Licences and tenancies at will

Lease, licence to occupy or tenancy at will?

Business premises are usually occupied under a lease. However, sometimes it is not appropriate to grant a lease and the parties may wish to use a licence to occupy or a tenancy at will instead.

Licence to occupy

A licence to occupy is similar to a lease in that it has a fixed term. However, a licence is unlike a lease in that it is not an interest in land and a licensee cannot acquire security of tenure.

A licence may be appropriate in the following situations:

• The business is only going to occupy the premises for a short time (say, less than 6 months)
• The parties are in the process of negotiating a lease but the tenant needs to occupy the premises before lease negotiations have been completed
• The landlord is providing serviced office accommodation
• The tenant will not have exclusive occupation of the premises – this might be the case if the occupier has the right to use a “hotdesk” or to use premises only on certain days or between certain hours.

The lease/licence distinction

An arrangement is a lease if the occupier has exclusive possession of premises for a fixed term. Such an arrangement is a lease whether or not the parties call it a lease. It cannot be a licence just because the parties call it a licence.

Beware of granting a “licence” that is really a lease. A court might decide that the licensee is really a tenant who has security of tenure. If there is any doubt as to whether a proposed arrangement will be a lease or a licence, the safest approach is to grant a lease which excludes the tenant’s right to security of tenure.

Tenancy at will

A tenancy at will has no fixed term and can be terminated by either party at any time with immediate effect. It is therefore only suitable for very short term arrangements, for example where:

• The business is only going to occupy the premises for a short time (say, a few weeks or months)
• The parties are in the process of negotiating a lease but the Tenant needs to occupy the premises immediately.

Tenancies at will tend to be very short documents with none of the detailed provisions of a lease or licence. This means that they can be negotiated and signed quickly, and the landlord can receive a rent for an otherwise vacant property.