Licence to occupy or lease: which one you actually have

What separates a licence from a lease

A lease is an interest in land. The tenant gets exclusive possession of defined premises for a fixed or periodic term, usually at a rent, and can keep everybody out, including the landlord except where the lease lets them in. That interest can be sold, mortgaged and inherited, and it binds a buyer of the building.

A licence is permission. The occupier is allowed to use the space, and without that permission would be trespassing, but has no interest in the land. The owner can still come and go, move the occupier to a different desk or unit, or share the space with others. A licence is personal to the person it was given to and generally ends when the owner sells.

The test comes from the House of Lords decision in Street v Mountford in 1985, reported at [1985] AC 809. Where an occupier has exclusive possession, for a term, at a rent, the arrangement is a tenancy. Exclusive possession is the point that does the work: the right to exclude everyone, including the owner, from the space.

Why the label does not decide it

Mrs Mountford signed a document headed "licence agreement" which stated in terms that it did not create a tenancy. The House of Lords held that she had a tenancy, because she had exclusive possession of two rooms for a periodic term at a weekly payment. The parties cannot alter the effect of what they have agreed by calling it something else.

So a court looks past the heading and the declarations to what the occupier can do in practice. Clauses that let the owner relocate the occupier, enter at will, or put other occupiers in the same space point towards a licence, but only if they are genuine. A power to move the occupier that the owner could never realistically use, or a right to share space that nobody has ever exercised, is treated as a pretence and ignored.

The practical consequence is that a landlord who grants a "licence" of a lock-up unit, for a year, at a monthly fee, with the occupier holding the only key, has almost certainly granted a lease. This is where landlords get caught.

When a licence genuinely suits

There are arrangements where a licence is the honest description and works well for both sides.

Serviced offices and co-working space are the common example. The operator keeps control of the building, provides reception, cleaning and IT, and can move a client between rooms as the building fills up. The occupier gets flexibility and pays for it.

Concessions inside a larger business fit the same pattern: a brand with a stall or counter in a department store, a coffee operator in a foyer, a beautician renting a chair in a salon. The host business keeps possession of the whole and the concession uses a defined patch under the host's rules.

Short-term and stopgap arrangements also suit a licence, such as a few weeks' use of a yard or a store while a lease is negotiated. Shared space where several occupiers use the same room at different times is a licence by nature, because nobody has exclusive possession.

In each case the feature that makes it a licence is real: the owner genuinely retains control, and the occupier genuinely accepts that.

The risk of a licence that is really a lease

If the arrangement is a lease and the occupier uses the premises for a business, Part II of the Landlord and Tenant Act 1954 is engaged. Section 23 applies the Act to any tenancy where the property includes premises occupied by the tenant for the purposes of a business. The occupier then has a right to renew at the end of the term, and the landlord can only refuse on the grounds in section 30, some of which carry compensation. Our guide to renewing a business tenancy sets out how that runs.

Section 43(3) keeps very short lettings out. A tenancy granted for a term certain not exceeding six months is outside the Act unless it contains provision for renewing or extending the term beyond six months, or the tenant, together with any predecessor in the business, has been in occupation for more than twelve months. A rolling series of six-month "licences" therefore protects the landlord for the first year and then stops protecting them.

The landlord who thought they had a flexible licence finds they have a tenant with security of tenure, a tenant who can be removed only through the statutory process, and a building that is harder to sell or redevelop. The occupier, for their part, may have paid no stamp duty on what was in law a chargeable lease, and may have stronger rights than they realised.

Scotland has no equivalent to Part II of the 1954 Act, and Scottish commercial leases run on different rules; this guide is about England and Wales only.

Contracting out of the 1954 Act

Where a landlord wants to grant a lease without renewal rights, the answer is to grant a lease and contract it out. Dressing it as a licence achieves nothing. Section 38A of the 1954 Act allows the landlord and tenant of a lease for a term of years certain to agree that sections 24 to 28, the renewal provisions, are excluded.

The agreement is void unless two things happen. The landlord must serve a warning notice on the tenant in the form set out in Schedule 1 to the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003, and the requirements of Schedule 2 to that Order must be met.

Schedule 2 turns on timing. If the notice is served at least fourteen days before the tenant enters into the lease, or an earlier agreement for lease, the tenant makes a simple declaration in the prescribed form before committing. If the notice is served less than fourteen days before, the tenant must instead make a statutory declaration, sworn before a solicitor or commissioner for oaths, before entering into the lease. The lease itself should record the notice, the declaration and the agreement to exclude.

Get any part of that wrong and the exclusion fails, so the tenant has renewal rights after all. Get it right and the landlord has what a licence was supposed to give them: a fixed end date with no statutory right to stay.

What each document should contain

A licence should describe the space by reference to the building, without a precisely bounded unit, reserve the owner's right to enter and to relocate the occupier, say whether the space is shared, set the fee and what it covers, fix the period and how each side ends it, and deal with the occupier's use, conduct, insurance and the condition the space is handed back in. It should say that no tenancy is intended, while understanding that this sentence carries little weight on its own.

