Leases and licences may seem very similar but there are a couple of marked differences between the two. An agreement may purport to be a licence (and even contain confirmations from the parties that it will be deemed to be a licence). However, if:
- the terms of the agreement are indicative of a lease; or
- in practice, the licensee has enjoyed rights or benefits which are generally only granted under a lease;
then it may well be that the purported licence is deemed to be a lease, after all.
If a court is asked to assess whether a licence has become a lease, they will look at the terms of the document as well as the position "on the ground".
This table lays out a number of hallmarks or defining features of leases and licences, for ease of comparison.
The provisions of leases and licences are very much driven by the individual circumstances and ambitions of the parties. There is, therefore, no "one size fits all". However, the elements below can be viewed as guiding principles.
It is usual for occupational leases of offices, retail units or hospitality premises to be granted for a term of nine years or under. Such leases are colloquially known as "paper leases". There is no stamp duty payable on the grant of a paper lease or on a licence.
Leases which are granted for a term of over nine years need to be passed before the Royal Court and stamp duty is payable by the tenant. Stamp duty is calculated on the rent.
In Jersey, the tenant of a lease does not automatically benefit from a right to renew that lease. However, a tenant who stays in the premises after their lease has expired (where the landlord continues to accept rent) may become a tacit tenant. This means that the old lease is deemed to have been renewed on the same terms (other than the length of the lease and any guarantees given under the previous lease). The landlord may serve notice on their tacit tenant to terminate the renewed lease. The length of the notice period required to terminate a tacit tenancy may be lengthy and is calculated according to the size of the premises among other things.
Licensees who stay in premises following the termination of the licence are not entitled to a tacit renewal. Therefore, the licensor can obtain their eviction with relative ease.
Both leases and licences have their benefits and drawbacks. Whether a lease or licence is the best option for the parties will turn very much on the commercial pressures and business plans of the parties.
Where a licence is entered into, it is of crucial importance that:
- the terms of a licence do not carry hallmarks of a lease; and
- the position on the ground is not indicative of a lease having been granted;
otherwise, there is (at very least) an argument that the licence has indeed been converted into a lease. Such circumstances may produce unforeseen implications for both parties.
If you would like any further information, please get in touch with your usual Bedell Cristin contact or one of the contacts listed.
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