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Case law: Court finds ‘licences’ were in fact leases, entitling the tenant to compensation from the landlord

Owners and occupiers of property should ensure they are clear whether their arrangements with each other amount to a lease or a licence, irrespective of the label, as their rights and obligations under each are very different, as a recent ruling makes clear.

March 2019

This update was published in Legal Alert - March 2019

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

A college occupied offices under a series of agreements described as licences, rather than leases.

Where there is a licence, the licence does not give the occupier a legal interest in the property itself – it is merely a personal, contractual arrangement giving the licensee permission to occupy the property. Unless the parties agree otherwise, it can be ended without notice by either party.

However, a lease gives the tenant a legal interest in the property. This can mean the tenant has security of tenure (ie, protection from eviction) under landlord and tenant law. A key characteristic of a lease is that the tenant enjoys exclusive possession – the right to exclude anyone else, including the landlord, from the property. A tenant under a lease is therefore in a much stronger position than a licensee under a licence.

Therefore, if an arrangement has the characteristics of a lease, the court will decide it is a lease with all the rights a lease affords the tenant - even if the parties call it a licence.

In this case, a dispute arose between the college and the property owner over licence payments and service charges, and the owner changed the locks. The college won an injunction requiring the owner to give it new keys and went back into occupation, and also claimed wrongful exclusion in the High Court.

The Court considered whether the intention of the parties was for a licence or a lease. It applied the objective test of what a reasonable person in possession of all background information reasonably available to both parties at the time the documents were entered into would think the words in it meant. It found from the evidence that the parties’ intention was that the arrangements were in fact leases, not licences.

For example, the college had invested in fitting out the parts of the property it occupied, and it could not have been the parties’ intention that the owner could then just enter the property whenever it wanted. It must have been intended that the college could exclude the owner.

It was also relevant that their bargaining power was unequal, given that the college was initially financially weak and not in a position to insist on a lease rather than a licence.

The Court therefore found that the college was a tenant under a lease, with security of tenure under landlord and tenant law, so the landlord could not terminate the lease without serving a formal notice in accordance with the required time limits.

The property owner – ie, the landlord - had therefore breached the lease when it changed the locks and the college was entitled to compensation.

Operative date

  • Now

Recommendation

  • Owners and occupiers of property should ensure they are both clear whether the arrangement they have entered into is, in fact, a lease or a licence irrespective of the name they give it, as their rights and obligations under each are very different.

Case law: London College of Business Ltd v Tareem Ltd [2018] EWHC 437

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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