3. What is the difference between a tenancy and a licence?

3. What is the difference between a tenancy and a licence?

A tenancy has the legal effect of passing an “interest” in land from the landlord to the tenant. It means that the tenant is given the right to possess the land during the terms of the tenancy (subject to other restrictive covenants on use). During the fixed term of the tenancy(and without any breaches or any ‘break clauses’ exercisable), a tenant may generally occupy the property as of right without the fear of being evicted by the landlord.

In contrast, a licence creates no interest in land. The licensor only allows the licensee to use the land, not to exclusively occupy it. Subject to its terms, a license may also be terminated contractually at will or even by way of repudiation by the licensor. The licensee’s remedy against the licensor’s breach of the licence may lie only in claiming damages, but not in occupation of the property.

Therefore, a licence is typically used for short-term occupation (e.g. for several weeks or months) or where the licensee does not have exclusive occupation of the property, e.g. a car parking space, a hotel room, a newsstand or a “kiosk” in a shopping mall.

To demonstrate the concept of “interest in land”, it is worth noting that there is no interest in land in the external walls of a building because a wall, being a vertical surface, is not land. Therefore, the owner who retains the rights and interests in the external walls of a building (typically in a multi-storey building) generally cannot let the walls to another party, but can only license the rights to use the walls.

It should also be noted that as a licence does not transfer any interest in land, it is not liable to stamp duty. However, it would be futile to label a document as a licence just to avoid stamp duty. Whether a document creates a tenancy or a licence does not depend on the name of the document or other labels given by the parties, but on the true nature of the rights and obligations as evidenced by the agreement. A major factor in differentiating between a tenancy and a licence is to see whether the user has exclusive occupation or possession of the property. Subject to facts that will vary from case to case, the law generally accepts that a grant of exclusive occupation (the user can occupy the property solely and privately) for a term at periodic payments creates a tenancy.

The above matter involves complex legal arguments. You must consult a lawyer if you have further queries.