Licence to Occupy: Complete Guide for Commercial Property
AymanAyman
20th Aug 2025
10 min read (1,801 words)
In recent years, the modern commercial property market has begun to favour flexibility and a quick transition from vacancy to occupancy. This change has been magnified by the rise of hybrid work, ongoing economic volatility, and an increased appetite among businesses for short-term commitments. Subsequently, the licence to occupy has emerged as a strategic asset for owners and occupiers alike. This accelerates revenues and simplifies space transitions.
What Is a Licence to Occupy?
A licence to occupy is an agreement between a property owner and another person that allows that person to occupy their property. It will enable a business or individual to obtain permission to use commercial premises for a specific period and purpose. Critically, the tenant does not have the right to occupy a property and exercise control over it as if they were the property owner. The owner maintains access and control. This flexibility makes licences an attractive choice in contexts such as short-term office lets, co-working platforms and transitional periods between full tenancies.
Unlike commercial leases that typically grant long-term security of tenure and exclusive use to tenants, licences can be tailored for durations as short as a day or as long as several months. Legal advisors emphasise how the difference goes beyond terminology. Even a document labelled as a 'licence' could be perceived as a lease in court if it grants the right to exclude the landlord and others entirely or imposes other lease-like characteristics.
Where and Why Licences to Occupy Prevail
Commercial licence agreements are prevalent in scenarios where adaptability is paramount. Landlords leverage licences to keep income flowing during leasing gaps or while negotiating with prospective anchor tenants. A typical example is the vacant floor in a central business district refitted as a day office. Owners can instantly unlock value by setting daily licence fees (e.g., £0.80/sqft/day), with users ranging from consultants to project teams.
The commercial property sector is experiencing significant change as licence-based occupancy models gain traction. In Q1 2024, UK flexible workspace occupancy rates held strong at 80% . Larger flex spaces over 30,000 sq/ft averaged 89% occupancy , demonstrating significant demand for license-driven solutions.
This shift is shaping landlord strategy, with 58% of UK owners expecting at least 26% of their portfolios to be flex or licence-based by 2030. Such figures explain why leading flexible office operators and landlords now prioritise licence pathways as part of their core asset strategies.
Transaction patterns also reflect this confidence. In 2024, 35% of workspace deals in major UK cities were licence-based. Meanwhile, the average licence to occupy lasts six to 12 months, aligning with occupier demand for agility, as opposed to the nine year average lease term still typical for traditional agreements.
Licences vs Leases: Understanding the Legal and Practical Divide
Although both leases and licences facilitate the occupation of commercial premises, they differ fundamentally in structure and risk allocation.
Legal Rights
Leases grant tenants the right to exclusive possession . This is the power to exclude all other parties, including the landlord. Conversely, licences grant only a personal right to occupy which leaves the landlord free to enter, share, or even reallocate the space.
Security of Tenure
Statutory protections (legal rights and safeguards granted by specific laws to tenants) such as those provided under the Landlord and Tenant Act 1954 in the UK, attach only to leases. Licensees do not benefit from automatic renewal rights or protection from eviction.
Term and Flexibility
Licences commonly run for under a year, include provisions for rolling occupation or short notice termination, and often specify shared amenities. They are ideal for businesses wanting quick access with minimal long term risk.
Legal experts caution that ambiguity in drafting may convert a licence into a lease if the underlying relationship reflects exclusive possession. Thus, the process of using periodic renewals, shared access clauses, and explicit language is imperative to ensure the licence stands as intended.
Breakdown of a Commercial Licence to Occupy
A licence to occupy addresses the key terms below:
Permitted Use and Area
In every licence to occupy, the permitted use outlines exactly which rooms, desks, or areas the occupier can access in addition to what specific activities are allowed. This helps both parties avoid confusion or disputes by setting firm boundaries, ensuring compliance with regulations and insurance requirements.
Fee and Payment Structure
Licence fees are generally all inclusive. They cover utilities, cleaning, WiFi, and facility management, rolled into a single payment for simplicity. This structure appeals to occupiers looking for quick, predictable costs with all basic services bundled, and helps owners reduce administrative burdens. Buildings offering these bundled services often earn higher rental premiums.
Length of Occupation
Licences can be set for a fixed term, like one month or alternatively operate on a rolling basis. This flexibility minimises empty periods for owners and lets occupiers adjust their commitment as business needs change. Rolling licences are particularly common for co working spaces and temporary projects.
Termination and Notice
Licences usually offer simple exit routes, allowing either side to end the agreement with short notice which is often just seven days. This subsequently makes responding to changing circumstances easy and avoids the complex procedures associated with leases.
Access and Services
Unlike a lease, a licence keeps the owner's right to enter the property for inspections, maintenance, or services clearly intact. With the growth of smart access technology and shared amenities, buildings can charge a premium when these features are included.
