In putting together deals, people can be attracted by the idea that it is in some way easier to use a licence rather than an easement to obtain ancillary rights such as access ways over adjoining land and paths for services.
Does a licence provide adequate protection and deliver what you expect?
Generally, a licence should not be the preferred means of securing ancillary rights such as access ways over adjoining land and paths for services. Instead, an easement should be preferred as the most effective way of securing those rights.
There are several reasons why a licence is a sub-optimal method for securing rights over land compared to an easement:
- automatic succession – a licence does not form part of the title to the underlying land. This means that, when that land is sold, the new owner is not automatically bound by the licence granted to you. By contrast, the burden of an easement passes automatically to the new owner;
- assignability – the benefit that a licence cannot be assigned as easily, fully and effectively as an easement (which passes automatically with the benefitted land);
- term – a licence is generally granted for a limited term where easements can be, and typically are, perpetual; and
- termination – a licence can be terminated by a landowner for default, whereas easements are not typically capable of termination.
If the land on which your licence is located is sold, you will not automatically be entitled to enforce the licence against the new owner. Unlike an easement, a licence will only be enforceable against the original parties to the licence.
The problems that arise as a result of this are illustrated by the following example.
Suppose you have entered into a licence for a fixed term that allows you to install a gas pipeline through another party’s land. If the landowner decides to sell the property before the end of the term, you may lose your rights under the licence unless the new owner grants you a licence on similar terms.
The terms of a licence will usually prohibit a landowner from selling land that is subject to a licence without ensuring that the new landowner grants a licence on the same terms to the licensee. Despite this, if the new owner does not grant the new licence, you would typically not have any claim against the new owner. You would have a claim against the previous landowner (the other party to the licence) but you would generally not be able to force the new owner to grant a licence on the same terms. All that may arise is a damages claim against the first landowner.
Where the term of a licence runs for a number of years, it will be difficult to ensure that each successive landowner is bound by the licence. A licensee may not find out that the property over which it holds its licence has been sold until the transfer has already occurred, at which point it is too late to protect its rights under the licence. The issue may be further complicated if the term of the licence is lengthy and the people originally involved in the deal have moved on during the term – there may not be anyone associated with the transaction who is aware of the need to monitor the landowner’s compliance with the relevant prohibition on transferring the land.
By contrast, where a property that is subject to an easement is sold, the new owner is automatically bound by the easement (subject to the easement having been registered, where required). In those circumstances, the benefit of the easement is protected despite the sale of the property. No action or monitoring is required to ensure this occurs.
A licensee cannot automatically, fully and effectively assign its licence. If a licensee decides to transfer its interest in a licence, it would need to approach the landowner to agree to terminate the existing licence and grant a new licence to the relevant purchaser. Whether this can be achieved will depend on factors such as the terms of the licence and the attitude of the landowner to the proposed assignment.
This contrasts with an easement. Where the land that is benefitted by the easement is sold, the purchaser will automatically obtain the benefit of the easement without any need for consent or approval from the landowner.
Protection against termination
Generally, licences will include termination for default provisions that operate in a way similar to any contract (typically a right to terminate after a short period of notice to remedy defaults). Protections against termination are typically minimal.
By contrast, in ordinary practice, an easement will not include any right to terminate for default or otherwise. Easements typically confer permanent irrevocable rights. In order for an easement to be extinguished, the person with the benefit of the easement must consent to the extinguishment. This makes an easement far more secure than a licence.
Take away point
Although there may sometimes be drawbacks with easements in terms of registration requirements, these are far outweighed by the benefits when compared to licences.