A document that called itself a licence was, in fact, a lease

The characteristics that distinguish a lease from a licence were explained in Street v Mountford [1985] 1 EGLR 128; (1985) 274 EG 821. The decision confirmed that the grant of exclusive possession, for a term, and at a rent, creates a tenancy. And, importantly, the effect of the parties’ arrangement is more important than whether the occupier pays rent or the label that they attach to their agreement. London College of Business Ltd v Tareem Ltd [2018] EWHC 437 (Ch) concerned offices occupied by a college. The wording and some of the terms of the parties’ agreement, which consisted of 10 short and simple clauses, suggested that the relationship between the parties was that of licensor and licensee. The arrangement was personal to the college and was inalienable. There were no repairing obligations, but the occupier was liable to pay a fixed service charge. The landowner relied on the express wording of the agreement. It also pointed to the fact that the occupier had moved around the building, occupying different units under successive, overlapping agreements (some of which were never signed). It argued that this flexibility was indicative of a licence. However, the court decided that the landowner had granted a lease. The judge noted that the purpose of the agreement was to provide the college with premises for its business. The college had fitted out the units and it was unrealistic to suppose that the parties had genuinely intended that the landowner could interrupt the business carried on by the college there by exercising its right to enter the units at any time to manage and control them. Nor was it realistic to suppose that the landowner would have had any genuine commercial interest in doing so; it wanted to turn the premises to account. Where an agreement has been negotiated between parties of equal bargaining power, with the benefit of legal advice, the court may be reluctant to disregard the parties’ express statements as to the nature of the relationship created: Clear Channel UK Ltd v Manchester City Council [2006] 1 EGLR 27. But the parties had not had equal bargaining power in this case – and the college had not had the benefit of legal advice. The taking of a service charge and the ability to terminate on 14 days’ notice in the event of breach of covenant or failure to keep up to date with payments were consistent with the creation of a tenancy. Furthermore, the landlord had not exercised unfettered rights of entry, even though it had reserved the right to enter the premises at all reasonable times to manage and control them. In substance, if not in form, the clear intention was that the college should be allowed to get on with running its business from the premises so long as it was not in arrears. Therefore, the college had the right to exclusive possession and, as a result, the agreement took effect as a tenancy, which was protected by Part II of the Landlord and Tenant Act 1954.   Allyson Colby, property law consultant