Indemnities and Insurance
Occupiers must have liability insurance during their stay. They are liable for damage or losses they cause. Indemnity clauses ensure the owner can recover costs if anything goes wrong, keeping both sides protected without overcomplicating the agreement.
Compliance and Risk: Landlord and Tenant Perspectives
For landlords, the major risks lie in inadvertently granting exclusive possession or failing to clarify the shared/temporary intent of occupation. Such missteps can expose owners to statutory tenant rights and the potential for costly disputes. To avoid this, legal advisors urge property owners to:
- Use plain, unambiguous language in all agreements
- Emphasise non exclusive possession throughout the contract
- Renew licence terms every 1–3 months to clearly show the arrangement is temporary, helping to prevent courts from classifying the licence as a lease and granting tenants unintended long-term rights.
- Advise insurers and local authorities of ongoing licence use, ensuring regulatory and coverage compliance
From the occupier’s side, the key advantages are speed and flexibility. However, these come at the expense of tenure security. There are minimal rights against eviction, limited recourse if the owner sells the property, and no guarantee of continuation beyond the agreed period. For established users, this trade off is offset by the operational agility and market access licences provide; for others, it warrants careful calculation and clear communication.
The Pathway from Licence to Lease
Data from the flexible office market indicates that licences are not just placeholders, they’re highly effective at converting prospects to long term tenants. They provide occupiers a low-risk way to test a space's suitability, amenities, and location. As occupants become familiar and satisfied, many choose to move to longer-term leases. Making licences a practical pathway for nurturing prospects into committed tenants through hands-on experience and flexibility. For agents, this short term to longterm pipeline is a powerful business development tool, backed by the momentum and familiarity fostered during flexible occupation.
Real World Use Cases
Plug and play managed offices
Companies can trial premium office space in sought after locations for short periods, often weeks or a few months. The experience is entirely streamlined. All essentials like furniture, WiFi, power, reception services, and cleaning are included in one transparent invoice. This setup removes the usual delays and upfront costs, so teams can move in and start working within days. Flexibility lets firms test suitability before committing to a longer lease, with no need for capital expenditure or service arrangements.
Pop up retail and events
Landlords can easily convert vacant units into pop up shops, showrooms, or event venues for seasonal campaigns, product launches, or community gatherings. As the agreement is a short term licence, there’s no lengthy contract process and little ongoing risk. Occupiers get turnkey access, i.e. utilities and basic services ready, while landlords tap into new revenue without tying up the premises long term. Quick turnaround and simple terms make this ideal for brands looking to make an impact in targeted locations.
Space monetisation during lease up
While searching for permanent tenants, landlords can licence empty space to temporary users such as freelancers, small teams, or one off project groups. Even limited occupation keeps cash flow moving rather than leaving the asset idle. Fit outs and amenities provided under a licence make these spaces instantly attractive, and short term deals often serve as a 'try before you buy' avenue, turning licensees into future leaseholders. Owners maintain flexibility to pivot as formal negotiations with long term tenants progress.
Conclusion
Licences to occupy are reshaping the commercial property sector, fusing operational speed with market driven flexibility. For landlords, the benefits are found in instant revenue capture, higher rates of successful lease conversion, and reduced risk of vacancy. For occupiers, they allow for low commitment trials of location for maximum value all without the burdens of legacy leaseholds. Nevertheless, the 'one size fits all' myth doesn’t apply. Each licence arrangement must be structured to match risk, reward, and compliance needs.
For businesses and professionals seeking in depth legal advice, best practice guides, or Leanspace’s latest fit out insights, further reading is recommended through the links provided. Keep exploring for deeper dives into revenue share agreements, digital access technologies, and the evolving future of flexible commercial assets.
FAQs and Troubleshooting
Can anyone grant a licence to occupy?
Only someone with the right to occupy (usually a landlord, or a tenant with the landlord’s explicit permission) can grant a licence to occupy or allow another person to use the space. If a tenant is permitted to let someone else use the property under a separate licence, this is called 'sub-licensing'.
Is Stamp Duty Land Tax (SDLT) due on a licence?
Generally not, unless the arrangement effectively creates a right to a lease or forms part of an overarching agreement.
Can a licence to occupy be extended?
Yes. Flexible renewal and rolling arrangements are common, as long as the agreement and non exclusive possession remain intact.
What happens if the property is sold during the licence period?
The licence will usually end when the property is sold, as it does not grant a legal interest in the land. Occupiers may need to vacate unless the new owner agrees to continue the arrangement.
Can a licence to occupy be terminated at short notice?
Yes. Most licence agreements allow either party to end the arrangement quickly, often with just seven days’ notice, providing flexibility and quick response to changing circumstances.
