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Jay Gorasia

Forms of tenancy on commercial property

15 January 2024

Given the complexity and the legal terminology, understanding the nuances between a Lease, a Licence, and a Tenancy at Will is key and can often be vital in maintaining the rights and responsibilities of both property owners and those they allow into occupation of a commercial property.

What is a Lease?

A lease is a formal agreement which provides the tenant with the right of occupation and control of a specific property to the exclusion of all others (subject to the rights reserved to the landlord under the lease) for a fixed term. 

This arrangement grants tenants substantial rights, ensuring stability and predictability in their occupancy, whilst preserving certain rights of the Landlord and giving the Landlord the security of knowing that the property can bring in a constant income. A lease creates a legal interest in the land in favour of the tenant and any subsequent sale of the property would be taken subject to the lease. It would create a separate legal title in a property which is then capable of being transferred, charged and out of which a sub-lease can be created (depending on what rights are granted by the Landlord under the heads of terms).

Leases typically outline specific terms, such as rent amounts, responsibilities for repairs, and the duration of the tenancy. The idea is that a lease provides a framework governing how matters that can crop up during the term of occupation can be dealt with.

Leases can also offer protection to a Tenant, enabling them to remain in occupation of a premises and demand a renewal of the lease at the end of the original lease term, subject to the application of certain conditions.

What is a Licence?

Conversely, in comparison to a lease, a licence is a more flexible arrangement that grants permission to use a property without providing the licensee with exclusive possession of the property. A licence can be for a rolling term or for a fixed term and can often be granted for a period of time whilst a formal lease is being drafted, or in order to allow a tenant access to a property (though not exclusively) for a fee payable to the licensor.

Often this scenario is beneficial to both the licensor and the licensee in that it allows the licensee to gain access to a property whilst the licensor is usually afforded the ability to end the licence with a relatively short notice period needing to be given.

A licence will not create a legal title in the property and is a personal arrangement between a licensor and licensee.

In contrast to a lease, a licence does not give the licensee the right of occupation and control of a specific property to the exclusion of all others and allows the licensor to relocate the licensee or grant other shared rights over the same property.

A specialist commercial property solicitor should be consulted when considering a licence to occupy a property, as an error in drafting or an incorrectly drafted licence could be construed as a lease and as such could confer certain rights to a licensee, which could be problematic to a licensor.

What is a Tenancy at Will?

Similar to a licence, a tenancy at will is a more transient and informal agreement that allows the tenant to occupy the premises at the will of the landlord however it is often granted for a very short amount of time. A determining factor of a tenancy at will is that it can be terminated by either party at any time. While it offers flexibility, it also lacks the security and structure inherent in leases, making it a less common choice for longer term tenancy arrangements.

A tenancy at will should only be used in circumstances where a) the tenant is still in occupation on the expiry of an existing lease, whilst the parties are negotiating the terms of a renewal and b) to allow the tenant to take occupation whilst a formal lease is yet to be finalised with the landlord. Though some do use a tenancy at will to otherwise document a short-term letting arrangement, this is not advisable because if occupation continues beyond six months, then this can inadvertently create a periodic tenancy and give the tenant statutory rights to remain in occupation of the property for a longer term.

How Neves can help you

Understanding the distinctions between these property agreements is crucial, as each option carries its own set of implications for both landlords and tenants and it should be carefully considered as to what each party requires before committing to a form of tenancy/occupation. Before entering into any agreement, it is imperative to seek legal advice to ensure that the chosen arrangement aligns with individual needs and objectives.

At Neves Solicitors, we have a wealth of expertise which can assist you, whether Landlord or Tenant, in explaining the best option for you and in drafting and readying documents on your behalf. Get in touch with our commercial property experts by calling 0330 0945 500, emailing or by completing our Contact Form.

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