Commercial Property News

Short term occupation: Lease, Licence or a Tenancies at will.


Short term occupation can be documented by either a lease, a licence to occupy or a tenancy at will. There are significant differences between these types of arrangements, some advantages and disadvantages of using each type, and also potential consequences if the wrong type of arrangement is used.

Lease

The key feature of a lease is that of exclusive possession, so that the tenant is able to exclude both the landlord and third parties from the property. When the contractual term of a lease ends, the tenant may be able to acquire security of tenure under Part II of the Landlord and Tenant Act 1954 (“LTA 1954”) which gives the tenant statutory rights remain in occupation and a right to renew the lease at the end of the term, unless the LTA 1954 has been excluded. Where a landowner and occupier are considering an arrangement for a long period of time (i.e. more than six months) and the occupier is going to have exclusive possession, a lease would be used. The advantages of a lease are that the Landlord potentially has a guaranteed period of income, whilst the tenant has a degree of security that they can exclusively possess a property for a fixed period of time. The potential disadvantages of using a lease is that it is usually a longer document than a licence to occupy or a tenancy at will, as a result more time and money is generally incurred negotiating the lease. In addition, the tenant may need to pay stamp duty depending on the length of the lease term and the rent payable.

Licence to occupy

A licence is a personal arrangement whereby the landowner (licensor) gives an occupier (licensee) use of the licensor’s property. The permission prevents the licensee from committing a trespass. A true licence to occupy does not grant the licensee exclusive possession, so that the licensor can freely enter his property or insist that the licensee occupies a different area of the property. A licence to occupy can be used where the occupier will not have exclusive possession of property, for example a concession within a department store. The advantages of using a licence to occupy is that the licensor has a potentially guaranteed source of income and that the licensee can occupy for a period of time even though it is a flexible arrangement. In addition, a true licence will fall outside the scope of the LTA 1954 and therefore the licensee will not have security of tenure. The disadvantages for the occupier is that their occupation is not an interest in land and will end in the event that the licensor disposes of its property. A pitfall for the landowner is that if in reality the occupier has exclusive possession of the property (despite the document being labelled a “licence”) the landowner will have granted a lease, which may fall within the security of tenure provisions under the LTA 1954.

Tenancy at will

A tenancy at will can be terminated by either party on immediate notice at any time without the requirement of a reason. Any provisions in a tenancy at will requiring a party to give a period of notice to end the tenancy is likely to invalidate it, the consequences of which are that the document may be construed as a periodic tenancy, which may have the protection of the LTA 1954. A tenancy at will is a personal arrangement and does not create any interest in land that can be assigned, but does provide the tenant with exclusive possession. A tenancy at will is a suitable arrangement where the parties wish to retain flexibility and neither party wants to commit to a minimum period of occupation. It is also usually a short document that can be quickly put in place. The disadvantages are that the tenant has no certainty that they can remain in occupation, as the tenancy can be terminated immediately at any time, and the landlord does not have a guaranteed rental income.

Myerson Solicitors can advise on all aspects of Commercial Property matters and are the premier commercial property solicitors in Cheshire and South Manchester. If you want to discuss a potential commercial property matter then please contact our commercial property team on 0161 941 4000 or alternatively you can use the enquiry form found on the right of this page. 

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