A lease of business premises needs far more. The parties and any guarantor, a plan of the premises, the term, the rent and review mechanism, who repairs and insures what, service charge, permitted use, alterations, assignment and subletting, any break clause, whether the lease is contracted out and the record of the section 38A procedure, forfeiture, and what happens at the end. Our guide to commercial leases covers each of these terms and what to negotiate.

The heads of terms should say which document is intended, because a landlord's agent who offers a "licence" on a twelve-month term with a rent deposit and repairing obligations is describing a lease.

Stamp duty land tax

Section 48(2) of the Finance Act 2003 lists a licence to use or occupy land, and a tenancy at will, as exempt interests, so no stamp duty land tax is charged on a genuine licence.

A lease is a chargeable interest. For non-residential premises the tax on the rent is worked out on the net present value of the rent over the term: nothing on the first £150,000, 1% on the portion from £150,001 to £5,000,000 and 2% above that. Any premium paid for the lease is taxed separately at the non-residential purchase rates: nothing up to £150,000, 2% on the portion from £150,001 to £250,000 and 5% above £250,000.

A return is usually needed even where nothing is payable. HMRC's guidance says no return is required for a lease of seven years or more only where the premium is under £40,000 and the annual rent under £1,000, and for a shorter lease only where no tax is due on either the premium or the rent. The rules change from time to time, so check the current position on GOV.UK before relying on them.

In Wales, land transaction tax applies instead, with a zero band on the net present value of rent up to £225,000, 1% to £2,000,000 and 2% above.

Ending a licence and ending a lease

A licence ends as its terms provide, typically on the notice stated in the document, and where it says nothing, on reasonable notice. Once it ends the occupier has no right to stay and the owner can retake the space, although an owner who removes an occupier's goods or changes the locks without care can still face a claim.

A lease ends by expiry, by a break clause, by surrender agreed between the parties, or by forfeiture where the tenant is in breach and the lease allows it. Where the lease is protected by the 1954 Act, expiry of the term does not end it: section 24 continues the tenancy until it is ended in a way the Act allows, which for a landlord means a section 25 notice giving between six and twelve months, and for a tenant means a notice under section 27 of at least three months, or vacating on the contractual end date. A tenant's break notice takes effect as a notice to quit under section 24(2), so a protected lease can be broken by the tenant in the ordinary way.

The question to ask at the start, before any of this arises, is what the occupier will be able to do with the space. If the answer is that they will have it to themselves for a set period and pay for it, the document is a lease, and the sensible course is to call it one and decide whether to contract it out.

Frequently asked questions

What is the difference between a licence to occupy and a lease?

A lease gives the occupier exclusive possession of defined premises for a term at a rent, and creates an interest in land that binds a buyer of the building. A licence is personal permission to use space, with the owner keeping control and the right to enter, relocate or share it. Street v Mountford decided in 1985 that exclusive possession for a term at a rent is a tenancy whatever the document calls itself.

Can a licence to occupy turn into a lease?

It was a lease from the start if the occupier had exclusive possession for a term at a rent, because the label does not decide it. A court looks at what the occupier can do in practice, and treats clauses that let the owner enter or relocate the occupier as pretences if they are never realistically used. A business occupier under such a lease can have the right to renew under Part II of the Landlord and Tenant Act 1954.

Does a licence to occupy give security of tenure?

A genuine licence does not, because Part II of the Landlord and Tenant Act 1954 applies to tenancies. Section 43(3) also keeps a tenancy for a term certain of six months or less outside the Act, unless it provides for renewal or the occupier and any predecessor have been there for more than twelve months. A document called a licence that is really a lease of more than six months carries security of tenure unless it was validly contracted out.

How do you contract a lease out of the 1954 Act?

Under section 38A the landlord serves a warning notice in the form in Schedule 1 to the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 before the tenant enters into the lease. If the notice is served at least fourteen days beforehand the tenant makes a simple declaration; if less, a statutory declaration sworn before a solicitor or commissioner for oaths. The lease records the notice, the declaration and the agreement. Any slip makes the exclusion void.

Is stamp duty land tax payable on a licence to occupy?

No. Section 48(2) of the Finance Act 2003 lists a licence to use or occupy land as an exempt interest. A lease is chargeable: for business premises, tax on the rent is worked out on its net present value over the term, with nothing on the first £150,000, 1% up to £5,000,000 and 2% above, and any premium is taxed at the non-residential purchase rates. A return is often needed even where nothing is due.

Which is better for a landlord?

It depends on what the landlord is actually offering. If the occupier will have sole use of a unit for a set period, a contracted-out lease gives the landlord a fixed end date with certainty, and a licence in the same situation gives a false sense of security because a court will treat it as a lease. A licence genuinely suits serviced offices, concessions, shared space and short stopgap arrangements where the owner keeps control.

Sources & further reading

• Landlord and Tenant Act 1954, section 38A
• Landlord and Tenant Act 1954, section 43
• Landlord and Tenant Act 1954, section 23
• Regulatory Reform (Business Tenancies) (England and Wales) Order 2003, Schedule 2
• Finance Act 2003, section 48
• GOV.UK: SDLT rates for non-residential and mixed land and property
• GOV.UK: SDLT on leasehold purchases
• GOV.WALES: Land Transaction Tax rates and bands

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 22 September 2026. AD Solicitors Limited is a recognised body regulated by the SRA (no. 8011228).