Commercial Property Licence Agreements

One of the defining characteristics of a licence is that it typically does not provide the licensee with exclusive occupation of the premises. This means the property owner retains control and may use the space or grant access to others as well.

For instance, a licence might be suitable for co-working spaces, pop-up shops, or when sharing a part of the premises with the landlord’s own business.

A licence is often chosen for short-term or temporary occupancy. It’s designed to offer flexibility, making it ideal for businesses needing space for a limited duration or for trial periods.

Unlike a lease, which can lock you into a long-term commitment, a licence can be terminated more easily, allowing both parties to adjust or end the arrangement as needed.

A licence agreement does not give the occupier many of the legal protections that come with a lease. There is no right to:

1. Security of Tenure: The licensee has no automatic right to remain in the property once the licence ends.
2. Exclusivity: The premises can be accessed or used by others, including the landlord.

• Rent Control: There are fewer restrictions on rent increases, and the occupier does not benefit from the statutory protections found in leasehold law.

The paperwork for a licence is generally more straightforward than for a lease. It usually includes basic terms like the duration of the licence, the fee (or “licence fee”), and the conditions of use.

However, the simplicity of the agreement does not reduce the importance of clear, precise drafting. If the licence is poorly structured, it could inadvertently be classified as a lease, leading to significant legal consequences.

Understanding the distinction between licences and leases is crucial. Misclassifying an agreement can have severe implications, including unexpected liabilities for the property owner and a loss of rights for the occupier. This is why it’s essential to get expert legal advice before entering any licence arrangement.

When to Choose a Licence Over a Lease

Selecting the right type of agreement for your business premises is a strategic decision that impacts both your flexibility and legal obligations. A licence might be the preferred choice over a lease in certain situations, especially when temporary or shared space arrangements are needed.

Understanding when a licence is appropriate can save time, money, and avoid unnecessary complications.

Licences are ideal for businesses needing space on a short-term basis. This might include seasonal pop-up shops, temporary office space for a project, or businesses trialling a new location before committing to a longer-term lease.

With a licence, the agreement can be easily adjusted or ended without the complexities associated with breaking a lease. This provides both parties with greater flexibility and reduces the risk of being locked into an unsuitable arrangement.

If your business does not require exclusive use of the premises, a licence is often the better option. Licences work well in shared spaces such as co-working environments, retail concessions within larger stores, or shared warehouse facilities.

In these cases, the landlord retains control of the premises and may allow multiple businesses to operate simultaneously, making efficient use of the space. The occupier benefits from lower costs and avoids the administrative burden of a lease.

In situations where the business owner has a close relationship with the landlord, such as subletting part of an office or shop floor, a licence can provide a simple and informal solution. These agreements are often used when the occupier is only using a part of the space for a specific purpose, such as displaying products in a shop or renting a desk in an office.

However, it’s crucial that these arrangements are documented correctly. A poorly drafted informal agreement could be misinterpreted as a lease, which may grant the occupier more rights than intended.

Licences are generally more flexible than leases, allowing the terms to be easily adjusted based on changing business needs. This might include altering the duration, the fee, or the specific conditions of use.

This flexibility is particularly useful for new businesses or startups that may need to adapt quickly without being tied down by a long-term lease.