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Landlords – the most important considerations with commercial lease terms
Essentially a lease creates an interest in the property and a licence creates rights which are exercisable over the property.
The reason for determining one or the other is primarily that if the relationship is construed as a Lease then the provisions of the Landlord and tenant Act 1954 part II will apply. These provide security of tenure for the tenant and make provision for compensation if the landlord does not agree to the renewal of the lease at the end of the initial term and the rent that the Landlord can demand on the renewal.
The existing term can only be brought to an end by the use of the procedures and provisions contained in that Act. The tenant has a statutory right to a new lease. The grounds on which a landlord can refuse a new lease are limited to specific circumstances.
In the case of licences, they terminate on the date specified or agreed between the parties and in the absence of agreement by the giving of reasonable notice.
Some of the main factors which indicate the relationship to be a lease as apposed to a licence are matters such as:
Accordingly, by granting any Licence of more than 6 months to occupy for business purposes, owners will be exposing themselves to the risk that the occupier could claim a secure business tenancy. This may have implications for the owner’s medium or longer term plans for the premises (including its ability to redevelop or regain vacant possession of them).
It may be that some occupiers will ask to take a Licence rather than a Lease. Their reasons for doing so may include the following:
However, owners should think carefully about such requests.