Licence agreements and tenancies at will are often considered convenient solutions for temporary or flexible occupancy. However, while they offer certain benefits, these arrangements lack legal protections found in formal lease agreements, potentially exposing parties—especially tenants—to significant risks.
For commercial property owners and prospective tenants, understanding these vulnerabilities is vital for making informed decisions and avoiding unexpected disputes.
What Are Licence Agreements and Tenancies at Will?
A licence grants permission for someone to use property without creating any legal interest in the property. A licence, in essence is permission to use the property under specified conditions but without the security and obligations of a formal lease. Licences are often used for short-term or flexible arrangements, licences are commonly seen in circumstances where the use of the property is intended to be temporary.
A tenancy at will is an informal arrangement that allows a tenant to occupy property on an ongoing but temporary basis, most commonly without a fixed end date or formal obligations. Either party, landlord or tenant, can terminate a tenancy at will at any time. Tenancies at will are often used as stop-gap measures, commonly used in the time between lease negotiations or for short-term needs.
Key Risks of Licence Agreements and Tenancies at Will
1. Limited Security of Tenure
Licences and tenancies at will do not provide security of tenure under the Landlord and Tenant Act 1954 (the “1954 Act”). For tenants, this means there is no statutory right to remain in the property once the licence or tenancy ends. The landlord can terminate the arrangement at any time, with little to no notice in many cases.
2. Termination Flexibility Favors the Landlord
The flexibility inherent in licences and tenancies at will generally benefits the landlord. With a tenancy at will, landlords have the right to terminate the agreement without establishing a breach and with immediate effect. These agreements leave tenants vulnerable to eviction at any time, often without recourse, particularly if the landlord decides to re-purpose the property or bring in a higher-paying tenant.
3. No Formal Rights to Renew or Negotiate Terms
Unlike leases, licences and tenancies at will do not include a right to renew or a right to negotiate extended terms. Tenants relying on these agreements are left in a precarious position, without the ability for long-term business planning.
4. Limited Scope for Negotiating Repairs and Maintenance
Unlike leases, which typically allocate specific responsibilities for maintenance and repairs, licences and tenancies at will often lack formal arrangements governing these issues. This can lead to confusion and potential disputes over who is responsible for wear and tear, property upkeep, or repairs. Tenants may find themselves facing unexpected costs, or landlords may find their property suffering from neglect due to ambiguous maintenance terms.
5. No Compensation for Loss of Business Value
The instability of licences and tenancies at will also means that tenants may struggle to justify substantial investments in the property, as there is no guarantee they will remain long enough to see a return on such outgoings. Should the landlord decide to terminate the agreement, the tenant will have no recourse to claim compensation for any improvements or changes made to suit business needs.
Practical Considerations for Tenants and Landlords
For Tenants: Before entering into a licence or tenancy at will, tenants should consider whether the arrangement is suitable for their business’s stability and growth. If longer-term security or the ability to make significant property alterations is important, a traditional lease may be a better option.
For Landlords: Licences and tenancies at will can provide valuable flexibility, especially in uncertain markets or for properties slated for redevelopment. However, landlords must ensure that these arrangements are correctly drafted to avoid inadvertently creating a lease with more extensive tenant protections.
Conclusion
Entering into a licence or tenancy at will in commercial property is not without risk. While these arrangements offer flexibility, they come with limitations that can expose both parties—particularly tenants—to vulnerabilities.
Mario Mastantuono at Fisher Jones Greenwood LLP, is here to guide you through every step, ensuring that your rights are protected, and your goals are achieved. For further information or to discuss your specific situation, please do not hesitate to contact our team using our online contact form or call 08081 891 596.