Lease vs Licence: Key Differences in Property Law

Introduction

Lease and licence are often used interchangeably in everyday speech, but they are very different in law. A lease (tenancy) creates a proprietary interest with the right to exclusive possession for a defined period. A licence is only a personal permission to use land; it does not grant exclusive possession or bind third parties in the same way.

Why does this matter? Classification affects security of tenure, eviction routes, assignability, registration, and whether successors in title are bound. Courts look at what the agreement actually does, not what it is called. The usual tests are exclusive possession, certainty of term, and an objective intention to create legal relations. Rent is common but not essential.

This guide sets out the core tests, key cases, and practical steps to avoid accidental creation of a lease when a licence was intended (and vice versa), under the law of England and Wales.

What You'll Learn

• How to distinguish a lease from a licence using:
  • Exclusive possession
  • Certainty of term
  • Intention to create legal relations
• Why rent is not essential for a lease
• When “labelled” licences are treated as leases
• How sham or pretence clauses are handled by the courts
• Security of tenure for business tenants under the Landlord and Tenant Act 1954
• Formalities and registration for leases under LPA 1925 and LRA 2002
• Practical examples: hotel rooms, student halls, serviced offices, shared housing
• How licences and leases affect third parties and termination

Core Concepts

Exclusive possession

• Meaning: Exclusive possession is the right to exclude all others, including the landlord, save for limited rights reserved (e.g., inspections or repairs). It is the hallmark of a lease.
• Licences: A licence grants permission to use land without exclusive possession. Hotel guests and most car park users are classic examples of licensees.
• Labels do not decide: If an agreement gives exclusive possession for a term, it is usually a lease, even if described as a “licence”.
• Genuine sharing vs pretence:
  • Genuine shared occupation or a right for the owner to introduce others can point to a licence.
  • Clauses inserted only to avoid a lease (e.g., spurious “sharing” clauses never intended to be used) may be treated as a pretence and ignored.
• Service occupiers and lodgers:
  • A service occupier (e.g., caretaker required to live on premises for duties) typically has a licence.
  • A lodger who shares accommodation with the owner and receives attendance (e.g., cleaning, bed-making) usually lacks exclusive possession.

Tip: Ask who holds keys, who decides who can enter, whether rooms can be swapped at will, and whether occupation is genuinely shared. These practical details often decide the question.

Certainty of term

• Leases require a certain term: There must be a definite maximum duration. This can be a fixed term (e.g., 12 months) or a periodic tenancy (weekly, monthly), which continues by periods until ended by notice.
• Indefinite terms: Open-ended arrangements can still amount to a periodic tenancy if rent is paid by reference to a period. Uncertain fixed terms are problematic.
• Modern position on rent: A lease can exist “whether or not at a rent”, but most tenancies have rent and a payment pattern that helps identify a periodic tenancy.
• Special case: Mexfield/Berrisford
  • In some rare cases where an agreement purports to grant indefinite occupation to an individual, the common law may treat it as a lease for life converting to a 90‑year term determinable on stated events. This is unusual and should not be relied upon in routine practice.

Intention to create legal relations

• Objective test: The court looks at the substance of the arrangement, the conduct of the parties, and the terms. Domestic or family arrangements may point to a licence; commercial arrangements often point towards legal relations being intended.
• Nomenclature: Calling something a “licence” is not decisive. The question is what rights were actually granted.
• Sham or pretence: If clauses are inserted to disguise exclusive possession but are not intended to be operated, they may be disregarded.

Rent, form and registration

• Rent: Not a strict requirement for a lease, although commonly present. Absence of rent does not automatically make an arrangement a licence.
• Formalities (creation of legal lease):
  • Leases for more than 3 years must be by deed: s.52 Law of Property Act 1925.
  • Short legal leases (3 years or less) can be created orally if at best rent with possession is taken: s.54(2) LPA 1925.
  • Equitable leases arise under a written contract complying with s.2 Law of Property (Miscellaneous Provisions) Act 1989, specifically enforceable in equity.
• Registration:
  • Leases for more than 7 years must be registered to take effect at law: s.27 Land Registration Act 2002.
  • Short legal leases (7 years or less) generally override registered dispositions: Sch 3 para 1 LRA 2002.

Key Examples or Case Studies

Street v Mountford [1985] AC 809

• Context: Occupier signed a “licence” agreement for a room with exclusive possession for a term at a weekly payment.
• Point: Substance over label. Exclusive possession for a term usually equals a lease.
• Practice: If you grant exclusive possession for a defined period, expect a lease even if your document says “licence”.

