Lease or Licence

The recent case of NCP V Trinity Developments reconsidered the issue of Licence Agreements. Granting a Licence can appear to be a quick, cheap and convenient method of allowing somebody into occupation of business premises particularly where a sort term arrangement is being considered or access is needed quickly.

Such arrangements are, however, fraught with difficulties.

The case serves as a reminder that courts will look beyond the terms of the licence agreement itself when considering whether a licence exists or whether a lease has been brought into being.

The key issue is whether or not the licensee has exclusive occupation of the property rather than whether the document is called a licence. Excusive occupation will generally lead to a conclusion that a tenancy exists thereby giving the tenant rights of security under the Landlord and Tenant Act 1954 making it more difficult for a landlord to recover possessions of the property.

If doubt exists as to whether a proposed licence might in reality be a lease it is preferable for landlords to grand a lease excluding the security of tenure provisions of the 1954 Act by applying to the court before the granting of the formal lease which is a relatively simple and cheap procedure and can guarantee a landlord's ability to recover the property at the end of the term.