Licences

Differences between a Licence and a Tenancy: 

By granting a licence to occupy property, the owner of the property can allow another person (the licensee) to use the property without the owner relinquishing control of it. Whereas a tenancy provides the tenant with a legally binding right to occupy the demised premises, a licence is merely a personal permission which makes the licensee’s use of the premises lawful and prevents it from constituting trespass.

Unlike a tenant, a licensee is not given exclusive possession of the property so does not have the right to exclude the owner from it. The owner is therefore able to use the property in conjunction with the licensee. The owner retains control of the property, and may also be able to recover possession more quickly than if he had granted a tenancy.

Types of Licence: 

A licence may be granted without the payment of any consideration so long as there is no intention to create binding legal relations, as where children live with their parents or a friend stays overnight. This is a bare licence, and may be merely oral. A licence does not need to be in writing as it is not an estate in land (s. 1 Law of Property Act 1925). Alternatively, a formal arrangement allowing occupation of the property may be agreed and a contract produced; this is called a contractual licence.

Use of Licences: 

Pursuant to the Housing Act 1988 (ss. 1 and 20) most tenancies are assured shorthold tenancies (ASTs), which provide the tenant with a degree of security of tenure. Certain situations are, however, excluded from the Housing Act 1988 and therefore an AST cannot be used. In such situations a common law tenancy or a licence may be used instead. A licence is appropriate in many of these situations, as the circumstances of the occupation mean that not all of the elements required for a tenancy to exist are present or desirable. These excluded situations include:

Resident landlord
This is defined by the Housing Act 1988 Schedule 1 para 10(1) as an individual owner of property (or a member of the owner’s family) who lives continuously in the same building, or in another dwelling which forms part of the same building, as his tenant. This definition includes a landlord (or member of the landlord’s family) who lives with his lodger, but it is wider than this and also covers a landlord living in a separate flat in a house converted into flats. If, however, the two dwellings are contained in a purpose built block of flats, pursuant to Schedule 1 para 22 the landlord does not qualify as a resident landlord. Where there is a resident landlord a licence will usually be an appropriate means by which to regulate any other occupation, as this will enable the owner to retain control of his home and to evict the licensee as easily as possible if the arrangement proves problematic.

Holiday and short-term occupation
An arrangement allowing the use of a property for the purposes of the occupier’s holiday is also excluded from the protection of the Housing Act 1988 (by Schedule 1 para 9). As the holiday occupation is likely to be only a few weeks, any form of tenancy will be unsuitable as the owner will not want to grant the occupier any legal rights in the property. Further, if any services are to be provided to the holiday-maker during his stay, such as cleaning or laundry, the access to the property required by the owner or his agents or staff will prevent the holiday-maker being granted exclusive possession. A licence will thereby be a more appropriate way to regulate the occupation.

Service occupancy
A tenancy would be inappropriate where an employee is expressly required to occupy accommodation which is of material assistance to his employment duties. The employer would want the ability to evict the employee if his employment was to cease, and may also require the freedom to move the employee to alternative accommodation if necessary. A licence would be suitable as it would regulate the employee’s occupation and enable the employer to retain control of the property. A service occupancy licence may be included in an employment contract.

Termination of a Licence: 

The statutory requirements for service of notices and termination of tenancies will not apply, as a licence will operate under contract law rules and not under the Housing Act 1988 statutory procedures.

Bare licence – may be revoked at any time, and once a reasonable period has elapsed after the owner has asked the licensee to vacate the property the licensee becomes a trespasser. The owner will then be entitled to take possession of the property.  The Protection from Eviction Act 1977 (PEA 1977) does not afford protection to a bare licensee.

Contractual licence – these may be fixed term or periodic:

•  Fixed term – once the contractual period has expired, the licensee becomes a trespasser and should leave the property.
•  Periodic – the owner should give the licensee notice equivalent to the period of the licence and, unless the circumstances fall within one of the s. 3A PEA exclusions (which include resident landlords and holiday occupation), this period must be at least four weeks (s. 5(1A)(b) PEA 1977). This notice must be a ‘notice to quit’ containing the information prescribed by the Schedule to the Notices to Quit etc. (Prescribed Information) Regulations 1988 (SI 1988/2201).

Protection from Eviction: 

Once any required period of notice has expired, the owner will be entitled to possession of the property. A contractual licensee will, however, benefit from the protection provided by the PEA 1977. Due to s. 1(2) PEA 1977 it is an offence to attempt to evict a ‘residential occupier’, the definition of which in s. 1(1) includes licensees.

Therefore, following expiry of the notice of termination of the licence given to the licensee, the licensee will not be compelled to leave the property until the owner has commenced court proceedings and obtained a court order.

However, a court order will not be needed if the licensee can utilise any s. 3A PEA 1977 exclusion. Once any such licence has been revoked or the required notice period has expired, the owner is able to enter the property and retake possession, such as by changing the locks on the doors.

Other Issues: 

Deposit
Occasionally the owner will take a deposit before the licence commences, to enable the owner to recover the costs of any damage the licensee may cause. There is no statutory requirement for deposits paid in respect of licences to be protected, as in the case with assured shorthold tenancies – see Letting Factsheet No. 24.

Inventory and Schedule of Dilapidations
These will be required before the licensee moves into the property, in order to record the condition of the property and its contents. This will enable the owner to identify any damage or missing items once the licence has ended, in order to claim the cost of repairs or replacements.

Guarantors
If the licensee is to pay consideration or has considerable obligations under the licence, the owner may require these responsibilities to be guaranteed by a surety. Similar credit checks and references should be taken on the guarantor as would normally be taken for a tenant in order to establish the guarantor’s ability to meet any defaulted charges.

The Housing, Health and Safety Rating System
Local authorities are under a duty to keep the housing conditions in their area under review, and use the Housing Health and Safety Rating System (HHSRS) to systematically identify hazards to health and safety.  The HHSRS applies to all residential properties, including those occupied under a licence. Property owners who grant a licence to occupy their property will not be exempt, so must ensure that the property does not present any health and safety risks and that it provides a safe and healthy environment.

Gas and general product safety
Property owners who allow licensees to occupy their residential property must ensure that they comply with all relevant legislation with regard to gas and general product safety – see Letting Factsheets 6, 7, 9 and 17.

Sources for Further Information: 

• Letting Centre Licence Agreement and Drafting/Guidance Notes – for information on using and setting-up licences
• Letting Centre Website:  www.letlink.co.uk