Caution should be taken when using short-term or informal rights to occupy – licences are not always what they seem. Property owners should beware of creating unintentional tenancy rights.
What is a Licence?
A licence is a personal right that grants permission to the licensee to occupy the property and ultimately prevents the licensee acting as a trespasser. When a licence is used correctly it does not offer any security to the licensee. The key distinction between a licence and a lease is that a licence should not give the licensee exclusive possession – the right to use the property to the exclusion of all others. A correctly granted licence is personal and does not give the licensee any legal rights over the property. With this intention, if the licensor wanted to sell the property this would terminate the licence. However, the licensor should take care when selling the property to avoid breach of contract.
What is a Tenancy at Will?
A tenancy at will is a flexible agreement that continues indefinitely and allows both parties to end the tenancy immediately any time. When used correctly, similarly to a licence, a tenancy at will does not offer grant any security of tenure – the right to renew the tenancy. A tenancy at will should only be used for short periods of time.
When should a Licence be used?
A licence should be used in situations where a licensee requires occupation of a property on a short-term basis with a fixed end date. As a licence must not allow exclusive possession, this type of agreement must only be used where the licensor and other third parties are also using the same property on a regular basis. Or if the licensee only uses part of the property for a designated time and if the licensor can unilaterally require the licensee to occupy a different part of the property.
When should a Tenancy at Will be used?
It is uncommon to see a tenancy at will being used as an agreement on its own. It is normally used as a short and temporary solution until a more fixed, long-term agreement such as a lease has been agreed. A tenancy at will could be used when a tenant needs to retain occupation past the end date of a previous lease or if they need occupation of the property earlier than the commencement date of a new lease.
What should be considered when using these agreements?
Importantly, an agreement that is called a ‘licence’ does not necessary mean that it is legally a licence. If the Licensee does have exclusive possession of the property, even if the language in the agreement does not suggest this, then there is risk that it would be seen as a lease rather than a licence – resulting in the ‘licensee’ obtaining the right to continue to stay at the property as they would be protected by the Landlord and Tenant Act 1954.
In addition, it is fundamental that a tenancy at will is only used for a short-term and temporary basis otherwise there could be a potential risk of a periodic tenancy arising from the agreement. The consequences of this would be that, as with the licence, the tenant will be protected and will have security of tenure and as a result it will be extremely difficult for the landlord to remove the tenant from the property.
This insightful article was written by Maria Wakelyn in our Real Estate team.