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When is a lease not a lease but really a licence?

04 December 2012
It's an old question, but one that crops up regularly.  The most recent example to pass across this blogger's desk was in relation to a statutory residential leasehold extension.  In that case, a licence had been granted "exclusively" to use two car parking spaces as ancillary to a long lease of a flat. The question arose as to whether the car parking spaces were in fact let (rather than merely licensed) to the leaseholder which was crucial to determining whether the leaseholder was entitled to include the car parking spaces in their statutorily extended residential lease.

The seminal case on the distinction between leases and licences is the 1985 case of Street v Mountford which identified the three distinguishing features of a lease as:

  •  exclusive possession
  •  for fixed or periodic term certain
  •  in consideration of a lump sum or periodical payments

Of these three features it is the concept of "exclusive possession" which perhaps causes the most debate between landlords/licensors and tenants/licensees.  Exclusive possession is often regarded as the cornerstone of a lease and the most fundamental of its characteristics. However, the simple fact that a person appears to be in exclusive possession is not enough of itself to constitute a tenancy; a person may enjoy exclusive possession for a number of reasons e.g. as a squatter or as a mortgagee in possession. 

 That the possession must be for a fixed or periodic term certain is also clear.  In other words, the start and end of the tenancy must be capable of being computed at the outset. For example, in the 1992 case of Prudential Assurance Co Ltd v London Residuary Body a strip of land adjoining a road was granted "until the…land is required for the purposes of widening of Walworth Road…" This was found to be not capable of being a lease as the term was not sufficiently certain.

 Perhaps the most important thing to remember is that what the parties decide to call a document on its face is not necessarily a determining factor in the lease v. licence debate; it is the reality of the situation that counts.   As Lord Templeman in Street v Mountford put it:

 "The manufacture of a five-pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade"

 It is not always easy to make the call as to whether a lease is licence or a licence is a lease. If there are consequences attached to an occupation being classified as a lease rather than a licence or vice versa then always seek legal advice.

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