In this guide we detail the differences and explain when to use one or the other.
Exclusivity of use
With a licence to occupy, you grant the licensee permission to use all or part of the property on a non-exclusive basis. (Shelter’s explanation of what a licence is can be found here.) This means that the owner of the property can 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 the tenant will have exclusive use of the whole property, then use a tenancy agreement.
When the tenant will have exclusivity of just part of it, then a lodger agreement is sometimes more appropriate.
Length of term
It is common to use a licence to occupy for short-term arrangements (say, up to 12 months). Also they are used where a fixed term is not going to be agreed. For example, the licensee is given permission to use and occupy the residential property on an ongoing monthly basis.
In such circumstances, you should state in the licence the amount of notice that needed to bring the licence to an end.
When to use a licence to occupy or tenancy agreement
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 law implies a requirement to allow the tenant ‘peaceful’ enjoyment of the property and certain maintenance obligations.
A property owner often uses a licence to occupy to share the property with a third party. This is perhaps when the owner does not agree to a long fixed term.
We recommend using our Lodger Agreement Template 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.
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.
Use either of these templates to grant a short fixed-term period or indefinite period, i.e. a month-to-month contract.
To grant a fixed-term contract giving the exclusive use of the property, use our Assured Shorthold Tenancy Agreement Template.