Two recent residential cases highlight the crucial distinction between leases and licences, and the importance of ensuring that documentation accurately reflects the true arrangement for occupation of both residential and commercial properties.
In both cases, the fact that the occupier had control of the key to lockable premises was relevant to the question of whether or not the occupation was as licensee or tenant. However, it seems that a locked door does not always indicate exclusive possession which is, one of the hallmarks of a tenancy, along with a fixed term and payment of rent or a premium.
In Camelot Property Management Limited (1) Camelot Guardian Management Limited (2) v Greg Roynon, Mr Roynon was allowed into occupation of two rooms of a vacant care home to provide a measure of security against squatters and vandalism.
The occupation agreement was called a licence and a county court judge was required to decide the preliminary issue of whether or not Mr Roynon was a licensee or a tenant under an assured shorthold tenancy.
The agreement did not provide for exclusive possession of the rooms occupied by Mr Roynon, and provided considerable flexibility over which rooms were to be occupied by individuals. However, the contractual process by which the so-called 'property guardians' were to be allocated rooms and subsequently relocated was not consistent with the actual process of room allocation. Mr Roynon was the only person with a key to his room.
There were some restrictions on the use of the property by the occupier, such as the maximum number of visitors, and a prohibition on permitting others to stay overnight. The judge considered that these were common features of tenancies and were not incompatible with exclusive possession.
There were no express reservations for the landlord to access the rooms for inspection, repair and maintenance. These would normally be indicative of a tenancy, but the judge found that the absence of these provisions did not automatically mean that the agreement was a licence.
It was held that Mr Roynon had exclusive possession and so was a tenant with statutory protection. Interestingly, it is likely that the decision would have been different if the property managers had adhered to the provisions in the agreement relating to room allocation.
In the Court of Appeal case, Watts v Stewart and others, it was held that the occupiers of almshouses were licensees and not tenants as they did not have exclusive possession. In this case, the occupation agreement was called a tenancy.
The court explained that there is a difference between exclusive possession, which will indicate a tenancy, and exclusive occupation. A tenant must be able to exclude all others, including the landlord, from the property. Control of the key is not always enough to demonstrate exclusive possession.
There was a similarly detailed review of the terms of the letter under which the occupier occupied the property. Interestingly, some of the terms were identical to those contained in the 'licence' in the Camelot case, including: a right to relocate occupiers to another almshouse; a prohibition on visitors staying the night; and a requirement that occupiers permit reasonable access for inspection of the almshouse and for repairs and redecoration to be carried out by the owner.
However, there was an express provision that the occupier had no legal interest in the property, and a requirement for the occupier to notify the owner of any absences of 28 days or more. It was also relevant that the owner in this case were trustees and that they were only permitted to grant personal revocable licences to occupiers in order to fulfil the charitable purposes of the trust - the provision of accommodation to persons in financial need.
The dispute over whether or not an occupational arrangement is a lease or licence is often encountered in the context of both residential and commercial properties. To minimise the risk of dispute, it is vital that the terms of the arrangement reflect the reality of the day-to-day occupation of the property.
These cases also demonstrate that the label given to a document will not conclusively determine its status - a 'licence' was held to be a tenancy and 'conditions of tenancy' constituted a licence. Both owner and occupier need to ensure that the basis of occupation is carefully considered and documented to avoid entering into a legal arrangement which is more or less than they intend.