Types of Occupation: Leases vs. Licences

When it comes to property occupation, understanding the distinction between a lease and a licence is crucial for both landlords and tenants. This guide will walk you through the main criteria for each, helping you to make informed decisions in your property dealings.

What is a Lease?

A lease, often referred to as a tenancy in the context of residential property, is a contractual agreement between a landlord and a tenant. The key characteristics of a lease include:

1. Exclusive Possession: The tenant has the right to exclude everyone, including the landlord, from the property. The landlord or their agent can only enter the property with the tenant’s permission.
2. Rent Payment: The tenant pays rent to the landlord.
3. Term: The lease lasts for a specific period, which can be fixed (e.g., six months) or periodic (e.g., month-to-month).

Types of Tenancies

Assured Shorthold Tenancy (AST)

The AST is the most common type of tenancy in the private rented sector. For a tenancy to be classified as an AST, it must meet the following criteria:

• The tenant is an individual.
• The property is the tenant’s main or only home.
• The landlord is not a resident landlord.
• The annual rent does not exceed £100,000.

ASTs offer landlords flexibility since tenants do not have long-term security after the initial fixed term. Landlords can regain possession by serving a Section 21 notice after the first four months, provided the notice gives at least two months’ notice and does not end before the fixed term.

What is a Licence?

A licence grants permission to occupy a property or part of it, typically for short-term use or shared arrangements like co-working spaces. Unlike leases, licences do not offer exclusive possession. Key points about licences include:

• No Exclusive Possession: The licensee cannot exclude the landlord from the property.
• Personal Permission: Licences are personal permissions that cannot be transferred.
• Lack of Legal Protection: Licensees can be asked to leave at short notice and do not enjoy the legal protections that tenants do under a lease.

Deciding Between a Lease and a Licence

To determine whether an arrangement constitutes a lease or a licence, consider the following scenarios:

Scenario 1: Lease

• Situation: Taylor and his family are allowed to occupy a property for six months, paying £850 per month.
• Analysis: Taylor  has exclusive possession, pays rent, and the term is defined. This is a lease.

Scenario 2: Licence

• Situation: Jury can occupy a property owned by Sue on a monthly basis, except for one bedroom Sue uses when in town.
• Analysis: Jury does not have exclusive possession since Sue retains a bedroom and uses the property occasionally. This is a licence.

Special Cases

Holiday Lets

Holiday lets are typically short-term and often found in tourist areas. They must be available for at least 210 days a year and let for at least 105 days a year. These are considered licences because they do not provide the occupier with a main home and require the occupier to vacate at the end of the let.

Resident Landlords

If a landlord shares living accommodation with an occupier, such as in a lodger situation, the occupier has a licence, not a lease. This applies even if the landlord owns only one unit in a purpose-built block and shares it with a lodger.

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Understanding the differences between leases and licences is essential for navigating the rental market effectively. Leases provide tenants with more security and exclusive possession, while licences are suitable for short-term and shared occupancy arrangements. Always ensure that the terms of occupation are clearly defined and agreed upon to avoid any legal complications.