Never judge a book by it’s cover – The important difference between a tenancy and a license

Author: Geoff Davies, Housing Case Worker, Citizens Advice Staffordshire North and Stoke on Trent

Introduction

Many of our customers will be occupying shared accommodation.  People living in shared accommodation, where an occupant may have his or her own bedroom but share facilities with other residents, can occupy as either a tenant or a licensee.

The distinction is important because licensees will generally have fewer statutory rights and less security of tenure than a tenant, which in essence means that it is easier for the licensor to evict them.  Some licensees of public hostels will also be excluded occupiers and so can be evicted, sometimes at very short notice, without the requirement to obtain a court order.

Some landlords within the private sector will seek to take advantage of the rules by describing a letting arrangement that looks and operates like a tenancy as a license agreement.  Such agreements are often described as sham agreements.

Let us now go on to look in more detail about the difference between a tenancy and a license.

Difference between a tenancy and a license

If a tenancy is created, regardless of the provisions of the actual agreement, the tenant will have additional statutory rights.  Examples of the rights some tenants have are:

• The right not to be evicted unless there are grounds, as set out in the statute.
• The right to have repairs carried out by the landlord.
• The right to pass on the tenancy to a spouse, civil partner, or cohabitee on death.

Licensees do not have these rights.  Usually the most a licensee will enjoy will be some protection against summary eviction.  A license is a personal permission to occupy.  It may be withdrawn by the licensor and cannot be transferred to another person.

Hallmarks of a tenancy

In the leading case of Street v Mountford, the House of Lords established that the hallmarks of a tenancy were;

• the grant of exclusive possession of the premises
• a defined period of time
• an obligation to pay rent

A tenancy agreement is a contract. That means it must also have:

• an intention to create legal relations
• a landlord and a tenant.

Exclusive possession

Exclusive possession is the tenant’s right to stop other people, including the landlord, from entering the rented property without permission. The rented property does not have to be an entire flat or house. It can be a tenancy of a single room.

What is a license?

A licence is personal permission for someone to occupy accommodation. It does not give the licensee a legal interest in (or control of) the land. Without the licence the occupier would be a trespasser.

Bare licences and contractual licences

A bare licence is where someone has been given simple permission to live in accommodation. For example, a friend invited to look after a flat while somebody is on holiday or a young person living with their parents is likely to be a bare licensee.

A contractual licence is where a licence arises out of a contract under which the licensee has to perform a service or pay money in return for accommodation but where the conditions for creating a tenancy are not met.

When a licence is likely to arise

The main instances where there will be a licence rather than a tenancy are where:

• there is no intention to enter into a legal relationship
• there is no right to exclusive occupation
• the arrangement is a service occupancy (in tied accommodation)

Let us look in a little more detail at the issue of exclusive possession as that is the issue which is usually in issue in cases involving our customers.

No right to exclusive possession

The main situations where there will be no exclusive possession are accommodation:

• where the landlord retains general control over the whole of the premises (this is the situation of most lodgers)
• shared with another person who is not a joint tenant
• where the landlord retains a genuine right to move the occupier from room to room

Hostels

Hostel accommodation is often let under a (genuine) licence agreement because of the special rules that can apply. These rules can interfere with occupiers’ freedom to such an extent that they do not have exclusive possession of any part of her/his accommodation.

For example, the House of Lords decided that no occupier of a hostel for homeless persons had exclusive possession of a room on the basis of the:

• restrictions placed on the occupiers’ use of the rooms
• fact that they were not entitled to any particular room and might be required to move rooms or share a room
• fact that the grant of exclusive possession would be inconsistent with the social purpose for which the accommodation was provided.

Hotels

Most hotel guests are licensees. The rules imposed on the guests are normally inconsistent with the creation of a tenancy, for example entering the guests’ rooms daily for cleaning and restrictions placed on the guests’ use of the rooms.

Attendance/services

Where a landlord agrees to provide attendances or services that require unrestricted access to the occupier’s premises then there will be no exclusive possession. The occupier will be a licensee, not a tenant.

Attendances or services might include daily room cleaning, changing of bed linen and the provision of meals.  An agreement to provide board (food) does not necessarily deprive an occupant of exclusive possession, unless the food needs to be brought to the room in such a way that the tenant loses exclusive possession.

Is the wording of the agreement determative?

An agreement titled ‘License Agreement’ might seem clear cut.  However, the above case of Street v Mountford decided that it is the substance of the agreement and not the label attached to it that matters.

In the words of Lord Templeman in that case; ‘the manufacture of a five pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make a spade.’

Again, in the cases of A G Securities v Vaughan, Antoniades v Villiers it was held that a written agreement will not necessarily be conclusive as to the nature of the rights and obligations and it must be construed in the light of any relationship between the prospective occupiers, the course of negotiations and the nature and extent of the accommodation and the intended and actual mode of occupation.’

Sham agreements

What is a sham agreement?

A sham agreement is a contract that claims to give the parties different rights from the ones they have in law. A landlord can attempt to make a sham agreement with a tenant verbally or in writing in different forms, even via text or Whatsapp messages.

A sham agreement typically involves a landlord stating that an occupier has a licence when the actual agreement between the parties is classed as a tenancy under housing law.

Sham agreements often include a clause denying that the occupier has exclusive possession. For example, the agreement could state that the landlord or other people have the right to access the property.

A landlord could reserve the right to access a property to provide services such as cleaning, which would mean an occupier does not have exclusive possession.

A landlord who includes a clause reserving access to provide services might have issued a sham agreement if there is no intention of providing those services.

Ending a license agreement

If the customer has a contractual license, then this can only be ended by a valid notice to quit.  A notice to quit must be in writing and must give a minimum of four weeks’ notice.

The notice must expire on the first or last day of a period of the tenancy.

If the licensee remains after the expiry of the notice to quit, then the licensor will need to obtain a possession order and an eviction warrant to evict the licensee.

Excluded occupiers

Some occupiers are excluded from protection under the Protection from Eviction Act 1977.

Excluded occupiers can be evicted without a court order once their tenancy or licence to occupy has been brought to an end.

The most common example that is applicable to our customers is probably licenses in public sector hostels.

Licences in public sector hostels

A hostel means a building in which the accommodation provided is not separate and self-contained and either board and/or facilities for the preparation of food is provided for residents.

Public bodies who can grant excluded licences include:

• local authorities
• development corporations
• Housing Action Trusts
• private registered providers of social housing
• other public bodies authorised, from time to time, by the Secretary of State to grant licences in hostels
• charitable housing trusts

Ending a periodic license

If the agreement does not specify a notice period, then the landlord must give reasonable notice.  The notice does not need to be in writing and can be given verbally.

There is no legal definition of a reasonable period. What period of notice is reasonable depends on the individual circumstances of each case. Relevant factors can include:

• length of time the occupier has been living in the accommodation
• periods for which rent is payable
• occupier’s conduct

Conclusion

As we have seen , there is an important distinction between the rights given to a tenant compared with a licensee, particularly when it comes to the amount of notice that needs to be given as well as other rights.

Workers should not simply rely on the description of the agreement or what is said in the agreement but should ask their customers relevant questions around exclusive possession and what services, if any, are provided, in order to ascertain whether or not the circumstances of a letting are more indicative of a tenancy rather than a license.

It is also important to remember that, even if your customer does only have a license, in most cases he or she will still be entitled to a notice to quit and court order, while for those in public hostels who are excluded occupiers, the agreement should be checked to see if the contract allows them a period of notice and / or any appeal rights to challenge any decision to end the agreement.