What Is An Agreement For Leave And Licence?
A leave and licence agreement is a very short simple rental agreement that can be used by individuals or businesses to take advantage of a premises without signing a long-term rental or lease agreement. Alternatively, a leave and licence agreement may be used by a business that requires the use of a premises for a very short period of time.
Often, organisations such as schools need a venue for a sports trip or for theatre production. Instead of having to find a permanent location for the sports facilities or theatre production, these groups can keep costs down and use a leave and licence agreement for a leave of 12 months instead .
A leave and licence agreement is different to a rental / lease agreement where a tenant can enforce their right to occupy the premises if they cease paying rent. A leave and licence agreement is simply the user only of a space and does not create an estate in the land. They are essentially "guests" of the host, whether it is an individual or business. The person’s right to the property is simply a matter of agreement between the parties.
Features Of An Agreement For Leave And Licence
A leave and licence agreement permits a tenant to occupy a property. Unlike a tenancy, however, under a leave and licence agreement, the tenant has a non-exclusive right to occupy the property, so the landlord is also allowed to have other licensees occupy the property at the same time. A leave and licence agreement is created where a party permits a person to use land or premises without giving them full possession. The grant of a leave and licence is not a conveyance and, therefore, does not create an interest in the land. In fact, because a leave and licence are essentially contractual agreements, they pass no rights or interests.
A leave and licence agreement generally contains the following key features:
• Identifier – a leave and licence agreement clearly identifies the parties to the agreement.
• Occupied area – a leave and licence clearly identifies the area of land being given in order for the tenant to occupy. This can be a very important area of dispute should the tenant consider that they have acquired more than the agreed boundary.
• Duration – a leave and licence agreement may contain an agreement as to duration, although there does not tend to be a set period for a leave and licence.
• Rent – rent (if any) is likely to be specified in the leave and licence agreement, although will tend to only be a nominal amount.
• Termination – there should be a clear term as to the duration of the leave and licence agreement in the first instance, although leave and licence agreements do not tend to be for specific periods of time. In all cases, the leave and licence agreement should specify when it will come to an end and how either party can terminate the agreement. A leave and licence agreement can be terminated with effect from the date set out in the agreement or through service of a notice on one party. The notice period required is likely to be set out in the leave and licence agreement and can be for a short or longer period. Equally, the leave and licence agreement may be terminable at short notice through mutual agreement between the parties.
• Utility use – it may be the case that a licensee utilises the land or premises for the provision of utility facilities, the right to which may also be included as part of the leave and licence agreement.
• Repair – a leave and licence agreement may contain obligations on both parties to repair the property.
• Assignment – a leave and licence agreement may contain a provision as to whether the licensee can assign the leave and licence agreement.
A leave and licence agreement is not an option agreement and does not automatically result in a transfer of title. A leave and licence agreement will in most situations be expected to be legally binding.
Legal Aspects And Tenancy Laws
In the realm of property law, an Agreement for Leave and Licence is not just a document of mutual accord between the landlord and tenant; it bears significant standing under tenancy laws. This type of agreement offers a spectrum of legal rights and responsibilities to both parties and is more than a mere grant of leave by the landlord.
The relationship between a landlord and a tenant in India is primarily governed by the provisions of the Transfer of Property Act, 1882 (the "TPA"), which prescribes a number of types of leases and licencing agreements, including that of leave and licence. As per such arrangements, the landlord grants the tenant the right to use and occupy the leased premises, devoid of the latter acquiring any interest therein (irrespective of whether the arrangement is termed as a lease or a licence).
These contractual relationships are not to be construed as a mere granting of permission from the landlord to use the premises (the four essential elements for which being, an agreement, delivery of possession, exercising control over the property and payment of licensing fees). The phrase "leave and licence" is also nothing but a term used to denote an existence of a right to enter the premises for a particular purpose, without the tenant having any claim over it, or any right to exclude the landlord after the agreement is terminated.
