Look at the true nature of an occupation agreement: Licence or Lease?

The courts are willing to assess the true nature of an occupation agreement regardless of how it describes itself. The trap here is that you may be under the impression that you are granting a licence but the nature of the agreement is more in line with a lease. If that is the case then you may find that you have unwittingly acquired a tenant with security of tenure.

In London College of Business Ltd v Tareem Ltd, London College occupied premises owned by the Tareem Limited. The agreement between them was expressly described as a licence, it referred to the parties as a licensor and licensee, London College paid a licence fee and a fixed a service charge. The court had to consider whether a licence or tenancy was in place between the parties following a dispute over areas.

The court looked at the relevant factors when distinguishing a lease from a licence (i.e. granted exclusive possession, for a term, and at a rent). Even though Tareem tried to rely on the express wording of the agreement to support its view that this was a licence, the court concluded that the terms of the agreement did confer a right of exclusive possession. In addition, Tareem collected a service charge and was able to terminate on 14 days’ notice which seemed more consistent with the terms of the tenancy agreement. In these circumstances it was obvious that the agreement had granted possession to London College so that it could operate as a college from the premises and Tareem had also fitted out the premises to suit its own business requirements. The difficulty here is that because the agreement was considered to be a lease it therefore fell within the Landlord and Tenant Act 1954 and as the agreement had not been contracted out of the 1954 Act London College had acquired security of tenure.

Landlords often grant licences to occupy in an attempt to prevent the tenant from acquiring security of tenure, and this case shows that courts will continue to look at the reality of the arrangement and the intention of the parties.

At Myerson our property team has extensive experience in acting for all parties in connection with licences to occupy and landlord and tenant issues and would be delighted to provide further advice in this area should you require it.  Please call our Commercial Property team on 0161 941 4000 or email us lawyers@myerson.co.uk.

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