A: The occupation of a commercial property by a tenant can be documented in a number of different ways, including a lease, a licence and a tenancy at will. Each have their own advantages and disadvantages and the option that is most appropriate will depend on the circumstances.
The label given to the document is not decisive and instead the form and substance of the document and the arrangement will determine whether it is a lease, a licence or a tenancy at will. The key features of each are:
| Lease | Licence | Tenancy at Will |
Exclusive Possession | Grants exclusive possession (i.e. the tenant has the right to exclude the landlord and third parties) | Does not grant exclusive possession. The landlord can enter the property at any time, often without notice, and will usually be able to move the tenant to alternative accommodation. | Generally grants exclusive possession. |
Legal Interest | Grants a legal interest in land which can be assigned. Will not end if the landlord’s interest is sold. May be registerable at Land Registry. | Personal right that does not create a legal interest in land. Cannot be assigned and will end if the licensor’s interest is sold. | Grants an interest in land similar to a lease. However, it is personal and cannot be assigned. Will end if the landlord’s interest is sold. |
Term | Granted for a fixed term, although the term may continue beyond this if the lease has security of tenure under the 1954 Act. May include a break clause to terminate the lease early. | Can be granted for a fixed term but generally terminable on short notice. | Can be terminated at any time by either party without notice. |
Rent | Granted for an agreed rent. | Licence fee may be payable. | Should not require the payment of regular rent as this may indicate a periodic tenancy which cannot be terminated without notice. |
1954 Act | Parties can agree that the lease is outside of the security of tenure provisions under the 1954 Act by contracting out the lease.
| Falls outside the scope of the 1954 Act unless the licence is found to be a lease. A licence can be contracted out of the 1954 Act to avoid any disputes. | Falls outside the scope of the 1954 Act unless it is considered a periodic tenancy or is in place for too long. It is advisable to only use a tenancy at will for short periods of time. |
SDLT | SDLT may be payable. | SDLT will not be payable. |
SDLT will not be payable.
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Our real estate team can assist with the drafting of a lease, licence or a tenancy at will and advise on the advantages and disadvantages of each in a particular situation. Our real estate disputes team can also assist with any disputes arising as a result of how a tenant’s occupation has been documented, for example, advising on whether security of tenure under the 1954 Act has been acquired.
Daryl Rivero
Hannah Bristow