Lease or License?
Introduction
Any organization or individual occupying a premise where the superior interest is owned by another party; for a given duration of time; with the authority to operate exclusively without the owner’s interruption does so under a contract referred to as a lease. Despite the definition, however, there have been cases where leases are used to serve as licenses and this has sparked the debate as to whether the distinction between a lease and a license still exists. A license for instance is a personal agreement between the parties involved where the owner allows the person signing the license to carry out activities such as occupying the land. The license however fails to offer any form of proprietorial rights and usually becomes void once a change in ownership of the land occurs. A lease on the other hand gives more than permission to occupy the premises which makes it a commodity that can be bought and resold. Unlike licenses, the lease survives any change in ownership that occurs before the lease expires when the lease is a commercial premise in accordance with the provisions for part II of the Landlord and Tenant Act 1954. The lease is therefore better for the tenant as it prevents relocation or termination of the agreement with the previous owner even after a change in ownership. The holder of the lease has security in that the owner cannot repossess the property or land from the person leasing it unless a valid reason is provided for in the court of law. Although licenses and leases have been used interchangeably to refer to the same document, the traditional distinction is still relevant and desirable today as it helps in making decisions based on guidelines stipulated in each contract.
Background
The history of the lease can be traced back to The House of Lords in the Street V Mountford (1985) where it was ruled that any form of residential accommodation that was granted for a duration of time; required payment of rent, and gave the tenant exclusive possession of the premises would be regarded as tenancy and this formed the basis of what came to be referred to as a lease[1]. By definition, a lease is an agreement that exists between a landlord and the tenant giving the tenant exclusive rights to possess the premises for a given duration of time and pay rent as compensation for the exclusivity and premises. A license on the other hand is the case where an individual or group gives the licensee the right to occupy the premises and pay a fee. Unlike a lease, however, the license does not give the licensee the right to exclusively possess the property or premises.
The use of the term and license and lease to refer to the same agreement is as a result of the subsequent cases that expanded the scope of what a can be defined as a lease or a license[2]. In some cases, the parties involved resulted to recognizing that a lease did exist, even in cases where the landlord lacked a legal estate in the property and this results in the lines between a lease and license becoming blurred. Take the case of the Fox LJ in Ashburn Anstalt v Arnold [1988] EWCA Civ 14 as an example. The case sought to determine whether the agreement between Arnold and the landlord meant that the property he occupied could be declared vacant by another party. When Arnold occupied the property, it stood as a complex that was up for redevelopment by the owner. After selling his lease to Matlodge, Arnold was allowed to occupy the premises free of charge until a quarter’s notice to quit was issued. It was later ruled that despite not stating the duration in which the free tenancy would last, the provision for a notice to quit meant that the owner could notify the tenant upon which the agreement becomes a tenancy.
The ruling made in the Street v Mountford [1985] AC 809 is a perfect example of why traditional distinctions of leases and licenses are still relevant and desirable today. In his ruling, Lord Templeman drew the conclusion that the relationship between the parties involved was one of a license despite all indications pointing to a lease. In his definition of what constitutes a lease, Lord Templeman pointed out that any agreement where the tenant a). got exclusive; b). for a fixed or periodic duration of time; c). with payment of rent, then the relationship will be one that constitutes a lease. However, rent could not be the differentiating factor because rent is paid both leases and licenses. The final ruling made was based on Lord Templeman argument that differentiating between a lease and a license would also require one to focus on the agreement itself rather than the terms used by each party to define the agreement. The decision to rule the Street v Mountford [1985] AC 809 as a license is an example of the harm that arises from using the two terms interchangeably. Despite the agreement between the two parties qualifying as a lease, Lord Templeman ruled it a license because the nature of the relationship following the agreement was one of a license.
Non-Conventional View of Property: Relativity of Title
The non-conventional view of property can help to better demonstrate the importance of understanding the difference between a lease and a license. Lord Hoffman in London and Quadrant Housing Trust v Bruton [1999] UKHL 26 can best explain the confusion regarding leases and licenses as it went against the ideology where leases often warrant proprietary interest. The case made it possible for the court to consider non-conventional views regarding property while still retaining the idea[3]. In addition, if the term property is used in reference to the significant control over access that the individual has to the premises, it grants him the power to carry out the duties that led to applying for the lease in the first place.
The control over access that the individual has to the leased premises is thus as a result of the power relation that comprises of legal sanctions and controlled access to benefits that result from resources excluded in the lease. In a society where exclusive possession in absolute terms is no longer common, there is a need to adopt a non-conventional definition of what is considered property[4]. Doing so could help to identify that leases, unlike licenses, attract proprietary interest and in so doing, help differentiate the two concepts.
In the Bruton v London and Quadrant Housing Trust (1999) for example, it was possible for Bruton to enact his rights against London and Quadrant Housing Trust and all other third parties except the local authority as it was the one responsible for granting the original lease. Although the local authority had a superior title, Bruton’s rights were protected as he had the right to claim some form of possession for the property. The provision that property can exist as a continuum has made the task of implementing the laws stipulated in leases difficult and this has led to the tendency of licenses being used in place as they offer a more straightforward ruling. This is especially because the license in no way gives the licensee exclusive rights over the premises or property, thus making it easier to make a ruling especially in cases where a change in ownership has occurred.
A lease can be given to an individual or group even in cases where the person giving the lease lacks ‘Absolute Title’ as the landlord can rely on the provision of a ‘Good Leasehold Title’. Absolute title is the case where the landlord is still in control of or owns the property. Good Leasehold Title offers the provision where the holder of the leasehold is not capable of finding out whether the leaser has the power and authority to take any actions that affect the property[5]. The only provision is that the title for the property in question is satisfactory.
