The primary difference between a tenancy and a licence agreement is that a tenancy generally provides more rights and protection to the occupier. Thus, if you are an individual it is important to ascertain if you hold a tenancy or a licence agreement. The three hallmarks of a tenancy are: (a) exclusive possession; (b) for a term; (c) at rent.
Exclusive possession. The term exclusive possession is not expressly defined, but it is generally accepted that if an occupier has control of the entire property, room, or significant area within the property, and in the absence of any meaningful restriction then they have exclusive possession. Ascertaining if an occupier has “exclusive possession” very much depends on the facts. Therefore, the clauses in the agreement are merely a starting point — the factual evidence is very important in deciding if an occupier has exclusive possession. In order to determine if you have created a tenancy or licence agreement, the courts will delve into the actual arrangement that existed between both parties. Courts are very reluctant to recognise a document as a licence especially when the tenant claims to hold a tenancy agreement. Generally, the occupier has exclusive possession if the landlord does not also live in the property.
In order to avoid granting an occupier exclusive possession, some landlords may insert a clause in the agreement that permits the landlord to move the occupier from one room to another. Again, the facts are important because irrespective of the presence of such clause in the agreement, if the landlord never actually moves the occupier between rooms then the tenant holds exclusive possession of the room they occupy. Further, depending on the provisions of such a clause in the agreement, it may amount to an unfair/unreasonable clause that is unenforceable against the occupier.
For a term. The second hallmark of a tenancy is that the agreement exists for a term certain. This means that the term of the agreement is either clearly stated in the agreement or ascertainable from the agreement. Most tenancies are for either six or twelve months. Therefore, if your agreement is for a term of six or twelve months the agreement satisfies this element of a tenancy. If the agreement does not expressly contain a term, it is still possible to find that the agreement is a periodic or month-to-month tenancy. Again, this depends on the factual evidence.
At rent. The final element of a tenancy is that the occupier pays rent for the occupation of the property. This is not to say that every occupier that pays rent to a landlord is automatically a tenant; indeed a licensee may validly pay rent under a licence agreement. The level of rent paid by the occupier is also relevant evidence in determining if a tenancy exists. For example, if an occupier pays rent at market rate then that is persuasive evidence that the occupier holds a tenancy.
In deciding whether an occupier holds a tenancy or a licence, you must closely consider the facts together with the signed agreement and take a holistic view. If all three elements of a tenancy are present then the occupier has a tenancy.
You most likely have a tenancy unless at least one of the following factors exists in your case:
- the landlord resides in the property; or
- the rent payable exceeds £100,000 a year; or
- the rent payable is no more than £1,000 a year; or
- a business tenancy; or
- it is a public house; or
- it is an agricultural land; or
- letting to students by an institution or specified body; or
- holiday lettings; or
- crown estate.
We offer training and advice on Landlord and Tenant matters. For more information, you can reach us at email@example.com or call us on 0203 488 3078