Lease v licence?

Very often licences to occupy business property are drawn up for speed and simplicity with the intention of providing flexibility and, crucially, to ensure a tenant doesn’t obtain rights it might otherwise get with a formal lease.

However licences can end up causing lengthy and complicated disputes. One of the first lessons a property lawyer learns is that just calling a licence to occupy a licence doesn’t make it one. You can end up with more than you bargained for as a landlord.

This is what happened in the recent High Court ruling in the case of London College of Business Ltd v Tareem Ltd [2018] EWHC 437 (Ch) “Tareem”.

Background

Since 2006, London College of Business (“the College”) had been occupying premises owned by Tareem and a dispute arose in 2013 as a result of the College falling in arrears for service charge payments with Tareem. This led Tareem to change the locks in 2014, excluding the College from the premises.

The College had been occupying the premises since 2006 relying on a number of “Agreements” which had been drawn up as licences. The Court had to decide whether the exclusion of the College was wrongful and in doing so, it had to ascertain the nature of the agreements in place between the College and the landowner.

The Court took a pragmatic approach by looking beyond the wording and the forms of the agreements to place a greater emphasis on the practical and true nature of the arrangements between the parties.

In essence the Court decided that the College’s occupation had the hallmarks of a lease rather than a licence which meant the tenancy was protected by the 1954 Act meaning the College could enjoy certain protections.

Lessons to be learnt

Whatever a document is called, it is what is actually happening in respect of the occupation which is critical. The Court is always keen to examine the true nature and the ongoing arrangements between the parties, rather than taking an agreement at face value and relying on the label the parties place on it.

Always ensure the document is suitable in the circumstances, take advice and actively monitor the ongoing position.

Posted on: 21/11/2018

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.

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