How Do I Know If I Have a Lease or a Licence in England and Wales?

As a business, it is likely that you are occupying premises, or that you own property as land assets. It is important you understand whether you possess a lease or a licence. Understanding your legal interest in land can help you deal with potential disputes in the future. These can arise both against a landlord and against someone who enters your property without your permission. This article will explain some of the key differences between a lease and a licence. It will also outline the requirements that are necessary to have one over the other. 

What is a Lease?

A lease is a contractual agreement where one party agrees to give another party exclusive possession over a piece of land. This agreement is typically established for a fixed period of time. A lease may also involve a regular rent payment (but this is not a legal requirement for a lease). 

When entering a lease agreement, parties do not need to specify the word ‘lease’. In fact, some documents which are titled ‘licence agreement’ can amount to being a lease, especially if the landlord used the word ‘licence’ to prevent the tenant from having their full legal rights. As a result, to determine whether a person has a lease or not, you must look at whether the legal requirements for a lease have been made out.

To meet the legal requirements of a lease, an agreement must grant:

• exclusive possession;
• for a fixed term. 

Exclusive Possession

Exclusive possession means that the tenant of the lease has the right to exclude anyone from entering the land, including the landowner. Most contractual agreements, however, will allow the landowner to enter the property in certain situations, for example, to carry out necessary works. However, a landlord cannot terminate a lease for no reason. Importantly, exclusive possession is different from exclusive occupation. 

The requirements for a lease are not made out just because someone is the only person occupying land – they must have been granted possession of it.

Fixed Term

For a lease to exist, the maximum term of the occupation must be determinable at the date of the agreement. 

For example, if the agreement uses the words ‘Rob shall occupy the land for no longer than three years,’ then the term will be certain. But if an agreement says that ‘Rob shall occupy the land until Arsenal win the Premier League,’ then the term will be uncertain (and, in that example, the term is perhaps indefinite).

Without certainty of all terms, an agreement will not amount to a lease, even if the parties use the word ‘lease’ in a written agreement. 

Formality Requirements for a Lease

For a lease to definitely be legally enforceable, it might be required to meet certain formality requirements. This depends on the specified period for which the lease is for. If you make the lease for:  

• 7 years or more, you must sign a formal deed document, and register this with the Land Registry; 

• between 3 and 7 years, you must sign a formal deed document but do not have to register it; or

• fewer than 3 years, there are no formality requirements – you can even make it by oral agreement.

What if My Lease Was Not Made With the Correct Requirements?

If your lease does not meet the requirements mentioned, it can create complications if you enter into a dispute in the future. As a result, the first thing to do is to get in touch with the other party and attempt to enter into a new and corrected agreement. 

If this fails, you should seek professional legal advice from an early stage. A court can salvage a tenant’s lease if it interprets it as an equitable lease, a tenancy at will, or an implied periodic tenancy.

What is a Licence?

A licence is a simple right to do something on someone else’s property. In effect, it is a right to protect you from landowners suing you for trespass. Beyond this, the licensor does not have the right to exclude most individuals from the property.

Importantly, if you have exclusive possession over a piece of land but your agreement says that it is a licence, then a court may nonetheless interpret it as a lease (provided that the period of the tenant’s occupation is determinable). 

Key Takeaways

As an occupier of land, it is important that you know whether you have a lease or a licence. A lease has certain requirements, namely, exclusive possession and certainty of the terms. So long as these requirements exist, you may have a lease regardless of whether the contract says ‘licence agreement’ or ‘lease.’ 

If you have a lease, you will be able to exclude others from entering your land, whereas if you have a licence, your right is simply to not be sued for trespass. 

If you believe that you have a lease but you have not adhered to the formality requirements, it is important that you rectify the issue from an early stage or seek professional legal advice. Failure to do so could lead to costly and lengthy legal issues in the future.

If you need help negotiating commercial lease agreements, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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