What are commercial property licences?

In essence, a licence is simply permission for a licensee to do something on a licensor’s property. The permission given to the licensee prevents the permitted act from being a trespass.

A licence is by definition not a lease: it is a personal right or permission that offers no security.

A licence entitling the licensee to use the land for the purpose authorised by the licence does not create an estate in land. A licensee’s occupation is precarious. If the landowner sells the land (even to a group company), the licence will end, although the licensee may have a right of action against the original licensor for breach of contract.

The distinguishing feature of a lease, as opposed to a licence, is that with a lease, the tenant has exclusive possession of the let property.

Commercial Property Licences: examples of situations where a licence to occupy can be used

Some examples of where a licence to occupy may be encountered include:

  • As a “concession” arrangement in a department store.
  • Where serviced office space is made available for a short period of time.
  • Between a seller and buyer during the period between exchange and completion of a sale contract.
  • Between a prospective landlord and tenant between exchange of an agreement of lease and the grant of a lease.

Advantages of Commercial Property Licences

  • Generally, a licence is a shorter document than a lease and can be prepared and completed more quickly and therefore more cheaply.
  • There is a little more security where an occupier occupies premises as a licensee, rather than as a tenant at will, as the tenancy at will can be determined instantly.
  • A contractual licensee is entitled to the occupation that the contract provides and where the contact is determinable on notice, the licensee is entitled to the notice that contract provides.
  • There is no SDLT payable.

Disadvantages of Commercial Property Licences

  • Despite the document being labelled a licence, if exclusive possession is in fact granted, there is always the risk for a landowner that the arrangement may later be challenged by the occupier. If this arrangement has lasted for more than six months or is on a periodic basis, a landowner could be exposed to a claim that the licence is really a lease, which is protected by security of tenure provisions.
  • An occupier generally does not have the same degree of control over the land as it would have if it were granted a lease.
  • A licensee’s occupation is precarious. If the landowner sells the land (even to a group company), the licence will end, although the licensee may have a right of action against the original licensor for breach of contract. A licence offers no security.

For any questions you may have concerning commercial property licences contact James Williamson.