A Licence To Occupy - useful or dangerous?

LICENCE TO OCCUPY – USEFUL OR DANGEROUS?

What is a Licence to Occupy?

A Licence to Occupy (Licence) is a personal agreement between a property owner (Licensor) and an occupier (Licensee). Under a Licence the Licensor provides the Licensee with the non-exclusive possession of a property for a period of time, typically 6 or 12 months. In return the Licensee pays the Licensor a licence fee.

Benefits from the Licensor’s perspective

1.   A Licence tends to be quicker and easier to complete than a lease.

2.   A Licence merely provides the Licensee with the non-exclusive possession of a property. This means that the Licensor can also occupy the same property or grant further Licences to other Licensees for the same property. Leases by comparison provide tenants with exclusive possession of a property allowing the tenant to exclude all others from that property, including the landlord.

3.   A Licence doesn’t provide the Licensee with the security of tenure protection afforded by the Landlord and Tenant Act 1954 which, unless expressly excluded, is by default provided to tenants of leases. Security of tenure provides tenants with two very significant rights; 1) the right to remain in their property even after their lease has expired (on the same terms as their expired lease) until such time as they are evicted via the courts and; 2) the right to demand a new lease to which a landlord has very limited grounds to oppose. In the absence of security of tenure a Licensee can be evicted much more quickly and at less cost.

Dangers

Simply calling an agreement a Licence will not be enough. A court will always look at the substance of an arrangement rather than at what the document is called or the language used within it to determine the nature of the legal relationship between the parties. If the circumstances evidence that, in reality, the occupier has exclusive possession of the property the Licence will be deemed to be a lease. This is so regardless of the fact that the document uses Licence terminology. In the case of any Licence for a period of more than 6 months which is actually a lease there is a further risk that the occupier will be occupying the property under a lease with security of tenure protection. In such a case a property owner will find it much more difficult, time consuming and costly to evict the occupier.

Conclusion

Licences should be used with caution. They carry an inherent risk of being deemed to be a lease. To combat this Licensors should ensure they appropriately document the Licence agreement and at all times during the life of the Licence act as a Licensor and not a landlord. Alternatively a property owner could, in the right circumstances, instead of granting a Licence, either; 1) grant an occupier a lease which expressly excludes the security of tenure protection or 2) grant an occupier a Tenancy at Will.

Should you need expert legal advice regarding any of the above or indeed any other property law matters, please contact Joseph Seyed Hossein at joseph.hossein@fieldingsporter.co.uk or telephone the office nearest to you.

The contents of this article are for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.