The terms of an agreement for leave and licence must be certain. Such an agreement may be terminated upon expiry of the period provided for in it (subject to the other provisions of law governing such tenancy); it may also be terminated at the instance of the landlord, the exercise of which is without prejudice to the liability, if any, of either party to pay damages to the other party by reason of the wrongfully determined agreement.
Further, an Agreement for Leave and Licence that does not provide for notice period, will not deprive the landlord of seeking double the amount of compensation from the tenant for any period of use and occupation. The amount of damages will depend upon the facts and circumstances of the case, the intention of the parties, their respective position and public interest.
Landlords have the right to expedite removal of the tenant in accordance with the provisions of the TPA. However, they cannot remove the tenant by physical force. At the same time, mis-user of the premises and not paying the dues payable by them under the agreement are important factors for launching the proceeding for eviction. The agreement may include a clause authorising the landlord to remove the tenant, in the event of mis-user.
The moment an offer to the benefit of a tenancy is made by the landlord and duly accepted it becomes binding on both the parties making it binding on the tenant to confirm or comply with the offer. An agreement to execute a future lease will be binding, subject to the option to purchase not being exercised, unless there is an express or implied agreement to the contrary.
In colloquial terms, the words "leave and licence" imply license to do a particular act and that which cannot be done without such license. A leave and licence does not create an interest in the property. Therefore, a leave and licence is a mere permission to the tenant to use the property, without itself creating any interest therein.
How To Prepare An Agreement For Leave And Licence
Leaving to Licence
The first step in preparing an effective leave and licence agreement is to describe in writing the purpose for which the property is to be used. This will then determine in what parts of the property the Licensee should be given exclusive rights of possession.
If the Licensee is only going to use a part of the property as their principal place of residence but wishes to use the balance of the property, they should be given express rights to use the whole or specified part of the property in addition to exclusive use of the part of the property that make up the licensees principal place of abode.
The principal place of abode will usually be a part of the property but it could, in fact, be the whole of the property. What is important is the parties’ understanding of the purpose and extent of the Licensee’s use of the property. The purpose for which a leave and license is granted governs the kind of covenants that are appropriate to the agreement.
Some of the common clauses that you may want to include in your leave and license agreement are:
1. PREVIOUS TENANCY
Did the Licensee have a tenancy or right to occupy the property and if so, when did it expire; what were the grounds for its termination?
2. REPAIRS AND MAINTENANCE
a) Is the Licensee entitled to access to the interior or any part of the property not let as its principal place of abode?
b) Are the exclusive use areas amenable to repairs and maintenance in order to facilitate immediate repair of defects?
3. LICENSEE’S OBLIGATIONS
a) Not to cause a nuisance, annoyance, damage, injury or overloading.
b) Not to make alterations to any part of the property without the Licensor’s consent in writing.
c) Not to do anything that constitutes an act of waste or that may reasonably be thought to adversely affect the other user(s) of any part of the property.
4. LICENSOR’S OBLIGATIONS
a) The Licensee must be able to enjoy quiet possession of the property.
b) To take the initiative in repairing, where necessary, defective structures and aching (subject to Force Majeure and Telstra Cabinets).
c) To maintain in good working order and state repair the structures, roofs, walls, and fences portion of the Property.
d) To maintain in good working order and state repair all equipment, machinery electrical and data wiring and cabling on the Property, together with any docks and ramps adjunct to the Property.
5. EXPIRY OF LICENCE
How will both parties ensure that all property, fixtures and infrastructure are removed (if any) or kept by the Licensee as appropriate?
Leave And Licence Vs Lease: Key Differences
A key issue that arises is whether an occupation is as a result of a grant of leave and licence or whether it is a lease. This is not always obvious, but it is critical to understand that it can have important differences for both landlords and tenants notably in relation to the key issue of security of tenure. The following are some of the more significant differences:-
- A tenancy agreement (lease) is a transaction under the law of contract and should therefore embody the full agreement between the parties as to the terms of the lease. To prove the best terms you should also be able to show your reliance on this document.
