Commercial Property

An Overview of Licenses and Tenancies at Will

When it comes to commercial property, there are three ways that a landlord can grant rights; a lease, a licence or a tenancy at will. Landlords who wish to have their premises occupied for a short term will have to decide the best option to suit their immediate needs.

What is the difference between a licence and a lease?

A lease grants the occupier an interest in land. A licence does not. A licence is just a personal right. For example, a person who rents a chair at a hair salon may be deemed to have a licence.  They have a right to enter the property and use it, but only at certain times and they have no ability to call the salon their own.

If a tenant has exclusive possession under a lease of land, then they are able to exercise the rights of an owner of that land.

What legal protection does a licence holder have compared to a leaseholder?

Leases (whether residential or commercial) give tenants a range of statutory protections. They include various forms of 'security of tenure', compensation for improvements and in residential leases, protection from eviction and the regulation of costs such as service charges.

Licensees will generally not enjoy those protections. A licence might therefore seem to offer the owner of commercial property a way to allow occupation and use on an 'easy in, easy out' basis, without the need to follow complex statutory procedures. However, where there is any doubt about its legal effect, the court will lean towards finding that an agreement is a lease rather than a licence so that the occupier has statutory rights and protections.

What is a tenancy at will?

A tenancy at will exists where a tenancy is in place and exclusive possession is granted but the length of the lease is not stated.  Either party can terminate at any time with immediate effect.

A tenancy at will is an excellent option for either a landlord or a tenant who has a short-term requirement to lease a property but neither wants to be tied to the formality of a long-term arrangement.

A tenancy at will can be used where the parties are in negotiations for a lease to be granted for a fixed term.  By putting a tenancy at will in place, the tenant can obtain a premises immediately and start operating their business and the landlord starts receiving rent payments. 

What can go wrong with a tenancy at will?

A tenancy at will must be determinable at the will of either landlord or tenant. The use of the expression 'tenant at will' in an agreement will not create a tenancy at will if the rest of the agreement contains terms which are inconsistent with such a tenancy. Inconsistent terms include:

  • a fixed term or specified minimum period. This conflicts with the requirement that the tenancy must be determinable 'at will'
  • a period of notice for termination. Again, this conflicts with the requirement that the tenancy must be determinable 'at will'
  • a clause prohibiting or restricting assignment or subletting. This conflicts with the nature of a tenancy at will as a personal arrangement between landlord and tenant which cannot be assigned or sublet
  • a forfeiture clause. A tenancy at will is determinable at will, and so there is no need (or place for) a forfeiture provision

Payment of rent in advance can indicate that the tenancy is intended to be for a minimum term, or is to be periodic, and so can indicate that the agreement is not a tenancy at will. However, in practice, landlords often wish to take an advance payment. In those cases, an express tenancy at will should provide for repayment of any sum that is attributable to a period after the tenancy is brought to an end.

To find out more about licences and/or tenancies at will, you can find a solicitor by searching through Solicitors Guru today.

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