Why should a licence to occupy be a dangerous document? As always, the devil is in the detail and a badly drawn-up licence can be very bad news for the landowner (or licensor).
A licence to occupy is a personal agreement between the licensor and the occupier (the licensee), whereby the licensor permits the licensee non-exclusive occupation of the premises for a short period of time, typically six or 12 months. Occupation is ‘non-exclusive’ because the licensor can also occupy the premises, or alternatively grant further licences to other occupiers.
Licence or lease?
The name of the document gives a clue to its potential dangers – it should make reference to non-exclusive possession and a licence fee, rather than a rent, so that it is clearly not a lease. The danger with a poorly drafted licence is that, if the agreement has lasted more than six months, the licensor could be deemed to have granted a lease, exposing them to a claim that the licensee has ‘security of tenure’ under the Landlord and Tenant Act 1954; an statutory right to renew occupation to which the licensor has very limited grounds to oppose.
What’s the safest way to proceed?
A more cautious approach is for the landowner to grant either a short-term lease of less than six months or alternatively a lease for a fixed term which specifically excludes the 1954 Act. A lease of six months or less is automatically excluded from the 1954 Act, so although they have granted the occupier exclusive possession of the premises, the landowner has the reassurance that, when that term is up, the occupier will have to vacate the premises unless the parties negotiate a new lease.