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The difference between a tenancy and a residential license
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Before you start:
Before reading this article you may want to follow our ‘Check Your Occupation Guide’ which will help you work out which type of occupation you have.
1. Introduction
Non-lawyers are often rather hazy about the difference between tenancies and licenses. After all – you pay your rent and that allows you to live somewhere. What else is there to say?
Quite a lot actually! And it’s a good idea for you to know the difference and what it means for you as a renter. Your occupation type has an important impact on your legal rights.
2. What is a tenancy?
A tenancy is a ‘legal interest in land’. So it’s a sort of ownership – in fact, a tenancy (which is normally used to refer to short lets) is actually a form of lease.
To give you a bit of legal background, under the Law of Property Act 1925 there are just two types of ownership of land. This is what the act says:
(1) The only estates in land which are capable of subsisting or of being conveyed or created at law are—
(a) An estate in fee simple absolute in possession;
(b) A term of years absolute.
So what does that mean?
In England, technically, all the land (including the seabed incidentally) is owned by the Monarch. Although don’t worry – he’s not going to come round!
So all ownership of land is technically a grant from the Monarch. This is the last vestige of the old medieval feudal system (if this sort of thing interests you, Tessa has a history of law blog here).
- Freehold land (or as the act describes it, an estate in fee simple) is the closest you can get to absolute ownership of land in England.
- Leasehold land (or as the act describes it, a term of years absolute) is created out of either a freehold or leasehold interest.
A tenancy is basically a short lease. So even though your right to live in the property may be on a periodic month-to-month basis (as opposed to the 99 years you may get with a long lease), and although there are different rules that apply to long leases and short leases, it is still a lease.
3. What is a residential license?
If you have a residential license, this basically means that you have permission to occupy the property, which stops you from being a trespasser.
You do not own any type of ‘legal interest’, your rights come from your contract with your landlord.
So, as landlords are not keen on granting extensive rights to occupiers, your rights will be considerably less than they would have been had you been a tenant.
4. When do you get a tenancy rather than a license?
This is a very important question! It was particularly important before 15 January 1989, when all tenancies were governed by the Rent Act 1977, which gave tenants considerably more security than they get now.
At that time it was very difficult to evict tenants, so many landlords tried to give their renters licences instead. This came to a head in 1985 in a legal case called ‘Street v. Mountford’.
Street v. Mountford [1985]
This case was about a couple of rooms which Mr Street rented out to a Mrs Mountford in 1983. When the property was let, Mrs Mountford signed an agreement which included the words:
I understand and accept that a licence in the above form does not and is not intended to give me a tenancy protected under the Rent Acts.
Mr Street subsequently tried to evict Mrs Mountford, who defended on the basis that, despite the wording of the agreement, she had a tenancy and not a licence.
The case went up to the House of Lords (which was the highest court at that time – now it is the Supreme Court) where the Court agreed with Mrs Mountford. Despite the wording – she had a tenancy.
Why was this?
Well, the decision was based on the fact that the type of occupation you have depends on the circumstances of the letting – and not the words on any written agreement you may sign.
If you want to read the whole case report, you will find it online here.
The judgement was given by Lord Templeman and I will just quote two famous parts of his judgement:
“If the agreement satisfied all the requirements of a tenancy, then the agreement produced a tenancy and the parties cannot alter the effect of the agreement by insisting that they only created a licence.
The manufacture of a five pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade.” …
–//–
“My Lords the only intention which is relevant is the intention demonstrated by the agreement to grant exclusive possession for a term at a rent.”
Lord Templeman, Street v. mountford [1985]
So this means that if in reality (notwithstanding what it may say in any written document you may be asked to sign) you:
- Have exclusive occupation
- For a term (an agreed period of time, which includes a periodic tenancy such as an assured periodic tenancy)
- At a rent
Your occupation will, in most cases, be a tenancy.
Probably the most important of the three is ‘exclusive occupation’. We will take a look at this next.
5. 'Exclusive Occupation'
Street v. Mountford is the authority for the rule that, in most cases, if you have ‘exclusive occupation’ of property you will have a tenancy.
