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Allowing another person to use your land - licence vs lease?
If you have some land or buildings which are currently unused, you might consider allowing someone else to occupy the vacant area. Even if the arrangement is fairly informal, we always advise clients to take advice at the outset as to the most appropriate type of agreement and to formally document the arrangement, in order to minimise the risk of disagreements further down the line.
Two common types of agreement are leases and licences and it is important to understand the differences between them.
A lease is more appropriate when certain criteria are met:
- Exclusive possession of the area.
- Determinable period of time.
- Rent, although it is not always necessary.
A lease can be bought and sold, and it also survives changes in ownership. Therefore, if you were to sell your land, the lease could remain in force until the fixed term comes to an end, or until there is explicit agreement between the parties.
Alternatively, a licence is a personal permission for someone to use property for a particular purpose, which essentially prevents the permitted act from being a trespass. It does not grant the licensee exclusive use of the land and is usually only appropriate where short term occupation is required, often less than six months. A licence is personal to the original parties. It cannot be bought and sold and will not survive a change in ownership.
There are also different types of lease and licence, depending on the specific use of the land. These include farm business tenancies, business tenancies, equestrian leases, grazing licences and cropping licences and they all have different implications for each party. For example, if a business tenancy arises, the tenant may acquire automatic rights to renew the tenancy at the end of the term, which can make it very difficult for a landlord to regain possession of the property. There are ways to avoid this but it is vital to obtain legal assistance before the tenant goes into occupation if the landlord does not want this situation to arise. There could also be different tax consequences with different types of agreement.
Whilst a licence might often appear to be simpler and more desirable, it is important to be aware that if, in reality, the arrangement is a lease, it will be a lease regardless of how it has been labelled. Therefore, the parties could inadvertently enter into a lease without realising the potential implications.
In summary, before you enter into any agreement with another party, specialist legal advice should be obtained at the outset to ensure that the most appropriate type of agreement is entered into to achieve each party’s objectives and to ensure the arrangement is formally documented. This would ensure that there is clarity and certainty for both parties and helps to avoid any future disputes.
If you would like to discuss any of the points raised in further detail, please contact a legal advisor in the Crombie Wilkinson Solicitors Agricultural Team on 01653 600070 who will be happy to help.
