Licence v lease – Which is best?

Choosing the right rental agreement is crucial for landlords as getting it wrong can give the tenant more rights over the property than intended.

A licence is an agreement for someone to stay at a property, like a lodger or a hotel guest, but a lease is a tenancy agreement that offers security of tenure.

The problem arises when landlords fail to take legal advice about the rights they are signing over to tenants and create a tenancy instead of a licence.

Whatever is written on the paper or agreed verbally is irrelevant.

In court, according to the case Street v Mountford, calling a tenancy a licence does not mean the tenant loses any rights nor hand any extra rights to a landlord.

Many landlords favour a licence over a tenancy as they believe regaining possession of a property is easier – with just four weeks’ notice instead of eight.

A licence can easily become a lease as well – for example, if a tenant directly pays utility bills.

The other issue that creates a tenancy is handing the tenant too much privacy.

Say a landlord takes in a lodger and stays with a partner for most of the week or does not enter the tenant’s room too often, and then the licence is slipping towards a tenancy because the landlord is not enforcing the agreement.

When is a rental licence useful?

In some situations a licence agreement is created as a matter of course:

  • Houseboats
  • Lodgers in the landlord’s home
  • Service accommodation for live-in caretakers and cleaners
  • Hotels and hostels where individual agreements are made for people sharing a room, or access for cleaning is allowed regularly
  • People living as the beneficiary of a charity

Can landlords create a licence?

Landlords may attempt to create an artificial licence by putting clauses into a rental agreement. This may state that occupiers can be moved to another room or be required to share with someone else.

If these “licence” clauses never actually come into effect, then a court is likely to find that the situation was in fact a tenancy.

Are there any benefits to a licence?

Landlords may think that having a rental licence in place means they can simply evict people without having to go through the courts. However, the Protection from Eviction Act 1977 states that almost all occupiers have the right to stay in the property until a court order is issued, whether or not they have a tenancy.

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