Real Estate Tip of the Week: Licence or Lease - Why it matters

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Real Estate Tip of the Week: Licence or Lease - Why it matters

Published 26 November 2018

A licence is a personal, contractual right to occupy, a lease is a legal interest in land.

The question of whether a party occupies under a licence or a lease is crucial in determining:

  • whether Stamp Duty Land Tax (SDLT) or Land Transaction Tax (LTT) liability is due;
  • whether the Minimum Energy Efficiency Standards Regime (MEES) applies;
  • whether an occupier can claim security of tenure; and
  • any impacts on VAT liability.  

If, as a matter of fact, a party:

  1. occupies premises (or whose equipment occupies an area of land) exclusively;
  2. for a term (whether fixed or periodic); and
  3. a rent is payable, 

then the occupation is likely to be deemed to be a lease rather than a licence, irrespective of whether the document is called a licence.

To try to prevent a licence from being determined by the Courts to be a lease, provisions can be included to prevent occupiers claiming exclusive possession, such as "lift and shift" clauses or restrictions on the hours of use of the Premises. However, if, in reality, these lift and shift rights are never exercised, or the licensee actually occupies the Premises all of the time, then such clauses will not deter the Courts from determining that the licensee has exclusive possession.  

In the same vein, if the licence reserves a "fee" rather than a "rent", or even if there is no payment noted in the licence (but is documented elsewhere), these payments will still be seen by the Courts as "rent" and, will not, if the other heads are satisfied, deter the Courts from categorising  the arrangement as a "licence" rather than a lease.

The key is to always look to the facts when determining whether a document is a lease or a licence and not be distracted by the name given to it.

However, there is no absolute certainty and so if regaining the land in question at the end of the agreement is vital then it may be worth considering if it is better to grant a lease which is excluded from the provisions of the Landlord and Tenant Act 1954.

Authors

Andrea Proudlock

Andrea Proudlock

Newcastle

+44 (0)191 404 4098

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