We invite readers to submit questions on a burning issue they face in their business. We then turn to an expert in the field for the answer. Jay Gorasia, associate in the Commercial Property team at Neves Solicitors, assesses an issue that arises for both landlord and prospective tenant: Forms of tenancy on commercial property.
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THE QUESTION
I want to move my business into commercial premises under a rent agreement. Can you clarify my options?
THE ANSWER
Given the complexity and the legal terminology, understanding the nuances between a lease, a licence and a tenancy at will is key and can be vital in maintaining the rights and responsibilities of both property owners and those occupying a commercial property.
What is a Lease?
A lease is a formal agreement which provides the tenant with the right of occupation and control of a specific property to the exclusion of all others, subject to the rights reserved to the landlord under the lease, for a fixed term.
This arrangement grants tenants substantial rights, ensuring stability and predictability in their occupancy, while preserving certain rights of the landlord and giving the landlord the security of knowing that the property can bring in a constant income.
A lease creates a legal interest in the land in favour of the tenant and any subsequent sale of the property would be taken subject to the lease. It would create a separate legal title in a property which is then capable of being transferred, charged and out of which a sub-lease can be created, depending on what rights are granted by the landlord under the heads of terms.
Leases typically outline specific terms, such as rent amounts, responsibilities for repairs, and the duration of the tenancy. The idea is that a lease provides a framework governing how matters that can crop up during the term of occupation can be dealt with.
Leases can also offer protection to a tenant, enabling them to remain in occupation of a premises and demand a renewal of the lease at the end of the original lease term, subject to the application of certain conditions.
What is a Licence?
A licence is a more flexible arrangement that grants permission to use a property without providing the licensee with exclusive possession of the property.
A licence can be for a rolling term or for a fixed term and can often be granted for a period of time while a formal lease is being drafted or in order to allow a tenant access to a property (though not exclusively) for a fee payable to the licensor.
Often this scenario is beneficial to both licensor and licensee as it allows the licensee to gain access to a property while the licensor is usually afforded the ability to end the licence with a relatively short notice period needing to be given.
A licence will not create a legal title in the property and is a personal arrangement between a licensor and licensee.
A licence does not give the licensee the right of occupation and control of a specific property to the exclusion of all others and allows the licensor to relocate the licensee or grant other shared rights over the same property.
A specialist commercial property solicitor should be consulted as an error in drafting or an incorrectly drafted licence could be construed as a lease and as such could confer certain rights to a licensee, which could be problematic to a licensor.
What is a Tenancy at Will?
A tenancy at will is a more transient and informal agreement that allows the tenant to occupy the premises at the will of the landlord. However, it is often granted for a very short amount of time.
A determining factor of a tenancy at will is that it can be terminated by either party at any time. While it offers flexibility, it also lacks the security and structure inherent in leases, making it a less common choice for longer-term tenancy arrangements.
A tenancy at will should only be used in circumstances where:
- The tenant is still in occupation on the expiry of an existing lease while the parties are negotiating the terms of a renewal, and;
- To allow the tenant to take occupation while a formal lease is yet to be finalised with the landlord.
Although some use a tenancy at will to otherwise document a short-term letting arrangement, this is not advisable because if occupation continues beyond six months, then this can inadvertently create a periodic tenancy and give the tenant statutory rights to remain in occupation of the property for a longer term.
JAY GORASIA SAYS:
Understanding the distinctions between these property agreements is crucial, as each option carries its own set of implications for both landlords and tenants and it should be carefully considered as to what each party requires before committing to a form of tenancy/occupation.
Before entering into any agreement, it is imperative to seek legal advice to ensure that the chosen arrangement aligns with your needs and objectives. Whether you are a landlord or tenant, our commercial property specialists at Neves Solicitors can advise on the best option for you.
