Short term options: tenancies at will v licences
Author: Emna Sfar-Gandoura
Applies to: England and Wales
Landlords who wish to allow short term, flexible occupation of a property often use tenancies at will or licences to occupy. It is important to recognise the pitfalls as well as the benefits of these arrangements before deciding which to use.
Tenancies at will and licences to occupy appear to provide a perfect solution to short term occupation. The expense and time of a full lease negotiation is not required, and this can seem attractive, particularly where there is a relatively low rent, or the parties have not yet agreed the length of period of occupation. However, they are not always as suitable or as straightforward as they may seem.
Length of arrangement
Both tenancies at will and licences are personal arrangements between the parties. If a landlord sells its interest in the property, any subsisting tenancy at will or licence ends automatically. Occupiers should be aware of this - even if the new landlord is willing for the occupation to continue, a new arrangement must be put in place.
In addition, a tenancy at will offers even less security for the occupier than a licence to occupy. A tenancy at will is a personal arrangement between a landlord and a tenant that depends on the continuing will of each party. No forfeiture or termination provisions are required; either party can bring the arrangement to an end immediately. This can be as much of a concern to landlords, whose income stream can end with no notice. Licences to occupy can be drafted to include a notice period for termination.
Terms of arrangement
The chief risk in using a licence to occupy to document short term periods of occupation is that the tenant may subsequently claim that it is a lease. The courts have made it clear that the title of a document is not necessarily conclusive in the case of dispute. If a licence grants exclusive occupation of the property, is for a fixed term, and reserves a rent, then it is likely to be a lease.
Any licence that lasts for a period of more than 6 months is at risk of being interpreted as a lease which is protected by the Landlord and Tenant Act 1954. This would make it much more difficult for the landlord to obtain vacant possession of their property.
Licences are more appropriate for arrangements where it is agreed that the occupier can be relocated to other parts of the building, or where occupation is for limited hours of the day.
It is critical to draft carefully for either a tenancy at will or licence to ensure that the document does not become a mixture of the two. This causes uncertainty.
What's the alternative?
A safer option for a landlord is to use a short term lease for a fixed term, which is expressly excluded from the protection of the Landlord and Tenant Act 1954. This offers landlords the certainty of recovering possession on the contractual expiry date of the term, and avoids any uncertainty. Short term leases can have flexibility through the use of mutual break clauses which allow either party to bring them to an end early.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.