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Introduction
The concepts of leases and licenses are foundational
elements of property law. Although they may appear similar at first glance,
they have distinct legal implications and consequences for the parties
involved. Understanding the differences between leases and licenses is
essential for landlords, tenants, licensees, and licensors alike. This article
delves into the definitions, key characteristics, and legal distinctions between
leases and licenses, aided by relevant case law.
Definitions
of Leases and Licenses.
Firstly, a lease
also known as a tenancy, is an agreement between a lessor (landlord) and a
lessee (tenant) that grants the lessee an exclusive right to use and occupy a
specific piece of property for a fixed or renewable period, in return for the
payment of rent or other consideration. The critical elements that define a
lease are:
1. Exclusive Possession: The tenant must have the
right to exclude others, including the landlord, from the property. It is worth stating that a lease will exist when the
occupier of land has been granted exclusive possession of the premises and if
the grantor remains in general control of the demised premises a license is
likely to be inferred as affirmed by the case of Appah v Parincliffe Investments
Limited [1964] 1 WLR 1964 and in
certain exceptional situations an occupier of land will have exclusive
possession of the property but for special reasons no lease will exist , note
that in such cases the grant of exclusive possession is preferable to other
bonafide relationships between the parties for example situations where
occupation is on charity friendship or family arrangements.
2. Certainty of Term:
The lease must have a clear commencement and end date or a mechanism to
determine the duration. And any lease or
intended lease that fails to satisfy the requirement of a certain duration is
void because it does not amount to a term certain as affirmed by the case of Lace
v Chantler [1944] 1 KB. 368, the court held that a lease
for the duration of the second world war was void for being of uncertain
maximum duration. In William Jacks and Company Limited v. O’Connor and
Anor (CAZ 8 109 OF 1967) it was held that a purported agreement for a
lease was invalid on the ground that it contained no date of commencement of
the proposed lease.
Secondly, a license
is a personal, revocable permission granted by a licensor to a licensee to do
something on the licensor's property that would otherwise be considered a
trespass. Unlike a lease, a license does not confer any interest in the land
and does not grant exclusive possession. Licenses are inherently more flexible
than leases, and they can be terminated more easily. In Thomas v. Sorrell
(1673) Vaugh 330, the court established that a license merely makes an
action lawful which, without the license, would have been unlawful, and it does
not convey an interest in the land.
Differences Between Leases and Licenses.
While leases and licenses may appear similar,
especially when both involve the use of property, they differ in several
significant ways:
1. The concept of exclusive possession is pivotal to
distinguishing a lease from a license. In Street v. Montford [1985] AC
809, the House of Lords laid down the foundational principles
distinguishing leases from licenses. The court held that where exclusive
possession is granted for a term and at a rent, a lease is created regardless
of the language used by the parties. This means that even if the agreement is
labelled a "license," it may still be considered a lease if it
satisfies the legal criteria of. A
lease confers exclusive possession to the tenant, whereas a license does not.
The right of exclusive possession enables the tenant to exclude everyone,
including the landlord, from the premises. In contrast, a licensee only has
permission to use the land and cannot exclude the licensor.
2. Interest in Land: A lease creates an estate or
interest in land, binding third parties and successors in title, while a
license does not. Licenses are personal rights and do not bind third parties.
3. Transferability: Leases are generally transferable,
subject to the terms of the lease agreement. A license, being personal to the
licensee, is not transferable.
4. Termination: Leases are typically harder to
terminate before the expiration of their term without legal cause, while
licenses can often be terminated at will, depending on the terms of the license
agreement.
Case Law Analysis: Distinguishing Leases from Licenses.
1. Street v. Mountford [1985] AC 809:
The leading case in distinguishing leases from licenses, the House of Lords
held that the essential characteristic of a lease is the right to exclusive
possession. The court determined that the parties’ intention to create a lease
or license was not determined by the label they attached to the agreement but
by the actual terms and substance of the arrangement. If the agreement
conferred exclusive possession for a term at a rent, it constituted a lease, irrespective
of any contrary labels.
