Leases, Licences and service tenancies: Spot the Difference

Both leases and licences allow someone to use and occupy property. However, the legal rights and obligations they create are different. A lease is a more formal arrangement and gives the tenant greater rights. A licence is a more flexible arrangement. It is important both sides come to an agreement to know what they are signing up to.

Lease v Licence

Under a lease, the landlord grants the tenant the right to exclusive possession of land or property for a fixed or periodic term at a stated rent. If those features are present, the arrangement will be a lease, even if it is not described as a lease. Where someone occupies property (with permission) but the essential requirements of a lease are not met they will occupy that property under a licence.

The most significant difference is the right to exclusive possession of the property under a lease. This means that the tenant can exclude other people (including the landlord) from the property during the term of the lease. A lease also gives tenants greater security of tenure, particularly in the context of a residential tenancy. The Residential Tenancy (Jersey) Law 2011 imposes a number of legal rights, obligations, and minimum standards, which must be complied with in order to avoid sanction. These include, but are not limited to, minimum notice periods to terminate a lease and minimum health and safety standards. The Court will look at the actual nature of the relationship between the parties to determine whether an arrangement is a lease or a licence. If the essential requirements of a lease have been met (exclusive possession, for a term, at a rent) then the Court will treat the arrangement as a lease, even if the agreement says it is a licence.

Service Tenancies

A service tenancy arises where a person’s right to occupy property appears linked to their continued employment. If the essential requirements of a lease are satisfied the Court will likely treat such an arrangement as a lease. The 2011 Law provides that a lease will not terminate merely because the employee is no longer employed by the employer. The employer will have to follow the requirements of the 2011 Law to seek vacant possession at the end of the employee’s employment.

Conclusion

Both leases and licences have their benefits and drawbacks. Which arrangement to adopt is a commercial question for the parties. If parties want the greater flexibility provided by a licence then care must be taken not to inadvertently create a lease. This is particularly important in the context of service accommodation.