Commercial property licence

Our solicitors have years of experience in drafting and negotiating commercial property licences. These documents can be complex, so whether you are a landlord or a tenant it is in your best interests to seek legal advice before entering into an agreement.

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What is the difference between a commercial property licence and a lease?

A commercial property licence is a legal agreement between a landlord and a tenant that gives the tenant the right to occupy a property for a specific length of time. Unlike a lease, it does not grant any other rights. With a lease tenants and landlords have specific rights and obligations under the Landlord and Tenant Act 1954.

Leases often run for 8 to 10 years, whereas licences usually cover six months to two years. When a lease term has expired a landlord cannot automatically evict a tenant without following a set of strict procedures. Even then, the landlord may have to pay financial compensation to the tenant. In contrast, a licence gives a tenant no ‘right to remain’ and a tenant is usually given 28 days’ notice to leave.

Under a licence, a tenant does not have the right to use a property exclusively nor the right to controlled rent.

What are the benefits of a licence to occupy?

A licence is quicker to arrange and therefore cheaper to prepare than a lease. Stamp duty is not payable on a licence to occupy, but it can be payable on commercial leases. A licence also offers a greater degree of flexibility for both the landlord and the tenant than a lease.

New businesses that need a property but cannot predict their sales into the future often find that a licence is preferable to the longer-term commitment of a lease. A licence gives a business the freedom to move into smaller or larger accommodation as needed by giving the landlord just a few weeks’ notice. Sometimes there is the option to rent additional space within the same building, such as storage space or an extra office.

Businesses looking for temporary premises, such as a Christmas shop, can also benefit from a short-term licensing arrangement.

What types of property can be occupied under a licence?

Licences to occupy are most often used for:

Serviced office spaces (sometimes called co-working space), studios and workshops. The premises might be shared by several other businesses including the landlord themselves.
Properties that are intended to be leased or sold. The property owner may grant a short licence so they have an income until they find a buyer or a lessee.
Properties that are in the process of being leased. A licence may be granted by a landlord if a business needs to occupy a premises straight away before a lease has been finalized.
Concessions operating in department stores. A concession is a business that operates in a department store’s premises as a shop with its own identity, staff, furniture, displays etc.

Have a question or need some help?

Or call us on 0808 304 7471

Why seek legal advice?

Whether you are a landlord or a tenant the terms and conditions of a licence need to be carefully drafted and scrutinized to make sure your business interests are protected. At Davisons, our commercial property solicitors are dedicated to negotiating the most favourable licence terms for our clients.

If you are a tenant, these are some questions to consider before signing a commercial property licence:

What equipment and shared facilities are included under the licence? (Internet access, shared kitchen etc.)
What services are included? (Cleaning, photocopier maintenance etc.)
How much will the landlord charge for extra services such as printer use?
Are you allowed to put up signage to advertise your business?
What are the arrangements for parking?
Are you permitted to access the premises out of office hours if needed?
What happens in the event of any loss or damage to property and equipment?
How will your deposit money be protected if the landlord goes bankrupt? Unlike with a lease agreement the landlord has no legal obligation to pay your deposit into a government approved deposit protection scheme.
Under what conditions will money be deducted from your deposit?
Are you happy with the notice period specified under the licence?

If you are a landlord, it is important to make sure that a licence agreement does not unintentionally become a lease with all the associated landlord’s and tenant’s rights and obligations under the law.

Granting a tenant exclusive possession of a property is a lease and not a licence. If a tenant can lock you out of the property then you have granted them a lease - the fact that you have called it a licence does not matter.

Providing for a fixed term or using incorrect terminology (for example, ‘rent’ instead of ‘licence fee’) also means a lease may have been granted rather than a licence. A licence that is correctly drawn up by an experienced commercial property solicitor eliminates this risk.

Make a Free Initial Enquiry

Whether you are a landlord or a tenant, if you are planning to enter into a licence to occupy our specialist commercial property solicitors can help.

With our free initial assessment and same day response promise, you can easily find out what your options are before planning your next steps.

To arrange your free initial assessment today please call 0808 304 7471.

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