Licence to Occupy vs Lease: What’s the Difference?

When it comes to granting rights to use commercial property, the two most common legal arrangements are a lease and a licence to occupy. While they may appear similar on the surface – both giving someone the right to use a space – they are very different in terms of legal status, protection and obligations.

Choosing the wrong arrangement can lead to unexpected disputes, tax issues or difficulty ending the agreement later on. In this guide, we explain the key differences between a licence and a lease, when each is appropriate and what both landlords and occupiers should be aware of. You can also talk through the differences with our commercial property solicitors in a free 30-minute consultation.

What is a lease?

A lease is a legal interest in land. It gives the tenant exclusive possession of a defined area for a fixed period, in exchange for rent. Leases are governed by property law and offer significant protection to the tenant.

Key features of a lease include:

• Exclusive possession of the premises
• A fixed term (such as 5 or 10 years)
• Rent payment obligations
• Legal rights to renew in some cases (under the Landlord and Tenant Act 1954)
• Ability to assign, sublet or sell (unless restricted)
• Registration at the Land Registry (if over 7 years)

Leases create a landlord-tenant relationship and give the tenant enforceable property rights.

What is a licence to occupy?

A licence is a personal permission to use land or premises. It does not grant exclusive possession or create an interest in land. A licence is usually more flexible and informal than a lease and does not carry the same statutory protections.

Key features of a licence include:

• No exclusive possession – the occupier shares access with the owner or others
• Short-term or rolling arrangements
• Often used for pop-ups, hot desks, shared spaces or concessions
• Cannot be assigned or sublet
• No right to remain once the licence ends
• Can often be terminated with little notice

A licence simply allows someone to use a space under certain conditions, without transferring legal rights.

Licence vs lease: key differences

Understanding the legal distinction between the two is crucial. The table below highlights the main differences:

Why does the distinction matter?

Mislabelling a lease as a licence – or vice versa – can have serious consequences. Courts will look at the substance of the arrangement, not the label, to determine what rights exist.

For example, a licence agreement may legally be considered a lease, regardless of a document’s title, if it gives the occupier:

• Exclusive possession
• A defined space
• A fixed term
• Limited interference from the landlord

Doing this can give the occupier rights the owner didn’t intend – including protection under the Landlord and Tenant Act 1954.

For landlords, this could make it much harder to recover possession. For occupiers, assuming you’re protected under a lease when you’re not could leave you vulnerable.

When is a lease appropriate?

Leases are best suited to:

• Long-term or secure arrangements
• Occupiers needing control over the space
• Businesses investing in fit-out or equipment
• Situations where property law protection is needed

Most traditional commercial property lets – shops, offices, warehouses – are handled using leases.

When is a licence more suitable?

Licences work well when:

• The arrangement is short-term or temporary
• The occupier is using shared or non-exclusive space
• The landlord needs flexibility to change terms or remove the occupier quickly
• The property is used for pop-ups, concessions or hot-desking

Licences are often used in serviced offices, co-working hubs, shopping centres (for kiosks) or for filming locations.

Drafting considerations

To avoid disputes and ambiguity, it’s essential that the agreement accurately reflects the intended relationship. A poorly drafted licence that operates like a lease may be reinterpreted by the courts – exposing landlords to unexpected legal obligations.

Landlords should:

• Avoid granting exclusive possession in a licence
• Retain keys and rights of access
• Include the right to move the occupier to another area
• Use clear and short termination provisions

Occupiers should:

• Seek clarity from commercial property solicitors on their right to stay and their obligations
• Understand whether they’re protected under landlord and tenant law
• Consider whether they can invest safely in the space

Can a licence turn into a lease?

Yes – if a licence arrangement continues over time and gives the occupier de facto exclusive control, a court may determine that a lease has been created, even without a formal lease agreement. This is particularly risky where:

• The licence lasts several years
• The occupier has their own keys and locks
• The landlord rarely enters or shares use
• The space is clearly defined and not shared

Both parties should regularly review the terms and usage to ensure the arrangement still reflects their intentions.

Get legal advice before entering into any occupancy agreement

Whether you’re a landlord granting access to a commercial space or a business looking to move in, the distinction between a lease and a licence is too important to leave to chance.

At Osbourne Pinner Solicitors, we advise clients on the correct structure, drafting and enforcement of commercial leases and licences. Our commercial property lawyers can help you:

• Review or draft an agreement
• Avoid legal disputes
• Understand your rights and obligations
• Take action if the arrangement breaks down

A free 30-minute consultation is the easiest way to get the ball rolling. It allows us to understand your circumstances and offer tailored advice, as well as giving you the opportunity to ask any questions you have.

To book in a slot, call us on 0203 983 5080, email [email protected] or use the enquiry form below. You can come to our offices in Harrow, Canary Wharf, Piccadilly Circus or Manchester City Centre – or speak to us on a video call if you’d prefer a remote consultation.