It is fairly well-established that a licence to occupy premises confers on the occupier no interest in the subject premises, rather it is a permission to do something which would otherwise be unlawful.A licence is, by its very nature, not a lease; it is a personal right which offers no security to the occupier.
In West End Commercial Ltd v London Trocadero (2015) LLP [2017] EWHC 2175, the High Court was recently asked to consider whether a company occupying retail premises under a contractual licence was entitled to apply for an injunction restraining the landowner from terminating the licence. The decision turned on whether the licence arrangement conferred a proprietary interest on the occupier or simply a contractual right.
The Facts
The Claimant, West End Commercial Ltd (the “Occupier”) was granted a licence to occupy a retail unit for one year by the Defendant, London Trocadero (2015) LLP (the “Owner”), subject to a provision entitling the Owner to end the licence on 30 days’ notice. According to the Occupier, the Owner’s agent said during licence negotiations that it would not seek to end the licence before the end of the term, provided that the Occupier did not breach its terms.
A week after the licence was granted, the Owner served notice on the Occupier to end the licence on 30 days’ notice and subsequently entered into a new arrangement with another company on different terms.
The Occupier applied for an injunction on the basis of proprietary estoppel, claiming that it had relied to its detriment on the statements made by the Owner’s agent. The Owner refuted the Occupier’s proprietary estoppel argument on the ground that the Occupier was a mere licensee and had no proprietary interest in the retail unit.
The Decision
The court held (agreeing with the Owner) that the licence gave the Occupier the right to trade from the unit, as a “valuable commercial right” but did not confer a proprietary interest.
The Occupier had not suffered a detriment by entering into the licence, as before doing so, it had no right to occupy or use the unit at all. In addition, even if the termination of the licence by the Owner had been unlawful, the Occupier’s injunction application would have been refused on the basis that the Occupier could be adequately compensated in damages for its loss of profits.
Points to Note
The decision in West End Commercial Ltd v Trocadero (2015) LLP supports the use of licences to occupy in circumstances where properly-advised landowners and occupiers of commercial premises wish to document short-term occupational arrangements (as the decision helpfully confirms that a genuine licence arrangement confers on the occupier only a “valuable commercial right” to trade from the premises, not a proprietary interest).
The leading case on the lease/licence distinction is Street v Mountford [1985] and in this case the House of Lords said that the distinguishing feature of a lease is exclusive possession of the property. Street v Mountford and subsequent case law has illustrated that the label given to an arrangement will not conclusively determine its status (i.e. calling an arrangement a ‘lease’ or ‘licence’ does not mean that it will be construed that way).
Caution must therefore be taken by landowners when labelling arrangements as ‘licences’. Ifthe occupier has exclusive possession of the premises, there is a risk that (if the arrangement has lasted for more than six months or is on a periodic basis) the occupier may try and argue that it has a lease which is protected by the security of tenure provisions in theLandlord and Tenant Act 1954.
To minimise the risk of disputes arising, it is important for both landowners and occupiers that the terms of any arrangement are carefully drafted and reflect the reality of the occupation of the property ‘on the ground’ to avoid either party entering an arrangement which is more or less than they intend.
