When it comes to occupying commercial property, three common types of occupational arrangements exist: leases, licences, and tenancies at will. Though often referred to interchangeably, each has distinct legal characteristics and implications, which are explained below.
Lease
A lease is a legally binding contract granting exclusive possession of land or property for a determinable period, usually in exchange for rent. A lease creates a proprietary interest in the land, meaning the tenant acquires a legal estate that can sometimes be sold, assigned, or even inherited. Commercial leases may offer statutory protection under the Landlord and Tenant Act 1954, enabling tenants to remain in occupation after the lease has terminated, unless the lease has been contracted out of these provisions. This is known as ‘security of tenure’.
Licence
A licence is a personal right or permission for a licensee to do something on a licensor’s property. The permission given to the licensee prevents the permitted act from being a trespass. Licences are often used for short-term or informal arrangements, such as co-working spaces.
A true licence does not grant any legal estate and does not provide exclusive possession, meaning the landowner can allow others to use the same land or reserve the right to change the area under licence. Licences are not protected under the Landlord and Tenant Act 1954 and therefore offer less protection for licensees compared to tenants under a lease.
Tenancy at Will
A tenancy at will is a specific type of tenancy where either party may terminate the arrangement at any time, without notice. There is no fixed term, and the arrangement may be express or implied. Tenancies at will cannot be assigned and do not create an estate in land; rather, they are a personal agreement between the landlord and tenant.
Tenancies at will are often used when parties are negotiating the grant of a fixed-term lease and wish to document a short-term occupational arrangement pending completion of the lease, while allowing either party to withdraw if negotiations are unsuccessful.
These arrangements can be particularly risky for landlords if not properly drafted. An intended tenancy at will may inadvertently become a periodic tenancy, which would require much longer notice periods to terminate.
Understanding the differences between leases, licences, and tenancies at will is crucial, especially in commercial property. Each offers different levels of control, flexibility, and legal protection. Before entering into any arrangement, it is important to ensure the agreement reflects your intentions and does not unintentionally grant rights or obligations you did not anticipate.
This is not intended to be a comprehensive overview of the operation of leases, licences, and tenancies at will, but rather a summary of certain key differences to consider.
For further advice or assistance, our expert commercial property team can draft the appropriate documentation to suit your requirements. You can contact us at info@mdlaw.co.uk, call 0114 299 4890, or book a free consultation appointment.
