Lease vs. Licence FAQ

What is the difference between a lease and a licence for office space?

Lease and licence agreements are often easily mixed up in the commercial property sphere. This is particularly true when it comes to office space, with numerous people unsure of the key differences that set the two apart.

Office space licences and leases - The main differences

  • Under lease agreements, tenants have exclusive possession rights
  • Leases can also grant tenants the ability to carry out alterations
  • Licences on the other hand only grant tenants occupancy permission
  • Leases are transferable while licences are not
  • Office space leases usually cover longer periods, while licences are valid for two years maximum
  • Leases require that tenants are responsible for property maintenance
  • With licences, the landlord is usually responsible for maintenance and repair costs
  • Licences do not have to be in writing, leases are written tenancy agreements
  • Leases are long-term, fixed, and require long notice periods
  • Often, early termination of a lease requires financial compensation
  • Licences can be terminated by either party, usually with short notice

Under a lease agreement, tenants have the right to exclusive possession of the space and may be allowed to carry out certain types of alterations. On the other hand, a licence for office space simply grants the tenant the permission to occupy a space. Leases are transferable, while licences are not. Under certain circumstances, lease agreements need to be registered with the land registry, but this is never the case with licences.

Licences for office space are valid for a maximum of two years, while leases cover longer periods of time. Unless otherwise specified, licensed office space is not up for renewal once the licence period has expired.

Licences and leases - Occupancy only, versus rights similar to owners

  • Leases grant exclusive possession and alteration rights
  • Leases usually cover longer periods of time than licences
  • Tenants on lease agreements may be required to register with the land registry
  • Licence holders are never required to register with the land registry
  • Licenced office space can't as easily be renewed

Significant differences in office tenancy agreement types

Office space can be rented out under a variety of terms and conditions. Leases and licences are different types of tenancy agreements, and they differ from each other in several significant aspects.

One of the most important differences is that a lease grants tenants exclusive possession rights. This means that (unless contractual terms say otherwise), a tenant can exercise the same rights as the land or property owner, including granting or restricting access to the property.

Licences do not confer exclusive possession of a property, although by law they guarantee certain rights and privileges. Broadly speaking, a licence grants the tenant permission to use a property under the specific terms and conditions set out in the contract. According to case law, leased office space also creates a legal interest in the land or property in question, whereas a licence simply creates rights to use the property.

Leasing - Rights to exclusivity come with additional responsibilities

Exclusive possession rights often entail that the tenant is responsible for maintaining the premises. This is not the case of licences, which usually stipulate that the landlord is responsible for covering the costs of maintenance and repairs. It is also important to note that licences do not necessarily require a written contract, as they can be enforced following a verbal agreement. On the other hand, leases are written (and often lengthy) tenancy agreements.

Leasing office space or attaining a licence - Weighing up long-term security against increased obligation

  • Leasing grants the security of a legally binding document
  • Leases exist for a fixed, long term
  • Though, the notice periods required are also long
  • Licences don't guarantee renewal once the term has ended
  • Leases confer the right for tenants to renew after the initial term
  • Licences can be broken at any time, with short notice
  • Terminating leases earlier than the terms set out usually requires monetary compensation

Lease agreements offer tenants additional security with regard to the duration of their tenancy. Whereas a licence can be terminated by either party by simply giving notice, and often, only short notice. The duration of a lease is protected by law and cannot be easily altered.

One of the key characteristics of a lease is that it exists for what is known as a fixed term. Leases are long-term tenancy agreements that often involve long notice periods, with 12 months' notice being very common. By contrast, licences are short-term agreements that allow the licensee to use the premises for a limited period of time (2 years being the norm).

Once a licence term is over, the tenant is not entitled to renewal, whereas a lease confers tenants the right to renew their contract once the initial term is over. Whenever landlords decide to terminate a lease contract earlier than agreed, they must abide by the guidelines set out in the Landlord and Tenant Act of 1954. In many cases, early termination of a lease agreement requires financial compensation.

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