Commercial landlords beware! Prior to granting any form of the above, consideration must be given to which is the most appropriate.
A licence is where the occupier does not have exclusive possession. In simple terms, it is a right to use the property, and prevents the permitted use from being a trespass. It is personal to the parties, so if the property is sold, the licence ends. An example of when a licence may be suitable is when a serviced office is rented for a short, specified period of time. Landlords should be cautious: even if the arrangement starts off as a licence, over time the nature of the occupation could change. If the occupier starts to have exclusive possession then they may be deemed to have a lease rather than a licence. Such a lease would not be “contracted out” of the Landlord and Tenant 1954 Act ('1954 Act') and can, except in very limited circumstances, be renewed by the tenant regardless of the landlord's wishes.
A tenancy at will is a tenancy which is terminable by either party at any time. A tenancy at will is often used prior to the completion of a fixed term lease where the tenant is about to take exclusive possession of a property. A tenancy at will may be beneficial to both parties, because they are likely to require limited negotiation and can be prepared quickly. However, because they can be terminated instantly by either party,it may be disadvantageous to a landlord, as they do not provide a reliable source of income, but it does allow for a tenant to be removed quickly if so required.Care must however be taken when preparing a tenancy at will: if it is not drawn up properly what is intended to be a tenancy at will may become a periodic tenancy which would require longer periods of notice to terminate or could be protected by the 1954 Act giving the tenant potential risk to renew.
A written lease typically offers the most protection for a landlord. A short term lease over 6 months can be excluded from the 1954 Act, removing the tenant's right to renew the lease, so that their occupation will end on the expiry date stated within the lease. Additionally, if required a break clause could be negotiated, allowing termination of the lease at agreed times during the lifetime of the lease, providing flexibility for both parties. A written lease always provides greater certainty for both parties, because the document is typically more detailed and carefully negotiated than a licence or tenancy at will, and will set out the specific obligations on each party.
The nature of a tenancy is determined in law by its characteristics, not by what it is called. Simply referring to an agreement as a licence or a lease, does not necessarily mean that an agreement is of the type referred to. In the event of a dispute, a court will look at the substance of an agreement when deciding what type of tenancy was granted, and what rights the tenant has. It is therefore vital that any agreement for a commercial tenancy is properly drafted to avoid potential issues in the future.
Before deciding which type of agreement suits your legal and commercial requirements it is prudent to seek guidance from a solicitor, who will also ensure that the agreement is properly drafted to create the correct legal relationship. Please do not hesitate to contact a member of our experienced Commercial Property Team for advice today. Contact Ramsdens Commercial Property Team by calling 01484 821 500 or email info@ramsdens.co.uk.