvantage of a lease is that Stamp Duty Land Tax may be payable by the tenant and they are generally longer documents and take more time to negotiate.
- The advantage of a licence from the licensee’s point of view is that they are quick to draw up and give a certain level of security, being determinable on notice. From the landlord’s point of view no security of tenure is granted to the licensee. No Stamp Duty Land Tax is payable.
- The disadvantage of a licence is that if incorrectly drafted, there is a risk for the landlord that the arrangement may be challenged on the basis that it is really a lease conferring security of tenure. From the licensee’s point of view, it will not have the same degree of control over the property as it would if it were granted a lease.
- The advantage of a tenancy at will from the landlord’s point of view is that again, it confers no security of tenure and allows the landlord to retrieve possession immediately. From the tenant’s point of view, it can be drawn up quickly and cheaply, allowing quick access to the property. There is also no Stamp Duty Land Tax payable.
- The disadvantage of a tenancy at will from the tenant’s point of view is that it can be determined instantly so may not offer enough security and certainty for the occupier. From the landlord’s point of view it does not confer a secure period of income and could, if not properly drawn up, be argued by the tenant to be a periodic tenancy.
