Business Licence to Occupy

What is a business licence to occupy?

A business licence to occupy is a legal agreement that permits one party (a licensee) to use certain parts of a property owner's (the licensor's) land/building. A licence is used where the parties do not want to create a formal lease agreement. This licence to occupy is designed for use where the rented property is based in England and Wales. The licence is a business licence and therefore the property should be used by the licensee for a commercial purpose under the agreement.

What are the different types of property licences?

This licence can be adjusted to suit the specific circumstances of the licensor and licensee. Examples where an agreement of this nature may be used include shopping centres with different kiosks or office spaces where hot-desking takes place. Specific licences are available for:

• parking space agreements
• storage agreements

What is the difference between a lease and a licence?

A licence is an agreement that permits a person or legal entity to do something. A licence will grant permission to a party to occupy a space or part of a property but does not grant a legal interest in the property.

A business tenant under a tenancy agreement will be allowed to occupy the property exclusively (i.e. the landlord will not be permitted to occupy the property at the same time). A business licensee will only have the right to use a space or room, and the licensor will retain the right to occupy that space at all times. A licence will only last for a short period (commonly 6 months).

In contrast, a business tenant will have particular rights and obligations under a tenancy agreement including, in most circumstances, a right to renew the lease at the end of the term.

Is it mandatory to have a licence agreement?

No. It is possible to grant a business the authority to use a space in a building informally (verbally). However, it is helpful to have a written agreement so that each party is certain of the terms of the agreement.

What should not be included in the licence?

The licensee should not be granted exclusive possession over the whole of the licensor's property. The licence agreement will specifically state that the licensor may change the defined area which the licensor may use, in order to address this. That is because exclusive possession is a key feature of a tenancy agreement.

What are the prerequisites for the licence?

Before a licensor grants a licence, they should:

• check the terms of their insurance – to ensure that renting the space does not impact this
• ensure that they have the legal authority to enter into the agreement - i.e. they own or have the appropriate legal interest/permission to let the property
• check whether they need permission from their mortgage lender (if applicable)

Who can enter into the licence?

The licensor may be a natural person, in which case they should:

• be over 18 and
• have full capacity, meaning that they are of sound mind and sufficiently understand the terms of the agreement

The licensor can also be a corporate entity (such as a company or a LLP).

The licensee must be a business – whether a sole trader or a corporate entity.

Who cannot enter into the licence?

A residential tenant or residential lodger should not use this licence to occupy.

What can be the duration of the licence?

A business licensee will usually only last for a short period. Commonly this will be for 6 months. The agreement can also make a provision for the parties to terminate the licence early, by giving written notice.

What has to be done once the licence is ready?

Each party should retain a signed copy of the licence. There is no requirement for the agreement to be witnessed or notarised. It is also not necessary to register the document once it has been signed.

The agreement is not reviewed by a lawyer to ensure that the legal content applies to the personal situation of the parties. In order to review the particulars of the agreement, it will be necessary to instruct a lawyer. For this type of agreement, it will be necessary to consult with a lawyer who is regulated by an approved regulator in the legal services sector. It is possible to search for a lawyer using the Law Society find a solicitor page in England and Wales.

Which documents should be attached to the licence?

The following documents may be attached to a licence to occupy:

• a plan of the licensor's property/land - this may be provided to the licensee with the licence. The licensor may already have a plan available. Alternatively, if the licensor needs to obtain a plan, the HM Land Registry office provides general information about the features which may be included in property plans. Many local government websites also provide general information about property plans.
• a schedule of condition - this must be attached and is used to record the condition of a property at a particular date*. It will show the agreement that the parties have reached about the state and condition of the property at the time of entering into an agreement. It usually will include a description of any defects and may also include photographs.

It is possible to read more about what a schedule of condition involves on the government website.

What happens if the licence is not adhered to?

If one party breaches the terms of an agreement the other party may wish to:

• send a formal warning to the other party
• terminate the agreement
• consider taking steps to start court proceedings

What should the licence contain?

The licence to occupy should:

• define the parties – the licensor and the licensee
• define the term of the agreement – how long it will last for
• include a term granting a licence to occupy – this will grant permission for the relevant party (the licensee) to use the relevant parts of the property
• include the terms of occupation - this will define the space/area which may be used under the agreement and whether there are any specific hours of use
• define the payment terms - this will explain how much money the relevant party must pay to use the space/area and how frequently the payment must be made
• define any particular rights and responsibilities of each party – this will include information about security and safety
• include a notice period – this will explain how much notice each party must provide to bring the agreement to an end

What laws apply to the licence?

Some of the key provisions which are relevant in determining the distinctions between leases and licences are:

• The Law of Property Act 1925
• The Landlord and Tenant Act 1954
• The case of Street v Mountford [1985] UKHL 4

Help from a lawyer

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