- A leave and licence agreement is a transaction under the law of property (ownership) and does not have to be wholly in writing. You are therefore effectively able to introduce any document in evidence to show the terms of your agreement. For example, if it is shown that you paid a premium to occupy the premises, no matter how small, that will make it more difficult to prove that the parties’ intentions were that the occupation was a contractual licence rather than a tenancy .
- As referred to above, the Parties to a tenancy agreement coming within the Landlord and Tenant Act 1954 have certain rights which are not necessarily available under a leave and licence (although local legislation does vary). The primary benefit of the legislation is that where the landlord wishes to obtain possession of the property, he must not only give notice to this effect prior to expiry of the tenancy but also must provide the tenant with new premises if the tenant so requires (subject to certain criteria).
- As a general rule, the term of a leave and licence depends upon the wishes of the parties whereas a tenancy agreement is usually for a longer period than 2 years and although it may be ended on notice, security of tenure applies (again subject to preconditions). Where your occupation is guided by the provisions of the Landlord and Tenant Act 1954, you will be required to take a tenancy agreement especially bearing in mind the above-mentioned security of tenure and also that the tenant as opposed to landlord will have an exclusive right to occupy the premises.
Common Issues And Solutions
The most common issue that arises with leave and licence is where the terms of the licence are disputed, usually either between the licensor and licensee or between the new licensor and the old licensor.
A licence is usually incorporated into a head agreement of some type. Its terms may be set out expressly in the head agreement or may be incorporated by reference. The licensee may be a party to the head agreement or the licensee may be a third party to the head agreement signed by the licensor.
The challenge that the licensor often faces is whether the terms of the licence in the head agreement apply to a third party licensee who is not a party to the head agreement. The older case law suggests that unless the head agreement is deeded, the terms of the head agreement will not apply to the licensee.
If the head agreement is deeded, the principle of privity of contract does not apply and the terms of the head agreement can be enforced against the licensee as the licensee is a party to the head agreement. It is worth noting that even where a lease is created by way of licence, you can still create a deed of licence.
Although the ability to assign, sublet or otherwise deal with a licence may be contained in the head agreement, where the licensee is a third party to the head agreement, there may be a dispute on whether a third party has the right to assign, sublet or otherwise deal with the licence under the terms of the head agreement.
There may also be disputes in respect of what form the consent is to take. Sometimes contracts for sales and purchases are contained in a license agreement, sometimes not. Some head agreements refer to an officer of a company providing a written confirmation that the licensee is satisfied with the property before the license (or lease, as the case may be) must be entered into, and others simply refer to the client being satisfied. The reality is that it may be easier to have a third party lease where the relevant clauses clearly refer to the licensee. This would also minimise the chances of disputes over termination of the licence.
One way to resolve the above issues of conflicting and unclear terms is to review the head agreement and ask for a change accordingly. For example, ensure that if a head agreement refers to an officer of a company giving a written confirmation of satisfaction with the property, the head agreement should specify which or what form the consent is required.
Sometimes however, clients may simply accept the risk associated with litigation as a part of doing business.
Benefits Of An Agreement For Leave And Licence
From the point of view of both the licensor and licensee, there can be various advantages of leaving the property on a leave and licence basis. This is not the case where a property is rented or leased to an individual or entity on a traditional leasehold tenure. For instance, with a leave and licence agreement, the need for stamp duty does not arise as compared to a lease which requires a greater payment of stamp duty and registration fees.
One of the primary advantages of a leave and licence agreement is its flexibility. The period of time for which it is executed is flexible and can be reduced or extended at the option of the licensor/licensor without any complications. An agreement for a lease and/or tenancy, on the other hand, requires the consent of both the parties and is burdened with various legal formalities including the payment of stamp duty and registration fees. Under the leave and licence regime the licensor/licensee can terminate the leave and license agreement at its convenience subject to delivery of a notice and expiry of the notice period. Therefore, if the licensor is seeking to receive a lump sum deposit for the period XYZ has been executed for, the licensor can obtain the deposit at the beginning of the leave and license period but if the licensor seeks a further deposit after XYZ, he can easily do so on expiry of the period of XYZ without having to renegotiate a formal lease. However, where a lease and/or tenancy agreement has been executed with a fixed term, the licensor would have to request, if not go to the Courts to seek specific performance to obtain further deposits.
