Quick read

What’s in a name? A lease, licence or tenancy at will?

Gateley Legal

What do you do when you want to allow a tenant to use and occupy your premises on a short term basis, but you do not wish to enter into a formal lease?

This is often a scenario encountered by many landlords but the difficulty is deciding how best to document the arrangement – and this is where the issues arise. Often the parties will agree to enter into a tenancy at will, or even a licence to occupy, but do they really know the difference, and why is it important that they do?

Danger Zone

The danger of ‘letting’ anyone occupy your premises informally (no pun intended) is that the tenant may acquire rights of security and the ability to remain in the premises even when you didn’t intend them to! The landlord may find it far more difficult, and costly, to get its premises back. If properly drafted, a tenancy at will and a licence to occupy will not generally confer the right of security of tenure under Part II of the Landlord and Tenant Act 1954.

No matter what you call your document, the courts will look at the substance and the form of the document to establish whether it is in fact a lease, a licence or a tenancy at will. It is best to obtain legal advice before you enter into any such arrangements, but here are some points to note.

Licence to occupy

A licence to occupy gives a person permission for what would otherwise be a trespass. It is intended for short term arrangements where the landowner retains control over the premises. The key point is that the landowner must retain the ability to use and occupy the premises and the person to whom the licence is granted must not be able to exclude the landowner from the premises.

Tenancy at will

In effect, a tenancy at will is a day-to-day tenancy and can be terminated immediately at any time without notice. It cannot be for a fixed term. It is important that a tenancy at will does not inadvertently create a periodic tenancy which may be treated as a protected tenancy. A periodic tenancy has three essential elements[1] which are:

  1. The payment of rent;
  2. Exclusive possession; and
  3. A periodic term.

If all of these elements are present, it may be that the tenant in fact has a periodic tenancy.

Points to note about a tenancy at will

If you are considering granting a tenancy at will, here are three key points to note:

  1. To be a tenancy at will, there cannot be a fixed or periodic term and the provisions for terminating the arrangement should allow for termination with immediate effect. It would be best to avoid establishing a notice period.
  2. It would be better not to include a definition for an ‘expiry date’ but where one is included, this should not be a fixed date as this could create a fixed term.
  3. You should avoid setting a periodic rent payable in advance but if you do, there should be an explicit statement to confirm that the reference to a periodic rent does not create a periodic term. A good approach would be to express the rent at a daily rate payable in arrears.

To ensure you have the correct arrangement in place to suit the circumstances, it is always best to take appropriate legal advice.

[1] Street v Mountford [1985] 2 WLR 877

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