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A business owner may need commercial property to run their business, and a property owner may want to make money from their commercial property. Each must decide the type of legal contract and terms they wish to enter into to regulate their agreement. There are different ways for a business to occupy a commercial premises – a commercial lease or a licence agreement for a licence to occupy. This article will unpack a licence to occupy.
Licence to Occupy
A licence to occupy is a legal way for a person, such as a business owner, to occupy a property. It permits the person to be on the premises and to carry out an activity. They are the licensee, and the property owner is the licensor.
Licence vs Lease
Importantly, a licence to occupy is not a lease. While a licence permits the business owner to carry out an activity on the premises, it does not give them the sole occupation of the property as a commercial lease does. Accordingly, the property owner can enter the property as they please. The licensee does not have rights to the land as an owner does.
A licence to occupy also differs from a lease in the following ways:
- a licence never grants security of tenure;
- you cannot pass your right to occupy to someone else like you can assign a lease; and
- it tends to be for a shorter term than a lease.
However, if a licence to occupy is a key characteristic of an arrangement, it may be a commercial lease rather than a licence. It does not matter what the document title says.
When to Enter Into a Licence
There are times when a licence to occupy can suit property and business owners. Licences to occupy usually last for a short time and can be quick and easy to arrange. The licensor can also occupy the property with the licensee as a convenient arrangement. You will often come across a licence where the commercial premises is:
- an office space which is serviced and occupied for a short time;
- in use by a buyer of the property after exchange but before completion; and
- about to fall under commercial lease terms, though a licence is in place to allow a tenant access to the property beforehand.
Considerations
As a business or property owner, if you want to enter a licence to occupy, ensure you do not accidentally issue a commercial lease. This means:
- ensuring the licensee has occupation of but not exclusive possession to your property;
- giving the licence a fixed term; and
- receiving a fee for the licence.
- ensuring the licence can terminate as per both the party’s wishes; and
- making sure the licensee can use the parts of the property they need permission to use.
This cheatsheet includes practical tips to understand key clauses and avoid disputes in leasing agreements.
Key Takeaways
A licence to occupy allows a person to be on the commercial premises to carry out an activity. If you need help understanding your rights under a licence agreement, 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 for a low monthly fee. Call us today on 0808 196 8584 or visit our membership page.
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