AG Securities v Vaughan; Antoniades v Villiers [1990] 1 AC 417

• Context:
  • Vaughan: Four occupiers signed separate agreements at different times for a flat; the owner retained the right to introduce others.
  • Antoniades: A couple signed identical “licence” agreements for a small flat with a supposed right for the owner to share.
• Point:
  • Vaughan: Genuine multiple occupancy without a single agreement = licences.
  • Antoniades: “Sharing” clause was a pretence; couple had exclusive possession together = lease.
• Practice: Genuine flexibility and separate agreements can support a licence; artificial sharing clauses risk being ignored.

Aslan v Murphy [1990] 1 WLR 766

• Context: Agreement included landlord’s right to retain a key and restrict hours of occupation.
• Point: Retention of keys and hours restrictions do not defeat exclusive possession if they are not exercised or are unrealistic. The court will ignore pretences.
• Practice: Operative rights matter. If a key is kept only for emergencies, that alone will not stop a lease arising.

Bruton v London & Quadrant Housing Trust [2000] 1 AC 406

• Context: A housing trust without a proprietary lease granted an occupier “exclusive possession”. Could this be a lease?
• Point: A “Bruton tenancy” is a contractual tenancy effective between the parties, even if the grantor has no estate. It does not bind the freeholder.
• Practice: Contractual tenancies can exist without creating proprietary estates. Third-party effects differ.

Practical Applications

• For landlords and property managers:

  • Decide early whether you want a lease or a licence. Draft and operate the arrangement consistently with that choice.
  • To keep a licence:
    • Avoid granting exclusive possession. Use genuine shared or non-exclusive occupation.
    • Maintain the right to move the occupier between rooms or desks and actually use that right where practical.
    • Provide attendance or services incompatible with exclusive possession (e.g., hotel-style services).
    • Keep terms flexible and short. Avoid fixed long terms that look like tenancies.
  • If you intend a lease:
    • Use a deed for terms over 3 years, and register leases exceeding 7 years.
    • Consider security of tenure for business tenants under the Landlord and Tenant Act 1954. If contracting out, follow the statutory notice and declaration process precisely.

• For occupiers and tenants:

  • Labels can mislead. If you have exclusive possession for a term, you may be a tenant with stronger statutory protection.
  • For business premises, check whether the 1954 Act applies. If it does, renewal rights may exist unless excluded.
  • For residential lettings, consider Housing Act status (e.g., assured shorthold tenancy) and the correct eviction process.

• For buyers and lenders:

  • Review the register for leases over 7 years and check for short leases and occupiers on site.
  • Licences usually do not bind successors, but be alert to equitable rights (e.g., proprietary estoppel or constructive trusts) in unusual circumstances.
  • Inspect and ask enquiries about any occupiers to avoid being bound by unspotted tenancies.

• Common scenarios:

  • Hotels and serviced apartments: Likely licences if services and control remain with the operator.
  • Student halls: Often licences if rooms can be moved and services are provided; private student lets may be tenancies.
  • Serviced offices and co‑working: Often licences if occupation is non-exclusive with desk swapping; single dedicated suites for a fixed term may be leases.
  • House shares: Separate agreements starting at different times and room swapping may point to licences; a single joint agreement for the group usually points to a joint tenancy.

• Termination and possession:

  • Licences can often be revoked on notice (subject to contract terms), but wrongful revocation may be a breach of contract.
  • Tenancies usually require statutory or contractual notice and, for residential occupiers, a court order for possession.

Summary Checklist

• Identify exclusive possession: who can exclude whom, and is any “sharing” genuine?
• Confirm a certain term: fixed or periodic. Avoid uncertain terms unless a periodic tenancy arises.
• Ignore labels: apply Street v Mountford’s substance test.
• Spot pretence clauses: do they operate in practice?
• Consider services and control: attendance and genuine mobility point to a licence.
• Check rent and payment pattern: rent helps, but it is not essential for a lease.
• Use correct formalities: deed for >3 years; registration for >7 years; or rely on s.54(2) for short legal leases.
• For business lettings: assess 1954 Act security and any contracting-out steps.
• For transactions: search the register, inspect the property, and make occupier enquiries.
• Record how the arrangement is managed day-to-day; courts look beyond the document.

Quick Reference