Summary
- The difference between a lease, a licence and a tenancy at will
- What is a tenancy at will used for?
- Drafting a tenancy at will agreement
- Tenancy at will notice
- Choosing between tenancy at lease vs licence vs tenancy at will
- Pros and cons of tenancy at will for commercial property owners
- How Witan Solicitors can help
A tenancy at will allows a tenant to occupy a property indefinitely, with both the landlord and the tenant able to end the agreement by giving immediate notice whenever they choose. It is generally used as a short-term or interim solution for the occupation of commercial premises.
Taking on or renting out commercial premises can be particularly onerous. A landlord will need to ensure that their rights and interests are protected, expenses covered and that they have the right to take back the property when they need to.
A tenant will need to ensure that they are not liable for unexpected expenses, that they fully understand the basis on which they are using the property and that they are not tied into an agreement that they cannot leave when they want.
The difference between a lease, a licence and a tenancy at will
Occupation of commercial premises is usually on the basis of a lease, a licence or a tenancy at will.
Lease
A lease is a contract between landlord and tenant giving the tenant rights of occupation of a property for a period of time. Under Part 2 of the Landlord and Tenant Act 1954, the tenant will generally have security of tenure, meaning that at the end of the lease they have an automatic right to renew the lease on the same terms. The landlord is restricted in their ability to refuse the renewal.
The tenant may be able to assign the lease to a third party in the event that they wish to leave, while if the landlord sells the property, it will be subject to the lease and with the tenant remaining.
Licence
A licence gives the landowner’s consent to someone to occupy land or carry out some activity on their property. Unlike a lease, it does not give any rights over the land or premises. It is personal consent and cannot be passed on to anyone else by either the licensor or the licensee. This means that if the landowner sells, the licensee does not have the right to continue with the licence.
It should be noted that simply calling a document a licence does not necessarily guarantee that the courts will treat it as one. If it is not carefully drafted or if it grants exclusive possession to the occupier, there is a risk that it could be held to be a lease and as such, the tenant will have certain rights.
Tenancy at will
A tenancy at will is similar to a licence but allows either party to end the agreement at any time. As with a licence, the tenant at will does not have any rights over the property, cannot pass on any tenancy and must leave if the property is sold.
A tenancy at will can be expressly set out in an agreement or may be implied by the parties’ conduct.
What is a tenancy at will used for?
A tenancy at will is generally used as a temporary measure while a more formal agreement such as a commercial lease is negotiated and put into place. It is a useful tool for allowing a future tenant to move into a property while the provisions of a lease are agreed upon.
In fact, it should only be used in the short term otherwise there is a risk that a court could infer that a periodic tenancy has been created if the tenancy at will is ongoing and regular rent is demanded and paid. For a landlord, if a periodic tenancy is created, they will lose the ability to end the agreement without notice and security of tenure will be given to the tenant under the Landlord & Tenant Act 1954.
Drafting a tenancy at will agreement
It is vital that a written tenancy at will agreement is carefully drafted to avoid any chance of it later being construed as a periodic tenancy.
It will be drawn up as a month-to-month rental agreement with no specified end date. While it is possible to include the amount of rent payable and a due date for payments, it cannot have a specified rental period and must allow both the landlord and the tenant the opportunity to end the agreement at any time.
There will not be any minimum period of rental and the tenant will not have any right to remain in the property once the agreement is ended, provided the agreement makes clear that this is the parties’ intentions.
In the case of Javad v Aqil (1990), a lessee tried to claim that a tenancy at will had become a periodic tenancy by virtue of the quarterly payments he was making. The court held that he was only a tenant at will and that while formal lease negotiations had been taking place neither of them had intended for the tenancy at will to be anything more.
As a tenancy at will is a personal agreement between the landlord and tenant, it does not confer any rights over the land to the tenant and it cannot be assigned to anyone else.
The agreement is usually much shorter and simpler than a commercial lease, but it should still be drafted with attention to detail to avoid either party taking on obligations or giving away rights that were not originally intended.
Tenancy at will notice
The key element of a tenancy at will is that it should be easy to end it. Provided the agreement has been properly drafted, the landlord should be able to terminate it by demanding possession of the property. This would usually be done in writing, with the tenant required to leave shortly afterwards, although they should be given enough time to vacate the premises and remove all of their property.
The tenant must vacate the property when they wish to end the tenancy, as well as giving notice to the landlord that the agreement is at an end. Because of the nature of the tenancy, it is not enough just to give notice, the tenant must actually leave.
If the parties enter into a lease with each other, then the tenancy at will automatically ends.
Choosing between tenancy at lease vs licence vs tenancy at will
It is important to understand the implications of each type of rental and occupation to ensure that you choose the right option for your particular circumstances. There are advantages and disadvantages to each.
Lease
A lease gives a landlord some certainty as to rental income and for tenants, there may be security of tenure, unless the landlord has specifically excluded this in the lease.
A lease is a complex document, with a scope to tailor it to suit any particular situation. For example, break clauses could be included, allowing either party to end the lease early if desired. This could be by including a series of dates when the lease could be ended or by having a rolling break clause throughout the term of the lease.
In some cases, Stamp Duty is payable by the tenant when entering into a lease.
A lease is usually used when a business wishes to establish a base for its operations with some security to stay at the premises for the foreseeable future.
Licence
A licence does not offer security of tenure. It tends to be a much simpler agreement than a lease, and as such should not take as long to negotiate and complete.
Because there is no security of tenure, the tenant would have to leave if the property was sold.
If the licensor needs to bring proceedings for possession, they will need to wait until the licence has ended before doing so.
The licence document will set out how each party can give notice to end the agreement.
If the licence continues for more than six months, there is a chance that the licensee could claim that the agreement is a lease and that they have security of tenure, so a landlord should take great care in entering into a licence if they wish to avoid giving away rights over their property.
A licence is permission to do something on land or on a property without giving the licensee any legal interest in the land. By way of example, a licence could be granted to store goods in a building owned by the licensor or to use a serviced office for a short period. It can also be used to grant access rights to the buyer of a property between exchange and completion.
Tenancy at will
A tenancy at will is generally a fairly simple agreement that can be entered into more quickly than a lease. It should not give the tenant any security of tenure, provided that it has been well drafted. The agreement does not attract Stamp Duty.
It is usually used as a short-term measure while a lease is negotiated.
Pros and cons of tenancy at will for commercial property owners
A tenancy at will is a useful stop-gap for landlords and tenants to use while a full lease is negotiated.
It gives the landlord the right to end the occupation on very short notice, which may be useful, but conversely, there are no long-term guarantees of rental income.
As with a licence, it is important to ensure that the agreement could not in the future be construed as a lease or security of tenure may inadvertently be given to the tenant.
How Witan Solicitors can help
It is essential that the details of any agreement for occupation accurately reflect the parties’ wishes so that any misunderstanding or disagreement can be avoided. It is also important not to give away rights over a property or end up liable for rent without intending to be.
A legal dispute can be stressful and damaging to a business, so it is worth taking the time to ensure that any agreement you enter into is properly drafted.
At Witan Solicitors, we can advise you in respect of a tenancy at will and assist you with any disputes that arise out of them.
In the event that you have entered into a commercial lease or other agreement in respect of the occupation of commercial premises and a disagreement has arisen, our expert dispute resolution solicitors can help you deal with the dispute.
If you would like to talk through your options with an expert commercial property disputes lawyer, email us at info@witansolicitors.co.uk or fill in our contact form. We have offices in Birmingham, Northampton and London.
