Commercial Property: a Lease or a Licence?

Landlords and Tenants often contact Lawdit Solicitors to seek advice on whether a lease or a licence is appropriate when renting premises. No doubt every situation is different and what would be appropriate for one situation may not be suitable for all. I will try to highlight some of the main differences between the two.

The Lease

A lease is subject to the Landlord and Tenant Act (the Act), and features the following characteristics:

-Â Â The tenant has exclusive use occupation of the property

-Â Â It is for a set period of time for a rent

-Â Â The Act gives the tenant the right to renew the lease when the existing term ends (security of tenure), though there is a prescribed procedure offered by the Act to exclude this right before the lease begins.

-Â Â To gain repossession of the premises, the landlord can use either Common Law (forfeiture – this is the quickest procedure of all) or go to Court to obtain a judgment and/or order.

-Â Â Where rent is owed by the tenant, distraint for rent is available, when the landlord instructs a Bailiff to enter the premises and remove the tenant’s goods to sell to recover the rent. Alternatively, the landlord can apply for a County Court Judgment (CCJ) for the rent arrears, which can then be transferred to the High Court and enforced by a High Court Enforcement Officer (HCEO) under a writ of fieri facias (known in short as a ‘fi fa’). This process takes longer, but it does allow the HCEO to attend other addresses where the debtor may have goods or assets. It can be combined with a possession order.

The Licence

-Â Â It provides a method of granting occupation of business premises without the tenant acquiring a security of tenure (i.e. the tenant does not have the right to remain in the premises and have a fresh lease when the initial tenancy ends).

-Â Â By its very nature is suitable only for a temporary arrangement – often used during the period of occupation when the formalities of the lease are being finalised

-Â Â It is more adaptable and can be modified to suit different situations

-Â Â To gain repossession, the landlord will obtain a CCJ judgment and/or order and have it transferred to the High Court for enforcement. He can also apply for a combined writ of fi fa and possession if required.

It is important that a licence is drafted very carefully, since if any dispute reaches the court, the judge will scrutinise the terms and spirit of the licence and decide whether it is in fact a lease.

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