I have recently been asked by a commercial tenant, and not for the first time, do I have a lease or a licence? One might imagine that the document in which the details are set out would be very explicit. It is not always that simple. Just because the office, workshop, car park or sheep field you use has a document which says “licence” on it, it does not follow that it is a licence. Just because you call your cat “dog” does not change the fact that it is still a cat. The answer to the question lies not in the title, but elsewhere within. That is assuming you have a document: the commercial tenant who prompted this article had no contract and neither did their landlord.
What is a licence?
A licence grants permission to carry out some activity at the licensor’s property. It comprises a personal right or permission. It offers no legal or equitable property rights other than the right of use. It does not create an estate in land, does not offer exclusivity and would end if the owner sold the property. Examples of where a licence to occupy may be encountered include:
• As a concession in a department store
• A market stall
• A car parking space
• Sheep grazing
The licence document will often include a clause that limits exclusivity. For example, it might allocate parking space number 10 but go on to say, “or any other space as the owner sees fit”. It might limit the grazing of the field to, say, between April and October. For a store concession it may limit access to certain hours or days. In the first example, the owner can move you as they see fit to another parking space. In the second, the landowner can stop you grazing at the end of the season. In the last example, the shop owner can lock you out of the premises. None of these limitations would be present in a lease.
What is a lease?
There are three elements that need to be in place to determine if a lease exists. These were set out in Street v Mountford [1985] AC 809 and are that a person has been granted exclusive possession of land for a term of time at an amount of rent. As a principle, if one of these elements is missing, the position of the occupier is unlikely to be that of a tenant holding a lease. Let’s look at each of these in reverse order:
Rent
The presence of rent is usually a matter of fact. Either rent is paid, or it is not. The amount paid is not necessarily correlated to type of occupation. A leaseholder could pay a peppercorn rent. A licensee could pay more than a market rent. What can be important as we will see below, is the frequency of payment when it comes to determining some types of lease.
Term of time
The term of the lease must be a period of time less than that of any tenure held by the landlord. It must also be of a duration that is certain or capable of ascertainment. Of the main types of tenancy, certainty of term can be described as follows:
1. A fixed term tenancy is of certain duration. It lasts until the term end date, when it will expire by effluxion of time without any need for the landlord to serve notice.
2. A periodic tenancy is one which does not have a specified term, but instead continues until the landlord or the tenant give notice. Periodic tenancies perhaps counter-intuitively, also enjoy the benefit of certainty. Whilst the end date of the lease is not stated and the term does not expire, uncertainty is avoided by the power to terminate based on the period upon which rent is calculated (Prudential Assurance Co Ltd v London Residuary Body [1992] 2 AC 386). In other words, if the rent is paid quarterly, it would suggest a quarterly periodic tenancy.
3. For completeness, I include a tenancy at will. This exists where there is an invalid lease because of uncertainty of term but where there is exclusive occupation. It is often applied to a tenant whose lease has expired but they remain in occupation. The court is likely to infer a periodic tenancy where rent has been paid.
Exclusive possession
A person has exclusive possession if they can exclude everyone else, including the landlord, from the property. In reality, a tenant can only exclude the landlord up to a point. The landlord usually reserves certain entry rights (with or without notice) in any lease.
In the grazing example, the shepherd cannot use the land during the winter and thus has no exclusive possession, even though their possession may be exclusive during the grazing season. In the parking space example, the user can find themselves moved to space number 1 instead of 10 at any time, clearly not exclusive use even though while they occupy a space, it is exclusively for their use.
The right to renew
Under the Landlord and Tenant Act 1954, a business tenant occupying premises for its business generally has a statutory right to renew its tenancy at the end of the term. The landlord can only oppose renewal on certain limited grounds. Of course, there are exceptions which I will not go into here. Consequently, this could make a licence or a tenancy attractive depending on whether you are a landlord or a tenant and depending on what you want to do with the property.
This is a comprehensive area of law; this note is but a brief overview. As one might expect I have not covered every eventuality and have made some generalisations. If you require advice or assistance with a lease (or is it a licence?) dispute, do not hesitate to contact clerks@becket-chambers.co.uk.
