When is a tenant not a tenant?

Arsalan Hussain, Paralegal specialising in Commercial Property at CA member firm, Blacks Solicitors LLP, looks at leases, licenses to occupy and the tenancy at will.

Commercial property owners are often faced with a dilemma, whether to grant access to a tenant on a short term basis whilst a lease is agreed or whether to hold out and insist that the lease is completed. It is important that landowners/tenants are aware of the implications of agreeing early access to a Tenant, and what would happen if, for example, the terms of a lease not be agreed and the Landlord wishes to regain occupation.

What is a Lease?

A Lease is a document which grants exclusive possession of land to a Tenant for a specific length of time. The length of time cannot exceed the period the Landlord has it for, e.g. if they have a lease on the land themselves the lease to the Tenant cannot exceed this. If the Landlord owns the freehold title, they can lease it for however long they want. Usually the maximum term is 999 years in residential leases (e.g. flats). It is common in today’s market for commercial property leases to have a term of 3-5 years.

One of the key distinctive features that separate a lease from either a license or tenancy at will is exclusive possession of a specified area. In a licence or tenancy at will, the area can be changed by the Landlord.

What is a License to Occupy?

A license is a permission from a land owner to a licensee to be on someone else’s land for a period of time.  This is a personal right given to the licensee but will grant them the protection that a lease does.

A license is usually given to the licensee where for an example, in a residential conveyancing matter, if there is a chain who cannot agree exchange/completion dates, and one party could grant a license to the other a licence to occupy the property until completion. This usually happens to “fill in” the gaps in the chain and prevent chains collapsing. Similar situation can occur in a commercial property leases, whereby for commercial purposes, the Landlord grants a license for the tenant to occupy and start trading (if this is agree) pending completion of the lease.

Landlords must be aware that merely calling a document a Licence will not itself make it one. If the matter went to Court, judges will not shy away from looking at the actions of each party to determine whether the document is a licence or a lease. If the Courts determine that the actions of the parties constitute a lease, the Tenant will get protection and the Landlord will find it difficult to get them out should they want possession. The courts will look at whether:

1. The license gives exclusive possession of a specific area to the licensee;
2. For a fixed period of time of no more than 6 months, and
3. Reserves rent.

What is a Tenancy at Will?

A Tenancy at Will is a document that will grant access to a property for a short period of time (usually up to a month), where either party can terminate the same at any time on short notice.

A Tenancy at Will will not grant any security to the Tenant and is only used where both parties want to be able to get out of it quickly.

Our Advice

It is important that Landlords or Tenants seek legal advice prior to signing up to any of these agreements to make sure that they are aware of their rights. A license or tenancy at will is usually the cheapest option but not always the most ‘cheerful’.