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Licence or Lease?

Business

Background
The High Court has held that an agreement for occupation actually created a tenancy, even though it was called a licence. This meant the occupier / tenant had acquired rights under the Landlord and Tenant Act 1954.
Lease or Licence
A lease creates a right to the exclusive possession of land for a determinable period of time and gives the tenant statutory protection under the Landlord and Tenant Act 1954.
However, a licence is simply permission for a licensee to do something on a licensor’s property and offers no protection.
Facts of the case
The claimant, the London College of Business “the college”, carried on business as a college of further and higher education. Since 2006 the college occupied premises in Barking which were owned by the defendant “Tareem”. The premises were managed by Montague Management Limited on behalf of Tareem.
In 2012, the parties made an agreement, which stated that “….this agreement constitutes a personal Licence to occupy by the Licensee and shall not be deemed to constitute a tenancy within the meaning of the Landlord and Tenant Act 1954”.
In 2013 and 2014 a dispute arose between the parties about the amounts payable by the college in respect of its occupation of the premises and in respect of the service charge. In September 2014, Tareem, relying on their view that the college was in arrears, excluded it from the premises by changing the locks.
The college than obtained an injunction requiring Tareem to deliver the keys within 30 minutes of the order. This was carried out and the college reopened for its students.
The college then brought a claim for £189,415 opposing that the exclusion from the premises had been in breach of the agreement which resulted the college in a substantial loss of profit and goodwill. The exclusion of the premises was for three days from 22 to 24 September 2014.
Issues and decision 
A concern for the court was that the agreement conferred the right to exclusive possession on the college and accordingly this took effect as a tenancy. One of the key elements of any lease is exclusive possession. A person has exclusive possession if it can exercise the rights of the landowner and exclude both the landlord and third parties from the land (except to the extent that the landlord has reserved rights of entry, for example to carry out works).
Even though the agreement used wording such as licensor and licensee, the court took the view it was the parties intention to have a relationship of landlord and tenant. The purpose of the agreement was to provide the college premises which it could educate students.
Furthermore, the college had fitted out the premises at its own expense, so to make them suitable for their business, which is why the court held the tenancy was a business tenancy pursuant to the Landlord and Tenant Act, rather than a Licence.
This Act did not prevent the right of the landlord to enter and forfeit the tenancy. The termination clauses of the agreement allowed it to, if at the time the college was in arrears of rent and appropriate notice had been given.
The court’s resolution on this point was that no valid notice has been given to the college, and Tareem was in breach of the implied covenant for quiet enjoyment in the agreement. As a result, damages were awarded to the college in the sum of £25,104.
Conclusion
This re-iterates that the accurate nature of an occupation agreement lies not in what it is called but how it works. Despite the plain wording of the agreement referring to the relationship between the parties as that of licensor and licensee, and also the fact it clearly mentioned the agreement was not a tenancy, it was clear that on the true construction of that agreement and on the facts, the relationship created was that of landlord and tenant, therefore construing a Lease.

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