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For commercial property owners, one of the most important questions is whether an occupier should be granted a lease or a licence.
Although these documents may appear similar at face value, the legal implications differ significantly.
Misclassifying an agreement can expose landlords to unnecessary disputes, unexpected occupier rights or even the loss of control over their own premises.
Property owners must be fully informed of these distinctions before entering into any occupancy agreements.
Our Property Director, Elizabeth Jennings, outlines the legal distinctions and what property owners must understand when drafting an agreement.
What is a lease?
A lease is a legally binding agreement that grants the occupier exclusive possession of the premises for a fixed or clearly defined period, often referred to as a term certain.
In practice, this means that the tenant controls the space and can exclude all others, including the landlord, except where the lease reserves specific rights of entry.
A lease also creates a proprietary interest in the land and tenants may be able to assign or sublet their interest, depending on the terms.
Unless the parties formally exclude security of tenure, the tenant may acquire statutory protection under the Landlord and Tenant Act 1954.
For many landlords, leases can be attractive because they offer certainty and a clear legal framework.
However, they are also harder to terminate than licences and carry obligations that should be fully understood before they are granted.
What is a licence?
A licence is a contractual permission to occupy space and unlike a lease, it does not grant exclusive possession or give the occupier security of tenure.
Personal rights cannot be assigned and as a result, licences offer fewer statutory protections.
Licences are typically easier to grant and terminate, giving landlords greater flexibility to manage their premises.
This makes them particularly suitable for short-term, temporary or seasonal agreements, such as pop-up shops or during festive trading periods.
However, licences must be drafted carefully as a document labelled as a licence can still be treated as a lease by the court if it grants exclusive possession.
The specifics of a licence and a lease can be confusing, but with the right legal support, you can ensure your agreement includes the necessary requirements.
Why does the distinction matter?
Misclassifying a licence as a lease is one of the most common and costly errors made by property owners.
If an agreement is unintentionally deemed a lease, the occupier may acquire:
With the Renters’ Rights Act coming into effect on 1 May 2026, fixed-term residential tenancies are set to be abolished and all new assured tenancies will become periodic by default.
This change will remove the ‘term certain’ requirement for standard residential rentals and tenancies will carry on indefinitely until they are ended by the tenant or landlords using valid legal grounds.
Property owners must ensure their documents comply with changing legislation and seek legal advice on how their property could be affected.
How can property owners protect themselves?
To minimise any future risk or confusion, agreements should be drafted with precision and must reflect the true nature of the occupation.
The document should clearly address matters such as possession, access rights, relocation and termination provisions.
Early legal advice is one of the most effective ways to protect your property and avoid costly misunderstandings.
Our expert team can help assist you in drafting or reviewing leases and licences and identify risks before they escalate into disputes.
If you need support in preparing or reviewing an occupancy agreement, please get in touch with our expert team today.
Director - Commercial Property & Charities
I joined Mander Hadley in 2004, qualified as a solicitor in 2006 and have focussed on commercial law throughout. I am also a member of Coventry and Warwickshire First and Warwickshire Law Society.
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