Quick Facts

Misclassification risk – Licences that grant exclusive possession can be reclassified as leases, costing landlords control and revenue.
Frequent disputes – Licence agreements often end up in court over unclear terms, risking lengthy litigation process.
Security of tenure – Accidental security of tenure means occupiers gain protected tenancy rights, making eviction costly and more complex.
Hidden costs – Reclassification lowers asset value, creates ongoing rent obligations, and drives up legal and regulatory costs.
Compliance is key – Careful legal drafting and proof of temporary occupancy help mitigate risks.

Property owners considering a licence to occupy should be aware of the legal and operational landscape that surrounds this form of occupation, as well as the cost and financial considerations tied to such agreements. Alongside flexibility, licences to occupy often involve negotiation of key terms like the licence fee, deposit, and costs associated with a licence to occupy. However, alongside short-term flexibility come specific, recurring risks that have contributed to a significant volume of case law and regulatory reform in recent years.

Understanding the Licence to Occupy: Purpose and Appeal

A licence to occupy is an agreement that permits an occupier to use premises for a period without granting them exclusive possession or a formal leasehold interest. Landlords frequently opt for licences to meet the needs of flexible workspace, short-term projects, or interim tenancies while a long-term strategy is developed. The structure of a licence can vary from a simple contractual licence or a more formal document with defined consideration and deposit requirements, to a scenario resembling a tenancy at will. As opposed to leases, licences are intended to be easy to terminate and generally fall outside complex statutory protections. Statutory protections refer to laws like the Landlord & Tenant Act 1954 , which gives commercial tenants rights to stay in the premises and renew their lease, even after the contractual term ends. This, in theory, makes them appear an attractive risk management tool.

However, the legal and operational boundary between a lease and a licence is far less clear than many landlords would appreciate. In practice, if a licence is not tightly drafted or correctly implemented, it can very easily be reclassified as a lease by the courts. This is accompanied with an array of statutory rights for the occupier and a dramatic reduction in the landlord’s options and asset value. It may also include new possession risks and further latent costs tied to rent obligation or compensation if court proceedings arise. For further details read Licence to Occupy: Complete Guide for Commercial Property .

Legal Disputes: Frequency and Common Triggers

Licences to occupy are among the most frequently disputed instruments in UK property law. Leading legal sources and case law confirm that few areas of law give rise to as many disputes as licences to occupy, especially when original short-term intentions evolve into long-running or exclusive arrangements where exclusive possession is inadvertently granted.

Multiple reported cases appear every year in legal and tribunal records involving disputes over the status of occupation. This often centers on issues of exclusive possession, the practical substance of the occupation, or the absence of clear, enforceable licence terms. These scenarios are often complicated if the agreement required a significant deposit or included ambiguous rent obligation language.

In litigation, landlords frequently find that, despite the label “licence”, their occupier has acquired the rights and statutory protections associated with a formal lease. This commonly follows patterns such as:

Granting the occupier exclusive possession over the property, which may negate intended cost and financial considerations like a fixed licence fee or scheduled deposit return.
Repeated renewals of the licence, which over time, undermine the hallmarks of a temporary arrangement and can introduce unexpected long-term financial exposure through court-mandated rent obligation or compensation.
Failing to exercise or document shared or rotational use of the premises, leading the occupier to claim outright control.

A key example is the landmark Supreme Court case of Street v Mountford. This confirmed that if an occupier is granted exclusive possession for a term and at a rent, the agreement is likely to be a lease irrespective of its label. More recently, in London College of Business Ltd v Tareem Ltd , the landlord, despite designating the arrangement as a licence, was held to have granted a protected business tenancy. This resulted in immediate loss of control, damages exposure, and a lengthy court battle for possession. The underlying lesson is clear. Substance trumps form, and poorly structured licences are a magnet for disputes, especially when the cost of preparing and completing the licence and subsequent legal expenses are factored in.

The Pitfall of Security of Tenure

One of the most significant risks for licensors is accidentally granting an occupier security of tenure, i.e. the legal right to remain in the property beyond the agreed term. If a licence is reclassified as a lease, the Landlord & Tenant Act 1954 applies to commercial premises, preventing the landlord from regaining possession at the end of the term except under very limited statutory grounds and, often, only after potentially costly compensation or legal proceedings. The “licensee” thus becomes a “tenant”, with a right to renew and to contest eviction, in direct opposition to the landlord’s strategic aims.

Sector evidence emphasises the cost of this risk. Survey data and legal commentary reveal that reclassification disputes lead to prolonged possession hearings and, in severe instances, damages far exceeding any initial short-term revenue gain. The asset can rapidly become, saddled with a sitting tenant for a considerable period, compromising prospects for sale, refinance, or redevelopment. Financial commitments such as ongoing rent obligation and lost negotiation leverage are real risks.

Asset Value and Operational Certainty

Aside from legal exposure, the risk of reclassification erodes asset value and income stability. Landlords depend on the ability to let, advertise, or repurpose space flexibly, and the certainty that the property can be delivered with “vacant possession” is a core feature influencing market value. With an unchallengeable lease on the books, the asset immediately becomes less attractive to potential investors or financiers, particularly institutional buyers who require absolute clarity of title and tenure. Where repeated or long-term licences are present, this uncertainty may be reflected in lower purchase offers or an inability to transact at all until legal issues are settled.

Enforcement, Compliance, and Regulatory Shifts

Enforcing the expiry of a licence is not as simple as many assume. Unless the licence is specifically “excluded” or the licensor regularly occupies or shares the premises, statutory protections such as the Protection from Eviction Act 1977 apply. This requires formal notice, court proceedings, and if handled incorrectly, may lead to claims for unlawful eviction, fines, or even criminal prosecution for the landlord. Case tracking by legal commentators highlights that such situations arise multiple times a year, frequently resulting in negative PR and additional regulatory scrutiny for owners.

Indeed, the regulatory backdrop is shifting. The 2025 Renters’ Rights Bill , for example, is expected to shrink the carve-out for genuine licences. This requires landlords to “prove” the absence of a tenancy or risk significant penalties and Rent Repayment Orders if misclassification occurs.