Often there is some confusion between what is a lease and what is a licence. There are similarities between the two legal concepts. After all, both legal concepts allow individuals to use someone else’s land or property. However, it is important to note that possession of a lease grants a lot more legal protection and rights when compared to a licence to occupy. Sometimes the word lease and the word licence can be used interchangeably, however, they are not the same thing. Just because a document refers to a lease does not mean it’s a lease, and the same is true for a licence.
What is a lease?
A lease is a commonly used word, and in nearly all cases when people are referring to a tenancy, it is also lease. Do note that there are various types of tenancies at law which have slightly different variations between them. However, in order for a lease to be valid it must have certain requirements. A lease allows for the right to the exclusive possession of a portion of land for a determinable period of time. Simply put, it means that the leaseholder is the only one allowed to use the land subject to the lease for an identifiable period of time, for example a month or three years. A lease cannot run for an indefinite period of time, otherwise it is not a valid lease. Whilst a lease can technically run ‘indefinitely’ from month to month for example, it can still be terminated at the end of a period that is identifiable as a month.
In addition to these prior requirements, the lease cannot last longer than the period of time the grantor of the lease has the right to use the property. Again, in simpler terms, this just means the leasee (tenant), cannot stay at the property where the lessor (landlord) no longer owns or has rights over the property. A lease cannot last for ten years where the lessor only has the rights to the property for nine years.
A lease is a contractual agreement. In exchange for some form of rent, a person gets exclusive possession of the leased land or property for a specified period. Often a lease agreement is drawn up, but this is not a requirement. A lease can be orally made. However, it is strongly recommended that an agreement of this nature should be in writing. When it is in writing, it gives clarity to the situation and prevents doubt being casted over the agreement in the event court proceedings or a breach of contract occurs. A lease is governed by a lease agreement, and it is what both parties to the lease agreement can rely on when exercising their rights. A lease agreement can also be referred to as a tenancy agreement.
What is a licence?
A licence can be quite similar to a lease. A licence allows an individual to use land or property in a similar way to a lease. However, a licence does not have the same requirements as a lease. A licence is simply granting an individual permission to use the land or property, usually only for a specific purpose. There is no security with a licence. Where a lease grants exclusive use for a period of time, a licence can be revoked at any time by the person granting the licence. Several people can be granted a licence to use the same property and land.
As with a lease, a licence does not have to be in writing but can be simply orally dictated. A licence will be governed by a licence agreement. A lease may be granted in exchange for some sort of remuneration but it is not a requirement.
So what is the difference?
Well the difference between the two should be apparent in how they operate. A lease grants more protection for the leasee. Only the lessee is allowed to use the leased land up until the lease period has expired. A licence does not operate like this allowing for a licence to be revoked without notice. On top of this a lease will require some sort of payment where in cash or some other alternative such as provision of services in order to use the land. A licence does not have this same requirement.
If a lease agreement allows for other individuals to use the same land as the lessee, chances are it is in fact a licence rather than a lease. The same would occur if a lease does not have an end date, yet again, it is most likely a licence. A lease will always need the requirements of exclusive possession and a determinable period of time at the very minimum.
Labelling a licence a lease or a lease a licence will not change these requirements. It is important to obtain a lease where possible due to the increased legal protections for a leaseholder. The wording lease or licence do not need to appear in order for a lease or licence to occur. The courts will look at the substance of the agreement. Meaning that if it has the requirements of a lease, it’s a lease, if it operates like a licence, it’s a licence.