Licence to Occupy Commercial Premises

A template for a licence to occupy commercial premises. If you are letting commercial property in England or Wales, use our best-selling licence to occupy template to put in place a simple, short-term agreement that provides a right to occupy any business or commercial premises. Not for use with property located in Scotland.

For residential property, please use the residential licence to occupy agreement, which is a variation of this agreement.

This is one of our best-selling templates, with over 600 sold!

We have drafted our template agreement in clear plain English and it comes with full guidance notes, to ensure it is easy for you to complete.

You can complete it within 15 minutes and edit it to cover all or part of any type of commercial premises.

When to use a Licence to Occupy business premises

This agreement is a fairly short and simple contract. It is ideal for short term commercial lets of up to twelve months. It can cover a longer period if you want to maintain a flexible arrangement with your tenant. If you want a longer fixed period than 12 months, then use a lease (and ensure you contract out of the Landlord and Tenant Act 1954).

In a licence to occupy, you are not offering exclusive rights of occupation to the licensee. That means that you, as the landlord, can enter, or use, parts of the property at any time.

This type of licence agreement is ideal for the situation where:

• the landlord will use the premises jointly with the licensee; or
• the licensee will use part of the landlord’s business premises.

For example, the licensee might use part of the larger area used by the landlord, with a designated area for the licensee and some areas of joint use. If this does not sound like what you want to do (e.g. the occupant will take the whole of the premises), then alternatively try our other similar templates:

• commercial lease – if the term of the occupation will have a set minimum period, e.g. 6 months; or
• tenancy at will – if the term of the occupation will be short and flexible (e.g. month to month)

The length of the licence is generally kept flexible, with it rolling on from month-to-month. However, either party can terminate it by giving notice.

Normally licences to occupy keep the notice periods short. For example, one month. However, you can set them to what you agree with your business property licensee.

Using our Licence to Occupy template

David, our co-founder and solicitor of 29 years, carefully drafted this template for business owners. Therefore, you can rely on this template being both up-to-date and well drafted. You download the template in Word format.

The download of this commercial licence agreement template includes full guidance notes. The notes take you through drafting the licence agreement clause-by-clause.

When you have paid, simply download our template in Word format, along with the supporting guidance notes.  Once downloaded, you can easily edit and customise the template to your requirements. View a summary of the licence to occupy guidance notes to familiarise yourself with the main clauses.

If you are the tenant, do bear in mind that occupying under a licence to occupy offers minimal protection for your business. It excludes security of tenure (rights to remain on the property long-term or apply for a renewal of the term). An alternative is the tenancy at will template.

Use that template if your business will be the only business using the property. Again, it is ideal for short term letting where either party can give notice to terminate the licence at any time.

For a longer-term lease (one year or more), the business lease template would be the better option for your business.

If you would like to see our other commercial property agreement templates, click on the link.

Terminating a Licence to Occupy

A key feature of the licence to occupy is that both business owners have flexibility. The licence agreement will not be for a fixed period of time. It will run on a monthly basis. You can set the notice period to however long you want.

In order to preserve the flexibility offered by this type of licence, the notice will usually be short. Our template states that either party can give the other business owner notice at any time to terminate the licence.

Alternatives to the Licence to Occupy template for business premises

If you want to put in place an agreement for a business premises that provides exclusive occupation for the tenant, then you should use a Tenancy at Will, if you still want to keep the agreement short and flexible.

A key difference is that with that agreement, you as the landlord would not have the right also to use the premises or enter them at any time without prior agreement.

As regards the term of the licence, if, in reality, the licensee occupies the property exclusively or you agree a fixed period exceeding six months, then the licensee could claim it has a “tenancy”. The problem is that such a tenancy would be protected by the Landlord and Tenant Act 1954. In certain circumstances the tenant can claim a right to renew under that legislation. (See Wikipedia’s summary of the right to renew here.)

A commercial premises licence agreement or a Tenancy at Will both suit short-term and flexible lettings. When letting your property for more than 12 to 24 months, or if you want to let it for a fixed period of time longer than 6 months, consider a commercial lease agreement.

If the arrangement is to be longer-term, then a more detailed legal agreement might be more suitable. It will also tackle this issue of contracting out of the right to renew the lease on expiry. Legalo offers a commercial lease template which you can for this purpose.

Q&As regarding commercial licences to occupy

Below, we answer some of the most popular questions from the Internet about licences to occupy commercial premises.

What is a licence to occupy commercial premises? What is a licence to occupy a property? What’s a commercial property licence?

If you have got this far, you probably already know what a licence to occupy is. It is a fairly informal right to occupy premises in return for a payment to the owner. It is often for a fairly short term of just a few months. Usually it is a right to occupy part of a building or unit, as, if you have exclusive control of the whole building or unit, then the licence might be considered in legal terms to be a “lease”. A lease comes with certain rights under the Landlord & Tenant Act 1954, unless you contract out of them. For a longer term right to occupy, use a lease.

So it might be best used for hot-desking, renting some spare space in part of a commercial unit, or renting a concession in a larger retail store or shopping centre.

In other cases, especially where the occupant is to have sole use of space (exclusive occupation), you might be better off with (a) a lease and (b) contracting out of the tenant’s right to security of tenure. Otherwise, you might well be risking a court construing the licence as being a lease in reality, and then you would have failed to exclude the tenant’s right to security of tenure.

Who can grant a licence to occupy commercial premises?

An owner of a building or unit can grant a licence to occupy (or grant a lease). If you only “own” it on a leased basis, then the terms of the lease will dictate whether you can let it out.

