A lease, a license, and a tenancy at will are all different forms of occupation that can be made by a tenant in a commercial property. When deciding which of these will be best suited to you, it is important to consider the advantages and disadvantages of each and apply them to your own circumstances.
If a dispute should arise it is important to know the key feature of the agreement to know what protections and rights are available to you. To distinguish these types of documents from each other, it will be the substance of the arrangement that the court will look at, rather than relying on what the document is called. Circumstantial evidence is more important than the names of documents when determining the true relationship between the parties. As a result, understanding and identifying the key features of each of these is important.
Exclusive Possession
This grants the tenant the right to exclude the landlord as well as other third parties from the property. Without this, a landlord is free to enter the property without notice, occupy the same property or grant further licences to others for the same property. They are also usually able to move the tenant into alternative accommodation as well.
- A lease grants exclusive possession.
- A licence does not grant exclusive possession.
- A tenancy at will generally grants exclusive possession.
Legal Interest
A legal interest in a property can be assigned to another person. A legal interest in a property will not end for the tenant if the landlord sells their own interest in the property.
- A lease grants a legal interest in the land.
- A license does not grant a legal interest, it does, however, create a personal right. Unlike a legal interest, this cannot be assigned to a new tenant and will end if the Landlord sells their own interest in the property.
- A tenancy at will grants a personal interest in the property and again cannot be assigned and will end when the landlord sells their own interest. This interest is however more similar to an interest granted by a lease.
Term
- A lease is granted for a fixed term, which means for a set amount of time. This term can even be extended if the lease contains security of tenure. If a lease also contains a break clause, then the lease can also be ended early.
- A license can also be granted for a fixed term, however, unlike a lease, it can be terminated on short notice.
- For a tenancy at will, there is no fixed term and therefore can be terminated without notice by either the landlord or the tenant.
Rent
- With a lease, an amount for rent Is agreed upon by both parties.
- While a license does not require the regular payment of rent, a license fee may be payable.
- A tenancy at will does not require any payment of rent. If regular payments are made, then the arrangement may be construed as a periodic tenancy which will require notice to be terminated.
The Landlord and Tenant Act 1954 Act
This act applies only to leases and provides two rights; the tenant’s right to remain in the property even after the term of the lease has expired, and the tenant’s right to ask the landlord for a new lease to which the landlord has very limited grounds to oppose. Both parties can agree to contract out of this in the lease itself.
This act does not apply to licenses but can still be contracted out of in case the license is found to be a lease.
This act also does not apply to a tenancy at will but will if it is found to be a period tenancy instead, or if the tenancy at will has been in place for too long.
SDLT
Only a lease attracts the obligation to pay Stamp Duty Land Tax.
It’s imperative that your tenancy or lease documents are carefully drafted in accordance with the agreed terms specified in the Heads of Terms. For help getting started or drafting your documents please do not hesitate to contact our specialist team here at Onyx Solicitors on 0121 268 3208 or email us at info@onyxsolicitors.com with your query.
