The most common factor in distinguishing a lease from a licence is exclusive possession, which refers to the tenant’s right to exclude all others, including the landlord, from the premises for the term of the agreement. In simple terms, if a person has the right to occupy a property without interference from the owner, they are likely to have a lease; if they cannot exclude the owner or share occupation under the terms imposed, the arrangement is more likely to be a licence.
A lease (also called a tenancy for a term certain) creates a proprietary interest in the land. A licence, in contrast, merely grants personal permission to use the premises and does not confer any proprietary right; it can often be terminated in accordance with the terms of the contract, without the vitally important protections afforded to tenants under statutes such as the Landlord and Tenant Act 1954. For a lease to exist, as well as there being exclusive possession, the arrangement must be for a clearly defined term, with both a start and an end date.
Other factors may also be considered when distinguishing a lease from a licence, including the payment of rent, the degree of control retained by the property owner, and whether services or facilities are provided. For instance, even if rent is paid or certain services are provided, a court will still treat an agreement as a licence if the occupier cannot exercise exclusive control over the premises.
A recent case illustrates how courts apply these principles. In this case the Court of Appeal (CoA) considered an agreement granting occupation of a site for a minimum term of ten years, which could then be terminated on 12 months’ written notice. The site provider argued that the arrangement created a lease because it specified a minimum term and, in an earlier case the Supreme Court had identified certain features that could invalidate a term certain. None of these invalidating features was present in the current case. Moreover, the site provider suggested that, if a fixed-term lease was not created, a periodic tenancy could be inferred, which would carry statutory protection and renewal rights.
The CoA however, dismissed this argument. It held that the agreement was void as a lease because it lacked a term certain beyond the minimum period. In this case the agreement could potentially continue indefinitely after the minimum term, meaning it was impossible to know at the outset when the occupation might end. That meant no one could say at the start when the tenancy would definitely finish, it could end on any random day after the 10 years. Because the end date was uncertain in this way, the court said it could not be a valid tenancy and instead treated it as a licence.
A periodic tenancy (for example, month to month or year to year) can be a valid lease because the law treats each period as a fresh tenancy, and it is certain that it can end at the end of each period if notice is given. That makes it “certain enough” to qualify as a lease.
In summary, the most common factor distinguishing a lease from a licence under English and Welsh law is exclusive possession. If an occupier cannot exercise full control over the premises to the exclusion of the owner, it’s likely to be a licence. In addition, as stated above, where the term is uncertain, the agreement will also generally be construed as a licence. Other considerations, such as payment of rent or service provisions, are secondary. In any of these circumstances, even arrangements clearly labelled as leases may be treated as licences.
This principle, however, does not apply in the same way in Scotland or Northern Ireland, where property and tenancy law follow different statutory frameworks.