A tenant under a lease might also be able to grant a sub-lease of the whole or a licence to occupy part of that unit. However, nearly always a tenant will need the landlord’s consent before sub-letting or sub-licensing can be done. The answer depends on the terms of the lease.

An occupier under a licence to occupy cannot sub-licence the licence (i.e. grant a licence to occupy), as it does not have an interest in the land; only a right to occupy it.

Can a licence to occupy commercial premises be assigned?

A licence is not assignable, as it does not create an exclusive right of occupation by way of an interest in land. Therefore, the landlord always has control over who the occupier is. The landlord will want to see that only a credit-worthy and trustworthy occupier has the right to be there.

Licences to occupy are relatively informal documents, so they can usually be terminated by the tenant on fairly short period of notice such as one calendar month. Therefore, there is usually no need to assign the balance of the term of the licence to occupy.

Are licences to occupy personal?

Yes. A licence to occupy cannot be transferred to anyone else by the tenant, as noted above.

What is the difference between a licence to occupy and a lease?

• You usually use a lease for occupation over 6 months: a lease must be for a fixed-term. A licence is often for occupation under 6 months: it could be for a fixed term or simply on-going.
• Lease agreements are often much more complex and lengthy than a licence to occupy. Part of the reason for this is that the term of occupation will generally be longer under a lease. Therefore the lease needs to cover more potential issues, such as the increase in rent over time.
• A lease is often of the whole of a building or unit. A licence is usually for part of a building or unit.
• Leases usually grant exclusive occupation rights. You are best using a licence when occupation is not exclusive, e.g. where the occupier and landlord (or other occupiers) share some areas and occupation is of part of the whole building or unit.
• Leases come with certain rights under the Landlord & Tenant Act 1954, although you can contract out of the right for the tenant to ask for an new lease of the same term when the original one expires. Nearly all leases are contracted out of this right. A licence does not have such a right.
• Leases will incur Stamp Duty Land Tax if they are for a term of 7 years or more. A licence does not incur such a tax (but on the other hand it should never be granted for a term of anything like as long as 7 years, otherwise it will most likely be considered to be a lease).

Can a licence to occupy last for more than 12 months?

As a rolling month-to-month contract, a licence might eventually last for longer than 12 months. However, it should not be for a set period of longer than 6 months, or it might be taken to be a lease in reality.

Leases of commercial units are governed by the Landlord and Tenant Act 1954. That Act gives the tenant the right to renew the lease on its expiry unless the landlord has asked the tenant to contract out of the right to renew, which is usual. So if you have a licence to occupy that has an initial term of over 6 months, you would not have contracted out of the right to renew, because you would not have thought it was a lease in the first place. This then causes problems for the landlord, as the tenant probably has a right to renew.

What are the advantages of a Commercial Property Licence Agreement?

A licence to occupy commercial premises is intended to be a short-term arrangement. It does not provide the tenant with the right to renew the arrangement on its expiry (security of tenure). Either party can terminate the licence on fairly short notice. It is better for short-term lettings where flexibility and simplicity is wanted.

What are the disadvantages of a Commercial Property Licence Agreement?

If the landlord and tenant are looking for a long-term more stable letting, then a licence to occupy is not the solution and a longer-term lease probably is. With a licence to occupy, there are no controls on the “rent” (licence fee) and the occupier does not have exclusive use of the premises. Either party can terminate it on fairly short notice, and this can create problems. The Landlord and Tenant Act 1954 does not apply to a genuine short-term licence, and so the licencee would have no right to renew the licence when its initial term expires.

Can a licence to occupy be verbal? Does a licence to occupy need to be in writing?

A verbal licence to occupy is pretty dangerous. For any legal relationship, you need evidence in writing, in case it ends up in a dispute. Having anything as only a verbal agreement is asking for trouble. A good legal agreement in writing should:

• help minimise the risk of disputes;
• give the answer to most questions about the contract and
• avoid having to go to court.

Since Legalo’s template is so easy to use and good value for money, there is really no excuse not to have a good written document in place.

How do you draft a licence agreement?

You should cover the following issues:

• The grant of the licence: What initial term, what area does it cover, what licence fee is payable per month?
• Licencee’s obligations: Set out the details of how the tenant may use the property: dos and don’ts.
• Termination: The notice period that either side can give to terminate the licence. Any provisions regarding the tenant’s leaving the premises in a clean and tidy condition.
• Any facilities and services that the landlord will provide: Normally you set these out in a schedule the licence, if any.

Use Legalo’s great template for this. It will cover all the relevant points and only take you a few minutes to complete. Our template is quick and easy to complete. It also has a full written guide, which is easy to follow, and it minimises the use of legal jargon.

Can an administrator grant a licence to occupy?

When an Administrator is managing a freehold property, the Administrator does have power to let it out, so can grant a licence to occupy. This would only occur because the tenant, being a limited company, has become insolvent and an administrator has then been appointed to manage its affairs.

The Administrator of a business that rents property under a lease might not be able to grant a licence to occupy without the landlord’s consent. The answer to this depends on the terms of the lease, but generally they ban sub-letting and the grant of licences to occupy.

How to put in place a licence to occupy commercial premises

You can keep putting in place a licence to occupy commercial premises simply with our cost-effective template.

Remember you get in-depth guidance notes that an experienced UK solicitor has written, to make it extra simple. If you do find yourself with any questions, then simply call our customer services team. They are on hand and always happy to assist you.