In English law, the classic lease v licence distinction

The following is from an English source but I think the similarity is sufficient to use the English term - you may wish to use the French and append this in brackets though (not the whole of the following text unless you want to blow up your client)

Licence to occupy



In business there are two ways to occupy a property for commercial purposes, one is to take out a lease and the other is obtain a licence to occupy. There are a few differences between a lease and a licence to occupy such as rent, exclusive possession and the length of time of occupation. The main difference however, legally, is that a lease creates an interest in the land but a licence merely gives you permission to use the property.

So what exactly is a licence to occupy?

A licence to occupy is a legal agreement between the licensor (the part who owns the property) and the licensee (the seeking to occupy the property), giving the licensee the right to occupy the property for a defined length of time.


Who possesses the property where such an agreement exists?

Also known as a tenancy at will, the licence to occupy permits non-exclusive occupation of the property for a specific time frame. Normally this is on short-term basis of six months to a year. But the length of time can vary. The fact that occupation is non-exclusive, means that the landlord or another occupant can also occupy the property.

In business it is usual for the landlord to hold rights of possession. On signing the agreement, the licensee gains partial possession (possession is not full because others may be in occupation too) of the internal property and therefore is responsible for his part. For example you would be required to keep the inside of the property in good repair. The landlord would retain responsibility for the external area and structure of the property.

What happens when the agreement comes to an end?

When the end date on the licence is reached, the contract ends and the licensee must leave the property. The licensee cannot renew the agreement if he has been requested to leave. The premise must be vacated unless the licensor wishes to renew the contract. Terms of the new agreement may differ from the previous licence to occupy, for example rent may have increased.



If the end date has not been reached, the licensor may still be able to terminate the contract and ask the licensee to leave in accordance with the terms of the licence. Reasons for early termination may be defaulting on the rent or not keeping the property in good repair. Additional reasons may be related to the structure of the property. The licensor may feel there are structural issues, which need to be addressed before the property becomes unsafe.



There are a few advantages of entering into a tenancy of will for a licensor, two of which have been explained above. Firstly the licence is for non-exclusive possession, he therefore can let to several different businesses under separate agreements. Second is that occupation is on a short-term basis. The licensor is therefore not committed for a long period of time but instead is able to make temporary arrangement. However, the main purpose of granting a licence to occupy to a business is to avoid security of tenure.



What is security of tenure?

Security of tenure entitles the tenant of a property to continue occupation after the end of the contract provided certain terms are met. Security of tenure is only possible where a fixed term exists. A tenancy at will is usually drafted in such a way so as to avoid a possibility of a fixed term. Rent for instance can be paid one month in advance. Failure to pay rent would result in the licence being terminated.



What should both the parties to a licence to occupy be aware of?

There is a thin line between a licence to occupy and a lease. With regards to drafting the agreement, the licensor should ensure the document does not give the licensee exclusive possession of the property for a term with rent. Even if the licence has been drafted correctly, it is important that the parties to the agreement do not act in such a way to contradict what the licence states.



One important point to note is that there are many cases where a document has been stated to be a lease but in fact is found to be a licence and vice versa. The label put on the document is therefore indicative only and not conclusive.

- See more at: http://www.beingaleaseholder.co.uk/commercial-lease/licence-...

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Note added at 27 mins (2013-10-06 10:16:11 GMT)
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The traditional test for a lease is that the occupier has exclusive possession of the premises, for a fixed term, at a rent, although the last element need not always be present. The label which the parties put on the arrangement is not conclusive – the court will look at the substance of the relationship which has been created.

In Cameron Ltd v Rolls Royce PLC, the tenant had a lease which was contracted out of the Landlord & Tenant Act 1954. After that lease expired, it remained in occupation while negotiations for a new lease were taking place. Eventually an agreement for a new, contracted out lease was entered into. The agreement provided for the tenant to occupy the property as a licensee during the period between the date of the agreement and the lease itself being granted. Occupation was to be on the same terms as the new lease and the tenant was to pay a licence fee equivalent to the rent payable under that lease.

When the time came for the tenant to enter into the new lease, it refused to do so. It claimed that it already had a tenancy which had arisen under the interim arrangements in the agreement for lease, and that that tenancy was protected by the 1954 Act.

The judge looked at what the parties were trying to achieve when they entered into the agreement. He concluded that they could not have intended the grant of a tenancy, and particularly not one to which the 1954 Act applied. The original lease had been contracted out, and the parties had also gone through a contracting out procedure in relation to the new lease.

Following the seminal case in this area; Street v Mountford, the court held that there are instances where the three elements of exclusive possession, a term and a rent are consistent with a licence and only a licence. For example, where the right to exclusive possession can be explained on the basis of a legal relationship other than a tenancy. The court distinguished between instances where the purported licence is a stand alone arrangement, and those where the licence is merely part of a bigger picture.

In this case, the occupation was clearly referable to the agreement for the new tenancy. The position was no different from a buyer who went into occupation before completion pursuant to a contract to purchase the property. The agreement had created a licence, pending completion of the lease.

In any event, the landlord could have relied on section 28 of the 1954 Act. This provides that, where a landlord and tenant enter into an agreement for a new lease of the property from a future date, the current tenancy will cease to be protected by the Act.

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Note added at 37 mins (2013-10-06 10:26:14 GMT)
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IHTM24073 - Occupation: Land Let on Grazing Licence

There are many and varied methods of achieving a relationship between the owners of pasture and those who require pasture land for grazing, mowing or accommodating stock. A wide range of occupation arrangements exist ranging from formal tenancies creating an interest in land to informal verbal licences. The grazing licence is a commonly used arrangement; various terms are used to describe it such as sale of grass, grazing lets, grasskeep and other purely local terms.

