Business Licence to Occupy

What is a business licence to occupy?

A business licence to occupy is a legal agreement for 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 wish to create a formal lease agreement. This licence to occupy is designed for use where the property which will be the subject of the licence 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 licences to occupy?

This licence to occupy 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 in 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 to occupy?

A licence is an agreement that permits a person or legal entity to do something. A licence to occupy therefore permits a business 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 enjoy exclusive occupation of the relevant property. A business licensee will only have the right to use a space or room as may be specified from time-to-time, and the licensor will retain the right to occupy that space at all times. A licence to occupy will usually only last for a short period (commonly 6 months). 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 to occupy?

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 is a 'licence to occupy'?

A licence is an agreement that permits a person to do something. A licence to occupy therefore gives permission for a person or entity to occupy a space or part of a property. A licence is different to a tenancy agreement, which creates a legal interest in the property and provides a tenant with particular rights, including a right to renew the lease at the end of the term.

What should not be included in a licence to occupy?

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 a licence to occupy?

Before a licensor grants a licence to occupy, 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 a licence to occupy?

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

Who cannot enter into a licence to occupy?

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

What can be the duration of a licence to occupy?

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

What has to be done once the licence to occupy is ready?

Each party should retain a copy containing the signature of each party. 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 to occupy?

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

• a plan of the licensor's property/land - this should be attached to the licence to occupy at Schedule 1. The licensor may already have a plan available. Alternatively, if the licensor needs to obtain a plan, 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 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 agreement 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 issue court proceedings

What should a licence to occupy 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 a licence to occupy?

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

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