A scenario that landlords and tenants to commercial property often find themselves in dispute over is whether there exists a licence or a lease. This dispute commonly arises when the agreement between the parties for use of the property and the occupation comes to an end. The landlord may assert there is an agreement for a lease and seek at least 3 months’ notice when the tenant wants to terminate the lease whereas the tenant argues it is a licence and there is no notice period. The parties may of course make the counter arguments if it benefits them, in particular if it means the landlord avoids the agreement being subject to the Landlord and Tenant Act 1954 (“the 1954 Act”).
The difference between a lease and a licence is that a lease creates an interest in land (potentially subject to the 1954 Act) whereas a licence does not. A tenant with a lease can exclude strangers and even the landlord from the property whereas a licensee cannot.
When determining the nature of the interest in land, the court will often discount the naming of the agreement and instead the court will look to the substance of what has been agreed.
In determining the nature of the interest in land, the court will have regard to Street v Mountford [1985] 2 W.L.R. 877 where in considering whether a lease or licence was created the court would have regard to whether there is a term agreed, rent and exclusive possession; those are the features of a tenancy and remain appropriate for consideration of commercial land.
A term is agreed if the parties have agreed the duration of the occupancy e.g. 5 years.
The rent is agreed if the parties have agreed a sum to be paid at regular intervals in return for occupation.
Exclusive possession is the ability for the tenant to exclude the landlord and all others from the property.
I was previously involved with a commercial property dispute where the landlord claimed to have leased its rear car park to the tenant (defendant) whereas the tenant argued there was only a licence in place. The relevance of this to the dispute was that the defendant had terminated its occupancy by giving 1 months’ notice whereas the landlord (claimant) wanted 3 months’ notice – a claim being made for the difference in rent. The court found there was a licence in place, the material features of this were that whilst the tenant had the right to park its vehicles on the car park, the landlord (claimant) still needed access to the car park in order to load and unload its lorries (at the back of its factory on the car park) and it used parts of the car park for storing its waste bins, as such there was not exclusive possession.
KCH Garden Square Chambers deals with a wide variety of commercial property disputes. For more information or to instruct counsel, please get in touch with our clerks on 0115 941 8851.