A further advantage from the perspective of the licensee is that if the licensee wishes to withdraw any fixtures or alter/renovate the property, it can easily do so without having to obtain the consent of the licensor unlike a lease or tenancy agreement.
Usually, property tax is only paid on ownership and not on occupation. Consequently, the licensee will be relieved of all such tax liabilities.
Case Studies
Case Study 1: Park v H (1995)
A family developed a habit of allowing a photographer to use their kitchen as a studio. Over a three year period they allowed him to shoot in their home even though they had no formal agreement. This habit evolved into an arrangement where the parents would socialise in the kitchen while their children played in the adjoining rooms, and the photographer would shoot from room to room through the open doors. He became increasingly involved with their family to the extent that he stayed at their home in Dubai over the summer. The parties couldn’t agree on what had been agreed when the parties split over money the photographer claimed he had loaned to the family.
The Court of Appeal held that there was a contract between the parties under which the claimant had agreed to provide the kitchen and the freelances agreed to pay him for the use of it. They also held that his compensation should be assessed on the market value of the kitchen. In addition, the house should be restored to its pre-occupaion state. None of this could be done until the nature of the agreements between the parties could be determined.
Case study 2: Whittome v Bradford MDC (2005)
A business owner had licensed a council owned shop for a specific use. The council later decided that the use of the premises did not go with the nature of the development and could have a negative impact on the value of the remaining property. Despite repeated warnings, the council were not able to persuade the business owner to change the use of the premises. The council served notice to quit the premises. The business owner issued proceedings against the council for both his own loss of profits and the loss of profit in relation to subsequent tenants of the premises. He also claimed that the council’s actions constituted a breach of the Human Rights Act 1998.
The court held that there was only one cause of action because the councils’ statutory powers to grant leases could not be exercised without consulting other statutory bodies. The Human Rights Act principles did not apply to the grant of the licence. The Court also noted that even if the Human Rights Act applied , there would be no breach of the rights of the business owner. He had no personal interest in the value of the remaining premises as he was not the owner of those premises.
Case study 3
A music producer rented a small room in a block of flats for £50 per week for his 3 month stay. He installed a small 4 track analogue mixer, a 16 channel digital mixer, a personal computer, a midi keyboard and speakers that filled the room with noise. As the room was to the rear of the block, he decided to keep the windows open for ventilation. There was no fire escape. Following numerous complaints from neighbours, the music producer refused to compromise and continued to disturb other residents in the block but was satisfied to turn the volume down if the police were called.
One night the police were called again but instead of talking to the music producer, they kicked down the door, destroyed the piano and everything else and took him into custody. He was eventually released with cautions. He sued the police for damages and sought to use the Human Rights Act 1998. The Court accepted his claim for breach of the Human Rights Act but decided that a 20% reduction was appropriate for the music producer’s own part in the trouble.
Case study 4: Madan v Royal Marshs School (2003)
A teacher agreed to share accommodation in a house with another teacher and was unable to do so on the start date. The landlord agreed that the teacher could stay with his friends for as long as it took. The teacher stayed for six weeks before moving into the house. He was neither charged rent nor required to help with household expenses during his stay with his friends. He then informed the landlord that he was getting married and would not be moving into the house. The landlord served notice to quit on the teacher who claimed that the notice was invalid because he had a right at common law to occupy the property for the remainder of the school year. The Court held that his claim failed because there was never an implied contract of tenancy since he was an employee of the school and submitted that any person who rented a flat from the school could not later claim compensation for loss of the future earnings from the remainder of their appointment.