‘Exclusive occupation’ means that you have the right to exclude anyone from the property you rent. Or, in fact, notwithstanding what is set out in your written agreement, that is the reality of the situation.
So if your landlord makes you sign an agreement that says you have a license agreement and provides for his cleaners to be able to enter the property weekly to carry out cleaning – that will in most cases be a residential license. Providing for the landlord (or his employees) to be able to enter a property to carry out services is the classic way to create a residential license (and indeed this is one reason why renting a hotel room cannot normally be tenancy).
However, if in fact your landlord has never provided any cleaning services and only ever enters the property by invitation, then this will, in reality, be a tenancy.
The requirement for ‘exclusive occupation’ also means that some types of occupation can never be a tenancy. For example, if you live in a hostel where you sleep in a dormitory with other people, perhaps with a locker for your possessions, this is incapable of being a tenancy.
Likewise, if you share a room with a stranger where you each have your own occupation agreement.
6. Exceptions to the exclusive occupation rule
However, the ‘exclusive occupation’ rule does not always apply.
Lord Templeman in his judgement in Street v. Mountford identified some situations where a tenancy would not be created:
- Where there is no intention to create legal relations – this is sometimes the case where a family member is allowed to live in a property, and
- Where the right to exclusive possession is ‘referable to a legal relationship other than a tenancy’
Examples of the last item could be:
- occupancy under a contract for the sale of the land,
- occupancy pursuant to a contract of employment (where you are required to live on premises as part of your job – eg as a live-in nanny or caretaker) or
- occupancy referable to the holding of an office (such as Speaker of the House of Commons), or
- Occupancy as a beneficiary under a charitable trust – such as an almshouse.
However, although it does not always apply, the ‘exclusive occupation’ rule is, on the whole, a pretty good guide to whether you have a tenancy or not.
7. Sham licenses
Landlords often get renters to sign ‘license occupation agreements’ where the renter will actually have a tenancy. This is particularly common with HMO properties.
In many cases, this is down to the landlord’s ignorance. They may genuinely believe that an HMO tenant is always a licensee or that they have the right to specify that a property is a license when they don’t.
Sometimes landlords will have attended training on HMO property letting given by non-lawyers who will have told them this.
However, ignorance of the law is no justification, and the fact that your landlord THINKS you have a license does not mean that you do!
Indeed, misleading tenants about their occupation rights by giving them ‘sham licenses’ is actually a criminal offence and landlords can be prosecuted for this and fined.
If you think that your landlord is misleading you about your occupation rights in this way, you could report him to your Local Authority Trading Standards Office. Or their Private Sector Housing section (the name of the department varies from Local Authority to Local Authority but asking for Private Sector Housing will normally take you to the correct department).
Although do bear in mind that many landlords, particularly criminal landlords, may react badly if they realise that you have done.
8.The legal rights of tenants and residential licensees
Although the general rule is that tenants have extra rights as tenants, whereas the rights of a residential licensee will be limited to the terms of his contract – this is not strictly speaking, correct in all matters.
Some of the protective legislation which has been passed has been extended to licensees.
Some examples
- Residential licensees, as well as tenants, are protected under the Protection from Eviction Act 1977 and so cannot be evicted unless they fall within the types of occupation set out in section 3A (which includes lodgers and holiday lettings).
- Although deposits paid by licensees are not required to be protected with a statutory scheme (as this only applies to deposits paid by assured tenants), the Tenant Fees legislation, which limits the amount of deposit a landlord can take to 5 times the weekly rent (or six times where the annual rent is over £50,000), also applies to licensees.
- As do the rest of the Tenant Fees legislation, which prohibits many fees which used to be charged by letting agents. We have an article on the tenant fees rules here.
We cannot look at all the differences here – you will find further information in the other articles on this site.
9. And finally
To understand what your rights are, you need to know whether your occupation is under a tenancy or under a residential license. And be aware that your rights will differ accordingly.
Which is why we suggest that you follow our guide here to work out what YOUR occupation type is before using this service.
This is the end of this article.
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