License or Lease – I understand that if I let on a license my tenant has fewer rights under the law. Can I simply call my agreement a license instead of a tenancy agreement?
Landlords would often prefer to let under a license as it does indeed give the tenant fewer rights under the law.
However, this is far from a straightforward issue and there have been many legal cases fought over the distinction between a license and a lease (tenancy agreement).
Property can be occupied but not necessarily “possessed”. The distinction is a subtle and elusive one but nevertheless very important. Occupation of property comes under four main headings in English law: Freehold (owner), Leasehold (tenant), License (authorised occupier) and trespasser (squatter).
A license allows occupation but does not give the occupier legal title in land, as does a tenancy. So, a guest in a hotel has a license to occupy, as does a lodger in a property where the landlord is in occupation, and as does a company which occupies a serviced office or workshop space.
The big advantage to a landlord is that the licensed occupier can be removed (subject to the notice period in any agreement) without too much trouble – they have no legal protection.
Had the occupier been granted a tenancy, then they would have legal protection (security of tenure) either under the Housing Acts (1988 & 1996) for a residential tenancy, or under the Landlord & Tenant Act 1954, in the case of a commercial tenancy.
The crucial distinction between the two – license or tenancy – is the terms “exclusive possession” and “control”. So, where a tenant can exclude all others, including the landlord, he has a tenancy, regardless of what the landlord may title his agreement.
On the other hand, generally, where the landlord can exercise control (usually living on or occupying the same premises, or providing management or cleaning services) and where the tenant cannot exclude all others (lodgers and serviced office occupiers share facilities) then a license situation exists, even if the agreement says tenancy.
In the famous 1985 case (Street v Mountford) the House of Lords held that it is a matter of fact (the situation) that counts, not form (the wording) of the agreement.
So, a landlord granting exclusive possession of premises, or a part thereof (land in legal terms), for a fixed term, will create a tenancy, regardless of what title the parties attach to the agreement.
In the case of residential occupation there’s a peculiar “grey” area of the law sitting somewhere between the lease and the license. This is the situation where a landlord lives in the building but where the occupiers do not share facilities – they have their own.
This is known as an “occupier with basic protection”, someone who does not have the full rights and protection that a tenant would have. Nevertheless, to be certain of being fully lawful when seeking challenged possession, the landlord should apply through the courts for a possession order.
In the case of a commercial tenancy, the landlord has always had the traditional remedy of forfeiture, where a tenant is in breach of his contract. This is so whether lease or license, but great care should be used in applying this remedy – seek legal advice in every case.