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TO LEASE OR NOT TO LEASE?

 

Mike Duncan is a Chartered Surveyor at St Neots based Chartered Surveying and Planning practice, Barford + Co. In this article, Mike sets out the features, benefits and pitfalls of the various ways of occupying a property.  

When one thinks about occupying a property, without purchasing the freehold, the most common option that springs to mind is to take out a lease. 

Whilst this might be the preferred basis where longer term occupation is required, there are other options for
landlords and tenants to consider, which may be appropriate if a short term arrangement is required, or if there is a need for occupation to be granted quickly. 

However, there are factors to consider with each option, and here we set out the features of each option, and tips on what to look out for.  

Lease

A lease is a legal contract in which the owner (the landlord) gives the occupier (the tenant) the right to occupy the property exclusively for a term of years in exchange for the payment of rent. A lease provides the tenant with a legal interest in the property – that is, the right of possession of the property to the exclusion of others including the landlord, during the term of years granted. If the landlord requires access to the property during the term of the lease, for example, to inspect the property or to carry out maintenance, then this must be written into the lease. Any sale of the property during the term of the lease will be subject to the lease. A lease provides security of occupation for the tenant and security of income for the landlord.

Licence

A licence to occupy a property is the right given by the licensor for the licensee to use the period for a particular purpose, which would otherwise be trespass. A licence is a purely personal permission and does not confer an interest in land.  A licence does not give the licensee exclusive possession of the property. A licence to occupy can be for a fixed period of time or it can be ongoing with a specified notice period for its termination. The licensee pays the licensor a fee. Licences should be used with caution. If a licence is, in a substance, a lease, then it will be treated as such by the courts regardless of the fact that the document uses licence terminology. In the case of any licence for a period of more than six months which is actually a lease there is a risk that the occupier will have acquired a tenancy with the security of tenure protection of the Landlord & Tenant Act 1954.

Tenancy at Will

A tenancy at will is the most flexible arrangement between landlord and tenant. It is a tenancy which can be terminated immediately at any time for any reason by either party. Tenants should be given a reasonable amount of time to remove their belongings.

While a tenancy at will may give the tenant the exclusive right to occupy the property, it does not create a legal interest in land. A tenancy at will does not provide security for either party and should be used as a short term solution only, for example, during the negotiation of a lease to allow the potential tenant to occupy the property immediately. 

Getting it Right

A court will always look at the substance of an arrangement rather than what a document is called or the language used within it to determine the nature of the legal relationship between the parties. Calling a document a licence doesn’t mean that it could actually be a lease and from the landlords perspective a protected tenancy could be created. 

Beware The Pitfalls

As an experienced firm of Chartered Surveyors and Planning Consultants, operating for over 40 years, Barford + Co can assist in advising on the best option for granting occupation to an ingoing occupier. We are not qualified to give legal advice and should you be considering granting occupation under Licence, you are strongly urged to consult your Solicitor regarding the limitation and pitfalls of such an approach including the effect on Building Insurance, Business Rates, dilapidations and the possibility of creating a protected tenancy. Where required however, our in-house licence may be appropriate for use particularly if occupation is to be arranged urgently.

It is our practice to seek to recover the costs of arranging Licences from the Licensee as a premium for the benefit of the short-term service being made available. 

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