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The fundamental difference between a lease and a licence is that the former offers far more security than the latter. A lease gives a tenant an interest in land, whereas a licence is a personal right to occupy property. The distinction is also important because leases often attract statutory rights of protection, for example business leases benefit from rights under the Landlord & Tenant Act 1954 (“1954 Act”).
Because of this fundamental difference, the parties cannot turn what is in reality a lease, into a licence, simply by calling it a licence.
The lease v licence distinction was the subject of a dispute in the recent case of AP Wireless v On Tower UK Limited [2024] UKUT 263 (LC). In this case, the agreements in question were agreements for the installation of telecoms equipment in two greenfield sites in Cheshire and Essex. Neither agreement was descried as either a lease or a licence. The reason why the distinction particularly matters in this context is because of the different statutory rules which apply to telecoms agreements that were entered into before the “New Code” came into effect.
The Old Code and New Code
The New Code refers to the Electronic Communications Code in Schedule 3A of the Communications Act 2003. This came into force in December 2017 and overhauled the previous statutory regime governed by Schedule 2 of the Telecommunications Act 1984, known as the “Old Code”.
Telecoms agreements which were in force when the Old Code came into effect qualify as “subsisting agreements” meaning that they are effectively governed under the New Code. However, this does not apply to subsisting agreements which constitute business leases that are not contracted out of the 1954 Act. As such, the renewal of those leases falls within the provisions of the 1954 Act and not the New Code. This matters because a lease renewal under the 1954 Act is far more favourable to the landlord than it is under the New Code.
Therefore, the case of AP Wireless v On Tower UK Limited was ultimately concerned with whether the renewal of the agreement should take place under the 1954 Act or the New Code. To get to that point however the Court had to first determine the status of the agreements as leases or licences.
Lease v Licence: the law
The starting point for determining this issue is the leading case of Street v Mountford [1985] AC 809. This case established that the question of whether a contractual agreement for the occupation of land creates a lease or a licence depends upon whether, as a matter of substance:
– The agreement grants exclusive possession of the relevant land
– For a term that is certain; and
– At a rent
Where all three of these limbs are satisfied, the agreement will generally be a lease.
The Court’s findings:
The issue was initially referred to the specialist Court called the First Tier Tribunal (the “FTT”). The decision of the FTT was that each agreement constituted a licence, not a lease. This was mainly on the basis that neither agreement was found to have granted exclusive possession.
That decision was appealed to the upper court, known as the Upper Tribunal (Land Chamber) (the “Upper Tribunal”). The appeal was partially successful.
Whilst the Upper Tribunal approved the approach of the FTT, it disagreed with its findings in relation to the grant of exclusive possession. The Upper Tribunal decided that both agreements granted exclusive possession for a rent, thus satisfying two of the three limbs referred to above.
However, it found that only one of the agreements was granted for a term that was certain. As such, only one of the agreements satisfied all three of the limbs referred to above and was therefore found to be a lease. The other was held to be a licence.
Comment
The case is worthy of note because it provides a very useful and detailed analysis of the approach adopted by the Courts when deciding whether an agreement is a lease or licence. This is of particular interest in the context of telecoms agreements, which are a unique form of agreement, and which are often not expressly described as either a lease or licence.
Another interesting observation was the distinction drawn by the Upper Tribunal between greenfield telecoms sites and rooftop telecoms sites. The latter was the subject of a similar debate in the case of EE Ltd v Edelwind [2020] UKUT 0272 (LC) in which the court found that the agreement was a licence, not a lease. The Upper Tribunal in AP Wireless v On Tower UK Limited distinguished this type of agreement on the basis that it gave the operator the right to install telecommunications equipment on a roof, whereas in the present case, the agreement granted a “bundle of rights” over a defined and enclosed area.
Ultimately, this case and others like it emphasise the importance of taking care in the drafting of the document to ensure that it amounts to the correct form of agreement, be that a licence or a lease.
If you need assistance differentiating between a lease and a licence, please contact our Real Estate Dispute Resolution lawyers by email, or call 03333 231 580.
