What is the difference between a lease and a licence?

Beyond the Name Tag: The Law's Great Property Riddle—Lease vs. Licence

Imagine two business owners operating side-by-side in a bustling shopping centre. One runs a sleek, long-established cafe. The other, a festive kiosk selling Christmas ornaments for a few weeks in December.

The agreement each signed has a different legal name: the cafe owner has a Lease, and the kiosk operator has a Licence. This seemingly minor difference in terminology is one of the most critical and fiercely contested distinctions in property law. It’s the difference between having a castle and a temporary permission to camp.

The law doesn't care what you call the agreement—you could title it "The Grand Royal Tenancy of the Universe," but a court will look at its substance, not its label.¹ The famous legal test comes down to three key questions.

The Three Hallmarks: The Test of Exclusive Possession

The single most important factor that separates a Lease from a Licence is Exclusive Possession.²

Feature	The Lease (The Tenant's Castle)	The Licence (The Guest Pass)
Exclusive Possession	Yes. The tenant has the right to exclude all others from the defined property, including the landlord, except for very limited, pre-agreed reasons (like emergency repairs or scheduled inspections). The space is theirs.	No. The licensee only has permission to use the space alongside the owner or others. The owner retains overall control and the right to enter, move the licensee, or share the area.
Interest in Land	Proprietary Right. The lease is a legally recognised estate or interest in the land itself. It's a property right that binds future owners.	Personal Right/Permission. It is a mere contractual permission. It is personal to the licensee and does not create an interest in the land.
Duration	Must be for a "Term Certain." The start date and maximum duration must be clearly fixed or ascertainable from the beginning. (E.g., five years, or one year, then rolling month-to-month).	Flexible/Uncertain. Often short-term or temporary. Can be on-demand, fixed, or sometimes terminable at the licensor's will.

Why Does the Difference Matter? (The Stakes Are High)

The difference between a Lease and a Licence is profound, impacting everything from security to statutory protections.³

1. Security of Tenure (The Eviction Factor)⁴

Lease: A lease provides Security of Tenure.⁵ In most jurisdictions, especially for business premises, this means the tenant may have a legal right to renew their lease on expiry or receive compensation if the landlord wishes to take possession.⁶ A landlord cannot simply terminate a lease on a whim.⁷
Licence: A licence provides No Security of Tenure.⁸ It is a personal contract, typically revocable with a reasonable notice period, and the licensee must leave. If the owner sells the property, the new owner is usually not bound by the licence, and the licensee's rights are extinguished.⁹

2. Assignability (The Transfer of Rights)

Lease: Unless the lease states otherwise, a tenant can often sell their interest (assign the lease) or sub-let the property to a third party.¹⁰ The lease is a valuable, transferrable asset.
Licence: A licence is a Personal Privilege.¹¹ It cannot be assigned or transferred to a new party without the licensor’s express permission.¹²

3. Statutory Protections (The Law's Safety Net)

Lease: Leases are heavily regulated. Tenants benefit from a host of statutory laws concerning everything from repairs to limits on rent increases. These mandatory legal provisions often overrule what the parties try to agree to in the contract.¹³
Licence: Licences are governed primarily by the general law of contract and afford the licensee few, if any, statutory protections against the owner.¹⁴

When a Duck is Not a Duck: The "Sham" Licence

Landlords are acutely aware of the extra rights and obligations a Lease creates. Consequently, many attempts have been made to draft a document that grants all the benefits of a lease but is called a Licence, solely to avoid legal obligations like security of tenure.¹⁵ This is known as creating a Sham or Pretence agreement.

The courts have consistently rejected this approach. The most famous case, Street v Mountford, involved an agreement explicitly labelled a "Licence," but which granted the occupier exclusive possession of a residential room for a rent. The court famously held that if an arrangement has all the characteristics of a tenancy (exclusive possession, term certain, rent), then a tenancy it is, regardless of the label.¹⁶

The "Fork and Spade" Analogy: Lord Templeman, in a key judgment, said: "The parties cannot by the mere use of an inaccurate label change the true nature of the contract.¹⁷ If a document creates a tenancy, it creates a tenancy. If a document is a licence, it is a licence. The fact that the parties to an agreement call it a licence does not make it a licence...¹⁸ The manufacture of a five-pronged instrument for digging is not a fork if the instrument is a spade."

The Real-World Test

To determine the true nature of the agreement, a court looks for clauses that negate exclusive possession, such as:

Retention of Keys by the Owner: If the owner can enter at any time, that negates exclusive possession.¹⁹ However, if the key is retained only for emergencies, it's a lease.
Mobility Clauses: A clause that reserves the right for the owner to move the occupier to another space suggests no exclusive possession of the current space, pointing towards a licence (like a hotel guest).²⁰
Obligation to Share: A clause stating the occupier must share the space with the owner or another person prevents exclusive possession (like a lodger).

The Bottom Line for Business and Life

Choosing between a Lease and a Licence is a strategic decision:

Scenario	Recommendation	Legal Rationale
New Coffee Shop / Long-Term Office	Lease.	Requires stability, investment protection, and the right to exclude the world. Security of tenure is vital for business continuity.
Pop-up Shop / Seasonal Market Kiosk	Licence.	Prioritises flexibility and speed. No need for long-term security. The short-term nature is well-suited to a revocable, personal permission.
Co-working Space Desk	Licence.	The operator retains control over the building, and you don't have exclusive possession of the whole office. Your "permission to use" a desk is personal.
Apartment Rental (Long Term)	Lease/Tenancy.	A clear grant of exclusive possession for a fixed term, necessary for privacy and the full weight of tenant protection laws.

In the world of property, the greatest protection is not found in the name on the door, but in the legal right to shut it and exclude the world.²¹ That is the essence of the Lease, and the crucial distinction from the mere permission of a Licence.

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