Landlords and occupiers of a commercial premises may face issues deciding how to occupy a premises on a short-term basis. This article examines the three options available to the parties. These are:
- A lease;
- Licence to Occupy; or
- Tenancy at Will
Leases and Licences are similar as they are both contractual agreements that involve a landlord granting a tenant permission to occupy land or property for a period of time. However, there are a number of important differences, so parties must carefully consider which option is best for them.
A lease is a contractual arrangement where a tenant agrees to pay rent to a landlord for ‘exclusive occupation’ of a property for a fixed term.
A key feature of leases is that tenants benefit from the right to possession of the property, to the exclusion of all others including the landlord during the fixed term except to the extent that the landlord has reserved rights of entry under the lease for example to carry out works. This is the major difference to licences where tenants do not receive ‘exclusive possession’ and landlords may enter the property on reasonable notice.
Leases also create a legal interest in the property which means any sale of the property, during the term is subject to the tenant’s lease. Leases are not revocable (with limited exceptions) but can be transferred by the landlord or tenant to another party.
A licence is where the landlord grants a tenant permission to use the property or land for a specific purpose. For example, permit a tenant to carry out work. A licence may be for a fixed term or ongoing.
Unlike a lease, a licence does not grant the tenant ‘exclusive possession’ of the property. A licence is merely a right to occupy. Leases provide the tenant with more flexibility in terms of their enjoyment of land and any alterations that they may wish to make. Furthermore, licences do not create a legal interest in the land and cannot be assigned to another party.
However, for some landlords and tenants a licence characteristics are beneficial. Licences provide a high degree of flexibility and simplicity. Most licences give both the landlord and tenant the right to terminate the agreement at short notice and have less challenging conditions.
Tenancy at Will
A tenancy at will is a tenancy on terms that either party may determine at any time. It may be expressed or implied and like a licence, it does not create a legal interest. A tenancy at will occurs when a landlord and tenant agree that a tenant may occupy a property. A tenancy at will is personal to the tenant and cannot be assigned.
These arrangements are even more flexible than licences as they may be terminated at any time by either party. They are normally used when a tenant requires immediate access to a property, but negotiations are still taking place for the grant of a lease. It is vital that Landlords ensure that these agreements are drafted correctly to prevent a periodic tenancy from being created which will confer security of tenure.
Leases, Licences and Tenancies at Will are all different and each offers strengths and weaknesses to landlords and tenants. Ultimately, every tenancy is unique and which arrangement is appropriate in one instance may not be in another.
If you would like further information or advice on the above, please contact Nick Attwell in the Commercial Team on 01473 229200 or email Nick.Attwell@attwells.com