2. Bruton v. London & Quadrant Housing Trust
[2000] 1 AC 406: In this case, the House of Lords found that a lease
could exist even if the landlord did not have a proprietary interest in the
land. The case concerned an agreement between a housing trust and Mr. Bruton,
allowing him to occupy a flat in a block that the trust was managing on a
temporary basis. Despite the trust not owning the property, the court found
that a lease existed because Mr. Bruton was granted exclusive possession for a
term and at a rent. This case established the principle of a "non-proprietary
lease."
3. Shell-Mex and BP Ltd v. Manchester Garages
Ltd [1971] 1 WLR 612: This case further illustrates the distinction
between leases and licenses. Here, the court found that despite the agreement
being labelled a “license,” the occupier was granted exclusive possession and,
therefore, had a lease. This case reinforces the principle that the substance
of the agreement, rather than its form, determines its legal nature.
4. Errington v. Errington and Woods [1952] 1 KB
290: This case provides insight into the nature of contractual
licenses. The court held that a father’s promise to transfer a house to his
daughter-in-law if she paid off the mortgage created a contractual license. It
emphasized that contractual licenses could be enforceable as equitable rights,
especially where the licensee has acted to their detriment based on the
license.
Legal Implications of Leases and Licenses.
1.
Remedies for Breach: If a tenant under a lease is unlawfully evicted, they may
have a claim for damages, an injunction, or specific performance to regain
possession. In contrast, licensees have more limited remedies, typically
confined to claims for breach of contract.
2.Enforcement
Against Third Parties: Leases, as proprietary interests, can be enforced
against third parties, such as a new owner of the property. In contrast,
licenses, being personal rights, do not bind third parties unless coupled with
an interest in the property.
3.
Right to Alterations and Improvements: Tenants often have more extensive rights
to alter or improve the leased premises, subject to the lease terms, while
licensees generally have no such rights unless expressly granted.
Recent Developments and Trends.
There has been an increased tendency to grant licenses
instead of leases, particularly in commercial contexts, to avoid statutory
protections and greater landlord obligations that come with leases. However, as
the case law illustrates, courts will look beyond the terminology used by the
parties to determine the true nature of the arrangement. In Vaughan v.
London Borough of Lewisham [2017] EWCA Civ 18, the Court of Appeal held
that an agreement labelled as a license was, in fact, a lease due to the
tenant’s exclusive possession. This trend of judicial scrutiny underscores the
importance of substance over form in property law. And it worth stating the notable case in Zambia that
discusses the distinction between a lease and a license, the case of Mususu
Kalenga Building Limited & Another v. Richmans Money lenders Enterprises
(2002) ZR 1 (SC) the court held that the agreement did not constitute a
lease but was instead a license. The court reasoned that, while the agreement
was labelled a lease, the substance of the agreement did not grant exclusive
possession to Richmans Money Lenders Enterprises. instead, the rights to use
the premises, which aligned more with the characteristics of a license rather
than a lease. The case reflects the Zambian judiciary’s approach to
distinguishing between leases and license, emphasizing that substance takes
precedence over form in determining the nature of the agreement. This also
affirms the broader tendency to examine the specific rights conferred under an
agreement, consistent with common principle.
Conclusion
Understanding the distinction between leases and licenses
is crucial for both landlords and tenants. A lease involves the grant of an
estate in land and confers exclusive possession, while a license is merely
permission to use the land without any estate or interest in the property. The
courts have consistently emphasized that the true nature of the arrangement is
determined by its substance, not the labels used by the parties. The
implications of these distinctions are far-reaching, affecting statutory
protections, remedies for breach, and the ability to enforce rights against
third parties. As the legal landscape continues to evolve, parties to property
agreements must carefully consider the legal nature and potential consequences
of their arrangements. Proper legal advice and a clear understanding of the
governing principles are essential to avoid unintended legal outcomes.
This Article is Brought to you by:
LEGAL AID INITIATIVE
(Access to Knowledge)
About the Authors:
Kachana Katazo is a third year student at the University of Zambia and serving as the Projects Manager of Legal Aid Initiative.