Parallels with Adverse Possession
The importance of understanding the difference between a license and a lease is evident in Lord Denning in Errington v Errington Woods [1952] 1 KB 290; [1951] EWCA 2 as it was the determining factor in deciding who retains ownership to a house. The agreement between the couple and the father meant that they had leased the property and the wife’s payment of the mortgage meant that she continued to hold up the terms agreed upon. Even after the father’s death, the lease gave the couple control over the property even after the husband opted to live with the mother. The wife was entitled to the house as she had honored the lease by paying the mortgage for the house[6]. Although the mother was the owner as she acquired the house through inheritance, she could not evict the wife as the house was leased to her and her husband without any provision on how to terminate the lease.
Another example is the case of Dutton v Manchester Airport (1999) where Manchester Airport sought to operate on land owned by the National Trust. The activities that the airport sort to carry out included cutting down trees at an ecological site that was important to the residents of the area. Prior to Manchester Airport receiving the license to move into the region and carry out their activities, activists like Lee Dutton had already moved in the region and camped on the land to protest activities by the Manchester Airport. Their access to the land was however based on protesting the airport which resulted in the protesters occupying the land with no form of consent or license to do so[7]. The decision by Manchester airport to have Dutton and other protestors legally removed from the land faced various complications that can help to shed more light on how licenses and leases remain different entities even today. Since Manchester Airport was yet to get the lease and occupy the land, they had no legal grounds to call on the court to get rid of Lee Dutton because the airport had no control over the land.
In order to overcome the restriction preventing the Manchester Airport from taking legal action, the airport sought for ejectment, a provision that is reserved for individuals or organizations that have an estate in the land but lack parties[8]. Even with such a provision, Manchester Airport still lacked the authority to evict the protestors, even though the court of law as the airport was not a licensee. When the ruling was made, Manchester airport was given control of the land, an error on the side of the court as it treated license as a lease by giving it proprietary value and in so doing, wrongfully ruled in favor of the airport.
Conclusion
The lack of clarity in differentiating between a lease and a license is greatly influenced by the difficulty in resolving issues in accordance with the guidelines stipulated by each contract. There is however a clear distinction especially because leases give the lease exclusive rights to property or land whereas a license only gives access to the property or land but without the exclusivity. Differentiating the two is crucial as it helps to settle legal disputes and ensure justice is upheld. In cases where ejections are used, the court should assess the interests of both parties before determining what ruling to make.
References
Allen, Noble. “Recognizing the difference between a lease and a license in Connecticut” Hinckley Allen, 2014, retrieved from, https://www.hinckleyallen.com/publications/recognizing-the-difference-between-a- lease-and-a-license-in-connecticut/
Ang, Ming, “Blurred lines: Preserving the distinction between leases and agreements”. 2017, Retrieved from, http://www.keepcalmtalklaw.co.uk/blurred-lines-preserving-the- distinction-between-leases-and-licences/
Bright, Susan. “Street vs Mountford revisited”. ResearchGate, 2006, retrieved from, https://www.researchgate.net/publication/228184123_Street_v_Mountford_Revisited
Hinojosa JP. ‘On Property, Leases, Licenses, Horses, and Carts: Revisiting Bruton v London and Quadrant Housing Trust’ Conveyancer and Property Lawyer, Mar/Apr, 2005. 114-122
Moran, Allan. Leases and licences. In Commercial property law (pp. 34-42). London: Learning Matters, 2007, doi: 10.4135/9781446278772.n4
Pawlowski, M. ‘Occupational Rights in Leasehold Law: Time for Rationalisation?’ Conveyancer and Property Lawyer, Nov/Dec, .2002. p. 550-559
Shaw, Nicholas. “Contractualisation and the lease-license distinction” 2018, Retrieved from, http://classic.austlii.edu.au/au/journals/AdelLawRw/1996/8.pdf
Stewart, Marcia, Ralph Warner, and Janet Portman. Leases & Rental Agreements. , 2017. Print.
Universal, Law. Land Laws - Lease Licences Rent Control and Slum Clearance in Delhi. Place of publication not identified: Universal Law Publishing, 2008. Print.
[1] Stewart, Marcia, Ralph Warner, and Janet Portman. Leases & Rental Agreements. , 2017. Print p. 13
[2] Universal, Law. Land Laws - Lease Licences Rent Control and Slum Clearance in Delhi. Place of publication not identified: Universal Law Publishing, 2008. Print. P. 20.
[3] Allen, Noble. “Recognizing the difference between a lease and a license in Connecticut” Hinckley Allen, 2014, p. 4. Retrieved from:https://www.hinckleyallen.com/publications/recognizing-the-difference-between-a-lease-and-a-license-in-connecticut/
[4] Hinojosa JP. (2005) ‘On Property, Leases, Licenses, Horses, and Carts: Revisiting Bruton v London and Quadrant Housing Trust’ Conveyancer and Property Lawyer, Mar/Apr, p. 115.
[5] Pawlowski, M. (2002) ‘Occupational Rights in Leasehold Law: Time for Rationalisation?’ Conveyancer and Property Lawyer, Nov/Dec, p.556
[6] Moran, Allan, Leases and licences. In Commercial property law (pp. 34-42). London: Learning Matters, 2007, doi: 10.4135/9781446278772.n4, P. 37
[7] Shaw, Nicholas. “Contractualisation and the lease-license distinction” 2018, retrieved from, http://classic.austlii.edu.au/au/journals/AdelLawRw/1996/8.pdf, P.212
[8] Ang, Ming, “Blurred lines: Preserving the distinction between leases and agreements”. 2017, P. 1. Retrieved from: http://www.keepcalmtalklaw.co.uk/blurred-lines-preserving-the-distinction-between-leases-and-licences/
