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Owners (landlords) of commercial premises sometimes want to let to a tenant on a short term basis, but may be worried about creating a long-term arrangement, which would mean that the tenant cannot be removed if the landlord wants it.
Basically, there are three ways to do that which comply with the law and protect the landlords interest. The most common two methods are a lease and a licence. The third, less common option it to create a tenancy-at-will.
In what ways are leases and licenses similar?
A lease and a licence are both types of a contractual agreement between the lessor or licensor and the lessee/tenant or licensee. This contract binds both parties to the terms of the agreement.
Leases and licenses grant permission for using someone else’s land or properties for specific periods of time. They may cover a long period of time, but eventually terminate. Each has different provisions and includes a differing relationship between property user and property owner.
When do I need a lease, and when is it better to have a licence?
In short, leases provide more flexibility, allowing tenants full use of property. The advantage of a license is to let occupants use land or property only for specific purposes.
Leases and licenses also differ in their length of duration and permanency.
What is a lease?
In leases, a relationship exists between the user, usually known as the tenant or renter, and the landowner. A lease permits exclusive use, solely to the tenant, for a set period of time. The tenant assumes control over the property during that time, and pays for expenses associated with living on and maintaining the property.
At a minimum, lease contract last 30 days, although many extend beyond that time. Leases can be transferred and owners may revoke them.
- A Lease is a transfer of right to exclusive possession of that property by the landlord to the tenant, made for a certain term in consideration of a fee laid out in the lease agreement.
- A lease creates an interest in the land, which can be transferred to the lessee for the period of the lease.
- A lease can be transferred (assigned) to another party and, if registered on the title, this is binding on a new owner of the land.
- A lease is not revocable (other than subject to any conditions set out in the lease (e.g. a redevelopment clause).
What is a licence?
Licenses offer both landlord and tenant a high degree of flexibility.
Ben Cobb, Commercial Property Solicitor explains “As an example, a licence can be highly beneficial to start-up businesses as they don’t commit the tenant to a long-term lease. This is obviously useful if their future requirements, in terms of activity levels and space needs, are uncertain. Licenses are the most effective solution for both parties in this situation with serviced workshops and offices.”
The advantages of a licence to a landlord
The advantages of a licence for a landlord and tenant are that licences cover a relatively short period of time, usually up to six months, whereas leases usually run for some or many years and can have onerous conditions.
Most licences give both the landlord and tenant the right to terminate the agreement when required with a typical notice period being one tenancy term (rent period) or 28 days.
The license agreement is straightforward and does not need a solicitor to prepare each time, as is the case with a complex lease, and is therefore inexpensive to set up. Both parties sign a standard agreement, which gives the landlord the right to enter the premises at any time and the tenant has no right to renew the licence once it has expired.
In contrast to leases, licenses do not transfer and owners never revoke them.
Exclusive possession and control
There are two crucial distinctions between a license or a lease/tenancy. The terms “exclusive possession” and “control”.
A tenant in a lease can exclude all others, including the landlord.
On the other hand, licenses do not grant tenants full control over the property. A licence is merely a right to occupy, it does not give a tenant the right to exclude the landlord. In fact, the landlord should ensure that this is never the case, otherwise a tenancy could be created by default.
Tenancy at will
A tenancy at will is a short, flexible tenancy or license. In most respects, it is more like a licence than a tenancy.
A tenancy at will is, from the outset, intended to be short and can be terminated at any time by either party. A tenancy at will is often used as an interim tenancy allowing the parties to negotiate the terms of a longer lease and must not be prolonged.
This is used exclusively for commercial tenancies. They need careful attention to the legal drafting so as not to create a periodic tenancy, which thereby confers security of tenure on the occupier.
Related Content:
- Break clauses in commercial leases - FAQs
- Extending your lease - What's the difference between a non-statutory and statutory procedure?
- Purchasing a flat with a short lease
- Lease extension reforms announced
Commercial Property Solicitors in Bournemouth, Christchurch, Ringwood
If you have any questions, you only have to ask us at Frettens. We offer a free initial consultation for all new clients. This usually takes place over a tea or coffee at our bright, modern offices, or can just as easily be over the phone.
Please call 01202 499255 or fill in the form on this page and Ben or a member of the team will be happy to chat about your situation and your particular requirements.
