We often encounter people referring to a licence to occupy residential property and a residential tenancy agreement interchangeably. However, they are actually two very different contracts.
In this guide we detail the differences and explain when to use one or the other.
Exclusivity of use
With a licence to occupy, the licensee is granted permission to use all or part of the property on a non-exclusive basis. This means that the owner of the property is also allowed to use the property at the same time.
From a legal perspective the licensee does not have any legal interest in the property, just permission to make use of all or part of the property, subject to any reservations in the licence agreement.
With a tenancy agreement the landlord grants exclusivity of occupation to the tenant. This means that the landlord cannot use or access the property without the tenant’s consent, subject to common exclusions found in a tenancy agreement, such as the right to enter, with notice, to make inspections.
If it is intended that exclusivity to use the whole property be granted then a tenancy agreement is the appropriate document to use.
If exclusivity of just part of a residential property is being granted then a lodger agreement is more appropriate.
Length of term
It is common for a licence to occupy to be used for short-term arrangements (say, up to 12 months) or where a fixed term is not going to be agreed, e.g. the licensee is given permission to use and occupy the residential property on an ongoing monthly basis.
In such circumstances the licence will state the amount of notice that must be given to bring the licence to an end.
When to use
A licence to occupy residential property is far more informal than a tenancy agreement and the licensee will not benefit from the statutory protections given to a tenant occupying property under a tenancy agreement.
With a tenancy agreement the landlord has a range of responsibilities implied into the contract by law, for example, the requirement to allow the tenant ‘peaceful’ enjoyment of the property and certain maintenance obligations.
A licence to occupy is often used by the owner of a property who has agreed to share the property with a third party and perhaps when a long fixed term is not going to be agreed.
If you want to grant a licence to occupy to a person that will share the property with you and you do not want the occupant to benefit from the statutory provisions that apply to a tenancy agreement, then we recommend using our Lodger Agreement Template.
If you will not occupy the property and do not want the occupant to benefit from the statutory provisions that apply to a tenancy agreement, then use our Licence To Occupy Residential Property Template.
Either of these templates can be used to grant a short fixed-term period or indefinite period, i.e. a month-to-month contract.
If you want to grant a fixed-term contract that gives the other person the exclusive use of the property, then we recommend using our Assured Shorthold Tenancy Agreement Template.