A client called me last week and said: “James, we want to let Mr Jones use this bit of stalled development land as a car park. Can you draft us a licence?”
I said “Of course I can. How long is Mr Jones going to use it for?”
The client told me, “About 12 months, we’ll have it back after and crack on with our development.”
The observant amongst you will have noticed the potential problem here. Good practice dictates that any agreement relating to the occupation of land which goes beyond six months should, more often that not, be in the form of a lease.
Why? Well first of all what is a lease and what is a licence.
A Lease is a grant of a right, for a rent, to the exclusive possession of land for a determinable period of time. A licence is personal right or permission for a licensee to do something on a licensor’s property.
On balance though it can often be difficult to distinguish between the two regardless of what you call them.
Rather than getting bogged down in the legal technicalities of how they are different it is more useful to ask why is the difference important in these circumstances?
The answer relates to security of tenure.
Under Part II of the Landlord and Tenant Act 1954, a tenant occupying premises for the purposes of its business generally has a statutory right to renew its tenancy at the end of the term. The landlord can only oppose renewal on certain limited grounds. The right to a new lease applies to all tenancies where the property is occupied (at the end of the term) by the tenant for the purpose of the tenant’s business (section 23, LTA 1954), subject to certain exceptions.
Stay with me here. What are those exceptions?
1. The tenancy can be “contracted out” of the protection provided by the Act by following certain procedures;
2. The tenancy is for a period of less than six months and does not contain any provision for extending beyond the six months; and
3. The tenant has not been in occupation for a period exceeding twelve months, including any occupation time of a predecessor.
With that in mind if you need to grant a right in land for more than six months but want to ensure you get the property back at the end it is safer to use a lease which “contracts out” of 1954 LTA Act.
Landowners can often unwittingly grant a right which they consider to be a licence but on balance is deemed to be a lease. There is a fair chance that having not thought they were granting a lease the said landowner will not have taken the time to ‘contract out’ of the 1954 LTA Act and as such when the period for occupation comes to an end and the landlord asks for their land back the tenant will turn round and say sorry but we are protected and feel like sticking around.
The route to then get the tenant off the land can involve the courts and will more than likely be both costly and time consuming.
So in answer to my client’s question? I told him “I’ll draft you a lease”.