Prior to the Agricultural Tenancies Act 1995 (effective from 1 September 1995), which introduced Farm Business Tenancies, grazing licences were an important method of avoiding the security of tenure provisions of the Agricultural Holdings Act 1986 (Section 2[3][a]).

However, grazing licences are still extensively used across the UK. This is because occupation of land on a grazing licence confers other important advantages upon the landowner. Considerations of wider taxation such as Income Tax, Single Farm Payment consequences and Milk Quota considerations all mean that grazing licences are still widely used.

In order to avoid the security of tenure provisions of the Agricultural Holdings Act 1986 grazing licences had to be granted for less than 1 year. Since 1995, there is no reason why grazing licences could not be granted for a longer period.

Where land is let to a third party under a grazing licence or agreement the owner is unlikely to be in occupation for agricultural purposes of that land during the period of the licence. This may have an impact on whether agricultural relief is available on the farmhouse (IHTM24074). Where a grazier occupies land for agricultural purposes the ownership test under IHTA84/S117(b) will need to be satisfied.
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IHTM24074 - Occupation: Definition of a lease as opposed to a licence

It is important to have an understanding of the difference between a lease (that is a tenancy) and a licence under general law so that you know what you are dealing with in any particular case.

The requirements for a lease are

exclusive possession of a defined area of land,
for a fixed period (or series of periods) of time,
with the intention to create an estate in land - that is an interest in the land itself which can be assigned or sold.

Rent will usually be paid but it is not an essential requirement. Exclusive possession for a term under an enforceable agreement (for example by deed) will be sufficient.

However, it is unlikely in practice that a periodic tenancy would be granted without provision for payment of rent and the absence of such provision may well suggest a licence rather than a tenancy.

A licence is simply a permission to use land. It allows someone access to the land of another for an agreed purpose. It is an authority that justifies what would otherwise be a trespass. It does not confer any interest in land.

If there is no exclusive possession then the arrangement cannot be a lease and must be a licence.

The general rule is that the Court will look at the substance of the agreement rather than the form in which it is expressed. Street v Mountford [1985] AC 809 gives a good exposition of the law in this area.

Other arrangements that may be encountered which are not grazing licences include Profits a prendre. This is an entirely different legal mechanism being an incorporeal heriditament, a right to take something that is part of the land and capable of being sold from another person’s land - in this case a Right of Herbage whether for a fixed or periodic term. Other arrangements are taking in livestock under arrangements known as tack or agistment. These comprise the taking in of livestock at a rate of so much money per head.

Grazing licences can be both verbal and written agreements. The rights and responsibilities under a grazing licence agreement vary from where the grazier takes responsibility for all the farming operations, to arrangements whereby the landowner carries out husbandry operations to grow the grass crop and the grazier brings on his livestock to the land to eat the grass crop off. It is important to identify where these responsibilities lie in the grazing licence agreement and also to identify whether or not the responsibilities in the agreement have actually been carried out in accordance with that agreement on the ground.

However how a grazing licence agreement has been worded and operated in practice is important when considering Agricultural Property Relief. This is because it is relevant to the IHT treatment of the land itself, but also the consequences of the wording or operation of the agreement upon the application of relief to buildings, particularly the farmhouse as well as other cottages and farm buildings.

The terms and practical operation of a grazing licence agreement will determine the fundamental question as to who is the actual occupier of the land for the purposes of assessing compliance with Section 117 of IHTA 84.

It is therefore important to obtain as much information as possible about the terms and operation of the licence in order to correctly assess these provisions.

The availability of Agricultural Relief is a question of fact and degree to be decided upon the particular facts of each case. Recent litigation in relation to claims for Business Property Relief as regards the occupation of land on grazing agreements in Northern Ireland, has provided further guidance about interpreting such situations. Any case where this is an issue should be referred to Technical.

It is unlikely that a landowner who has allowed most or all of the agricultural land to be occupied on a grazing licence agreement where he or she does nothing but collect the rent and maintain boundaries, will be considered to be in agricultural occupation of that land. Consequently, as there is no farming activity actually being carried out, any associated house cannot be considered to be a farmhouse, so it would not be eligible for agricultural relief.
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Note added at 40 mins (2013-10-06 10:29:29 GMT)
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Resolved Question

What is an Agricultural licence?

7 years ago



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licence to grow stuff I guess

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Other Answers (6)

Steve-Bob Steve-Bo...
It is a licence to perform agriculture! Whether this includes growing animals as well as plants I'm not sure. They're in existence to make sure that the market is not flooded with produce. If too many people grew potatoes, the price would drop, and farmers wouldn't be able to make a living. It is therefore licenced.

Nemesis Nemesis
it is a licence to grow plants on the land you own

Michael H Michael H
Don't know. l've got a few hundred acres and don't think i've got an "agricultural license" ( I'd have to ask one of the staff to be sure)

We've got a DEFRA CPH number, we're a registered farm, we got herd marks, flock numbers, DEFRA licences ( 12 of the little blighters, including ditch cleaning, slurry spreading, burning etc.), our crop types are logged with DEFRA. We've got a couple of cottages tied to agricultural use

I've also got a schedule license from DEFRA that shows when I can, and cannot, go to the bathroom

Feel free to throw more paperwork at us, we're strong enough ;-)
7 years ago
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puffy puffy
Exactly what is ses on the tin!

Allows you to use land for agricultual purposes.
7 years ago
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