What’s the difference between a lease and a licence?

In essence, a licence is simply 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. A licence is by definition not a lease: it is a personal right or permission. A licence entitling the licensee to use the land for the purpose authorised by the licence does not create an interest or estate in land, whereas a lease does create an estate in land. As a result, a lease will continue notwithstanding the sale of the lease or of the reversion, whereas a licence will normally end. A lease must be for a fixed or periodic term that is either certain or is capable of being ascertained, whereas a licence is normally determinable on reasonable notice being given by either party. The main distinguishing feature of a lease, as opposed to a licence, is that the tenant has exclusive possession of the let property. A licensee can certainly enjoy occupation of the relevant land – but where a person enjoys exclusive possession of the land, a lease will normally be created. So a right to park a car in a specific space in a car park can be a lease, whereas the right to park a car within a car park but with no space being designated will be a licence. The labelling of a document (or oral agreement) as a licence is not determinative. A lease may still come into existence notwithstanding the express terms of the document if exclusive possession is granted, despite the fact that the parties may be labelled as “licensor” and “licensee” and the document may be called a “licence”. The leading case on the distinction between a lease and a licence is still the decision of the House of Lords in Street v Mountford [1985] 1 EGLR 128. In his judgment in that case, Lord Templeman said: “In the present case, the agreement dated 7 March 1983 professed an intention by both parties to create a licence and their belief that they had in fact created a licence… But the consequences in law of the agreement, once concluded, can only be determined by consideration of the effect of the agreement. If the agreement satisfied all the requirements of a tenancy, then the agreement produced a tenancy and the parties cannot alter the effect of the agreement by insisting that they only created a licence. The manufacture of a five-pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade.” However, exclusive possession will not always result in a lease; Lord Templeman in Street v Mountford: “There can be no tenancy unless the occupier enjoys exclusive possession; but an occupier who enjoys exclusive possession is not necessarily a tenant. He may be owner in fee simple, a trespasser, a mortgagee in possession, an object of charity or a service occupier. To constitute a tenancy the occupier must be granted exclusive possession for a fixed or periodic term certain in consideration of a premium or periodical payments. The grant may be express, or may be inferred where the owner accepts weekly or other periodical payments from the occupier.” Possession versus occupation In Akici v Butlin Ltd [2005] EWCA Civ 1296; [2006] 1 EGLR 34, Neuberger LJ (as he then was) appeared to have difficulty in describing the difference between possession and occupation: “The difference between possession and occupation is rather technical, and, even to those experienced in property law, often rather elusive and hard to grasp. Nonetheless, it is very well established, and is particularly important, and indeed well known, in the field of landlord and tenant law, especially in relation… to alienation covenants.” In contrast, Floyd J (as he then was) had no difficulty at all in determining the difference between occupation and possession in ANSA Logistics Ltd v Towerbeg Ltd [2012] EWHC 3651 (Ch); [2012] PLSCS 276, stating that the acid test for possession, as contrasted with mere occupation, “lies in the right of the person in occupation to exclude others, including the tenant, from the premises”. In this case, the landlord, Towerbeg, argued that the tenant, Ansa, had allowed Ford to enjoy gradually increased control of the demised premises until the point was reached where Ansa had parted with possession, and that by the date of the landlord’s forfeiture notice, Ford was in possession of the site. However, Floyd J disagreed, placing emphasis on the fact that Ansa’s representative, Mr Yetton, was allowed unimpeded access to the site by Ford whenever he came to the site. As a result, Ford was not able to exclude the tenant, Ansa, from the site and hence did not enjoy possession of the site, but merely occupation. Granting a licence A case where a licence was successfully created was that of Clear Channel UK Ltd v Manchester City Council [2005] EWCA 1304; [2006] 1 EGLR 27. The council agreed that Clear Channel could erect and maintain advertising displays on 13 sites around Manchester, but did not identify the precise locations for erection of the advertising display boards. No plans were agreed, and the sites were identified merely by their addresses. The Court of Appeal held that the rights granted constituted licences, not leases. What about a tenancy at will? A tenancy at will may be hard to distinguish from a licence, as it cannot be assigned by the tenant, is not an estate in land and may be determined by either party “at will”. However, a tenancy at will can be created only where the tenant’s possession of the land is temporary, such as where a buyer is allowed into possession of land between exchange of contracts and completion, or where a tenant is allowed into possession of land pending completion of a lease (or of a renewal lease). In Barclays Wealth Trustees (Jersey) Ltd v Erimus Housing Ltd [2014] EWCA Civ 303, the tenant remained in occupation of the premises after its lease, which was contracted out of the protection of Part II of the Landlord and Tenant Act 1954, expired. The parties negotiated heads of terms for a new lease, but no new lease was ever completed. The tenant eventually moved out almost three years after the original lease had expired. The Court of Appeal unanimously held that the tenant had been in the premises under a tenancy at will, as negotiations for the new lease had continued, albeit in a desultory fashion, throughout the tenant’s continued possession of the premises. Exclusive possession implies tenancy London College of Business Ltd v Tareem Ltd [2018] EWHC 437 (Ch) The London College of Business (a college of further and higher education) occupied premises in Barking under a “licence”. The High Court concluded that the agreement conferred a right of exclusive possession on the college and so it took effect as a tenancy, for the following reasons: Although the wording was plain, and clearly purported to create a relationship of licensor and licensee, the purpose of the agreement was to provide the college with premises from which it could run its business. It was not realistic to suppose that the parties genuinely intended that the college’s business could be interrupted by Tareem’s right of entry “for the purposes of exercising management and control”; The parties did not have equal bargaining power; The college fell into no exceptional category by which its exclusive occupation could be explained or excused as not constituting a tenancy. Guardianship judged a licence Camelot Guardian Management Ltd v Khoo [2018] EWHC 2296 (QB) This case concerned a vacant office building in London where the owner entered into a property guardianship arrangement with Camelot and, in turn, Camelot entered into an arrangement with Mr Khoo for him to occupy as a property guardian. The key issue was whether Mr Khoo was a tenant or a licensee. At first instance the judge held that, while Mr Khoo did have exclusive possession of one room and two storerooms in the property, the arrangement was in fact a licence. Mr Khoo appealed. The High Court concluded that any rights of possession in respect of the property as a whole were “plainly not exclusive”, given the occupation of the other guardians. There were multiple guardians at the property and the language of the agreement required the guardians to agree among themselves how the space was to be used. The court considered that the agreement created one unitary right in respect of the whole of the property, rather than a right to exclusive possession of a particular room plus a separate but distinct right over the rest of the living space. Accordingly, the High Court held that Mr Khoo was therefore a mere licensee. This decision should be contrasted with the non-binding 2017 decision in the Bristol County Court in Camelot Property Management Ltd (1) and Camelot Guardian Management Ltd (2) v Greg Roynon (24 February 2017, unreported) in which a property guardian was found to be a tenant largely on the basis of the conduct of the parties post‑agreement. Peta Dollar is a freelance lecturer, trainer and writer