When renting out or occupying a commercial property in the UK, you’ll typically encounter two main types of legal agreements – a licence to occupy and a lease. While they might seem similar at first glance, there are critical differences between the two that can significantly affect both landlords and tenants. Understanding these distinctions is essential if you want to avoid legal disputes, secure your rights and make informed decisions about the property arrangement you’re entering into.
In this blog post, we’ll explain the legal definitions of both a licence and a lease, highlight how they differ and outline when each is appropriate. We’ll also look at why legal advice is essential when dealing with either agreement – whether you’re a landlord granting access or a tenant occupying a space for your business.
What is a licence to occupy?
A licence to occupy is a form of legal permission that allows someone to use a property for a specific purpose and duration – without granting them exclusive possession. The licence gives the licensee (the person occupying the property) permission to be there but does not create a formal landlord-tenant relationship.
Unlike a lease, a licence to occupy doesn’t provide security of tenure under the Landlord and Tenant Act 1954. This means it can be terminated relatively easily and doesn’t give the occupier the right to renew or remain in the property once the term ends.
This type of agreement is often used when access needs to be short-term, flexible or revocable. Common examples include temporary concessions in shopping centres, pop-up retail spaces or shared office arrangements.
Because a licence doesn’t offer long-term protection, it’s typically best suited to scenarios where both parties want flexibility without the burdens of a full commercial lease.
What is a commercial lease?
A commercial lease is a legally binding contract between a landlord and a tenant, granting the tenant exclusive possession of a property for a set period, usually in exchange for rent. Crucially, it gives the tenant a legal interest in the land – not just permission to occupy it.
The lease will outline responsibilities such as rent payments, maintenance obligations, permitted use of the property and whether the tenant can sublet or assign the lease. It also typically grants protection under the Landlord and Tenant Act 1954, unless this is specifically excluded.
Commercial leases are common in long-term business arrangements. For example, a company renting office space, a restaurant leasing premises or a shop taking on a high-street unit will usually sign a lease agreement.
Due to the rights and responsibilities involved, leases are more structured, formal and legally robust than licences. They’re designed to offer greater certainty to both parties – but that certainty comes with increased legal complexity and less flexibility.
Key legal differences between a licence and a lease
The most significant difference between the two lies in the concept of exclusive possession. A lease gives the tenant the right to exclude others – including the landlord – from the premises for the duration of the term. A licence, on the other hand, does not grant this right. The licensee is allowed to use the property, but the landlord retains greater control and access.
This difference affects how the law treats each arrangement. A lease is considered an interest in land, giving the tenant stronger legal rights. A licence is merely a personal agreement between parties – offering less protection and fewer remedies in the event of a dispute.
Duration and termination are also important distinctions. While leases typically run for a fixed term with defined renewal rights, licences can often be revoked at short notice. If a landlord wants the premises back, terminating a licence is generally simpler and quicker than ending a lease.
Another key area is the issue of statutory protection. Business tenants with a lease usually benefit from security of tenure, which means they have the right to renew their lease at the end of the term. Licensees do not enjoy this protection, leaving them more vulnerable if the arrangement ends.
Why the difference matters
Misunderstanding or misclassifying an agreement can lead to legal challenges. Simply calling a document a “licence” does not make it so – courts look at the substance of the arrangement, not the label. If a licence effectively grants exclusive possession, a court may rule that it is, in fact, a lease – potentially granting the occupier more rights than the landlord intended.
For landlords, this could mean finding themselves stuck with a long-term tenant they cannot easily remove. For occupiers, it might mean discovering they don’t have the legal protection they thought they did – such as the right to stay in the property or renew their agreement.
Getting the distinction right from the outset is vital, especially in commercial arrangements involving substantial rent, business assets and long-term planning.
Legal advice from commercial property solicitors
Whether you’re a business owner seeking premises or a landlord offering space, legal advice is essential when deciding between a lease and a licence. The implications for control, responsibility and financial exposure can be significant. A solicitor specialising in commercial property can assess your circumstances, recommend the most appropriate agreement and ensure the terms are drafted with clarity and legal compliance.
At Osbourne Pinner Solicitors, we work with landlords and commercial tenants across the UK to advise on property agreements, resolve disputes and protect your interests.
We offer a free 30-minute consultation to review your needs and answer any questions. Contact us today via the form below, call 0203 983 508 or email [email protected] to speak to one of our experienced commercial property solicitors.
You can come to our offices in Harrow, Canary Wharf, Piccadilly Circus or Manchester – or speak to us on a video call if you’d prefer a remote consultation.
