License or Lease… Look Beyond the Label

It is important for landlords to be aware of the risks involved in granting a licence to a potential licensee particularly where such licensee is intending to occupy the premises for an extended period of time.

The question of whether a licence agreement is really a licence or a lease in disguise is one which can generate varied opinions. However, the established position as set out in the Street v Mountford [1985] case is that a tenancy will be considered a lease if the occupier is granted exclusive possession for a term (fixed or periodic) at a rent. In essence, if the occupier can exclude the property owner (subject to any reservations agreed for the benefit of the owner in the tenancy agreement) and other third parties, it is likely any such agreement will be held to be a lease and not a licence.

The recent case of London College of Business Limited v Tareem Limited [2018] EWHC 437 further highlights the risk involved in this respect.

In this case, the College occupied various units within the building over a period of time beginning 2006. During this period, the College’s occupation of the units was on the basis of successive ‘Licences’ prepared on relatively the same terms. Following a dispute between both parties on different points, one of which concerned the nature of the College’s occupation of the building, the Court found that the operational ‘Licence’ was, in fact, a lease. This conclusion was reached notwithstanding that the ‘Licence’ explicitly stated that the document was ‘…a personal licence to occupy…’, the implication being that the College had acquired a protected tenancy pursuant to the Landlord and Tenant Act 1954.

The Court evaluated the relationship between both parties and it was clear that there was no intention by Tareem Limited to interrupt the College’s business operating within the building. The parties’ behaviours during the term were contrary to the unrestricted landlord’s right of access usually permitted under a licence. In fact, during the various purported licence periods, Tareem Limited’s management company had arranged meetings with the College at the occupied units by telephone in advance and subsequently by email.

This case highlights the importance in ensuring tenancy/licence agreements reflect the parties’ intentions and day to day practice. The appropriate agreements must be used to avoid disputes. Landlords must also endeavour to inform their managing agents about key terms in their tenancy agreement.

At Ashley Wilson Solicitors LLP, we are able to offer you specialist advice to fit your commercial circumstances. For more information on leases, licences or other commercial property matters, please contact Jessica Ebhomenye (direct dial 020 7802 4805 or by e-mail on jessica@ashleywilson.co.uk).

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