Landlords and Tenants alike should take great care when entering into agreements documenting the terms of short-term occupational arrangements.
Short-term occupancies may be attractive where, for example, serviced office space is being made available for a short period of time, or, say, to afford early access to a Tenant while lease negotiations conclude.
There are three principal ways in which such arrangements can be documented: leases, licences and tenancies at will.
A key feature of a lease is that it grants the tenant exclusive possession of the premises. Unlike a mere licence, the lease confers the tenant with an interest in land, capable of existing independently of the contractual element of the relationship between Landlord and Tenant (and thus surviving on an assignment of the freehold or superior lease).
Provided the lease does not fall within the security of tenure provisions of Part II of the Landlord and Tenant Act 1954, the Landlord will be entitled to possession of the premises at the expiry of the term and will have the benefit of a secure period of income while the lease subsists.
From the Tenant’s perspective, a lease offers greater security than a Licence or Tenancy at Will. However, the lease may give rise to Stamp Duty Land Tax (SDLT).
Licences are quicker to draw up and do not give rise to an SDLT liability. From the Licencee’s view, the licence confers a personal privilege to use the land in a specified manner only, and does not grant the degree of control afforded by a Lease or Tenancy at Will.
It is crucial however that the Licence is drafted correctly – failure to do so could result in the inadvertent grant of tenancy, which may in turn have the protection of 1954 Act.
Tenancy at Will
As with Licences, a Tenancy at Will is generally quicker to prepare and does not give rise to SDLT. Such tenancies allow the Landlord to retrieve possession immediately, allowing quick access to the property. However, the Tenant can also terminate on notice and the Landlord will not therefore have the benefit of a secure period of income.
Care should be taken to avoid the inadvertent grant of a period tenancy, falling with the security of tenure provisions of the 1954 Act.
Whatever type of arrangement is decided on, professional advice should be taken at an early stage to ensure the documentation reflects the parties’ intentions.
From the Landlord’s perspective, it is imperative that the occupancy is properly documented, whether by a lease, licence or tenancy at will.
Simply permitting occupation of the premises in consideration for the payment of periodic rents is likely to give rise to a periodic tenancy, with very few implied terms and within the protection afforded by the Landlord and Tenant Act 1954.
Further, it should be noted that, merely naming an agreement a lease, licence or tenancy at will is not determinative of its legal status. The Courts will examine the terms of the agreement to determine conclusively the type of interest that has been created.
For assistance, please contact our Property Teams