Don’t Judge an Agreement By Its Cover

20 August 2015

David Wilson, Partner, considers the distinctions between a lease and a licence

The distinction between a lease and a licence is a very important one in the commercial property world as a tenant has benefits not conferred upon licensees by virtue of the Business Tenancies (NI) Order 1996 (“the Order”).

Rights conferred under the Order enable occupiers, acting in the course of business and captured within the ambit of the legislation, to remain at the premises following the expiry of the term; to seek automatic renewal on the existing terms and to secure financial compensation in certain circumstances when a landlord opposes a lease renewal application.

Ultimately, under a licence, licensors retain greater flexibility to determine the arrangement while affording less protection to the licensee. A licence essentially represents a mechanism through which a landowner authorises another party to use their land for an agreed purpose, in absence of which the permitted use would constitute trespass.

However, documents purporting to be “licences” are often not what they appear due to the characteristics of the agreements created thereby in practice conferring a legal interest in land.

Characteristics of leases include exclusive possession by an occupier, a fixed term exceeding more than 9 months and a periodic rent. Do bear in mind that licences can also be created for a fixed term subject to a periodic licence fee, however a landowner who enters into any agreement for a period of more than 9 months exposes themselves to the risk of the occupier securing business tenancy rights under the Order.

This particular area of law is quite complex therefore is incapable of being comprehensively analysed in a few short paragraphs. If you are intending to be a party to such a transaction; either as landowner or occupier, you should seek further guidance in this regard. Please feel free to contact Commercial Partner David Wilson using the form below.

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