When granting someone the right to use property in Scotland, it’s important to understand whether the arrangement is a Lease or a Licence to Occupy. In Scots law, the distinction between a Lease and a Licence to Occupy is an important one. In practice, the concept between both can seem blurred. However, they give rise to very different legal rights and obligations. This blog highlights the key differences and why choosing the correct arrangement matters.
If you are unsure whether your agreement should be a Lease or a Licence to Occupy, obtaining legal advice early can help avoid costly mistakes. Our property lawyers at Complete Clarity Solicitors can advise you on the most appropriate structure for your arrangement and your legal obligations.
What is a Lease in Scots Law?
A Lease is a contract for possession of property that contains certain ‘cardinal elements’ such as who the parties are, the definition of the premises, an agreed rent, a duration and most likely exclusive possession. The subject of the Lease must be immoveable property, however this does not prevent the inclusion of moveable items such as fittings and fixtures. There must be at least two distinct parties to the Lease both of which have capacity to enter into the Lease.
In terms of rent, there must be a return to the Landlord such as full market rent or a fixed agreement. The duration of a Lease can vary but it cannot exceed 175 years, or in the instance of residential Leases 20 years.
In Scots law, tenants under a Lease can benefit from numerous legal rights that are not held by a ‘licensee’, for example, a private residential tenancy. Further, the principal of tacit relocation (automatic continuation) also applies only to Leases and not to Licences.
What is a Licence to Occupy in Scots Law?
A Licence to Occupy is a contract for enjoyment of some aspect of property but which falls short of conferring the full right of a Lease. A Licence to Occupy is usually prepared for a short term sharing of occupation where the parties want to keep the arrangements flexible with either party being able to terminate the Licence on, for example, one months’ notice.
A Licence to Occupy may be used for the short-term use of offices, pop-up shops or exhibition space, or even lodgers sharing accommodation with the owner. Typically, a Licensee may not assign (transfer) the Licence or share occupation in any way due to its personal nature and short term occupation. Finally, due to the typically short term nature of a Licence to Occupy, it is not liable to Land and Building Transaction Tax under s.52 and s.53 of the LBTT (Scotland) Act 2013.
Finally, a document is typically a licence to occupy if any of the following is absent:
(a) There is no fixed term or;
(b) There is no rent payable or;
(c) There are no defined premises.
Why the Distinction Between a Lease and Licence to Occupy Matters in Scots Law
Choosing between a Lease and a Licence to Occupy has important legal implications. An example of which is that tenants often have statutory protections under Scottish housing laws, but Licensees generally do not.
Licences are typically more straightforward to terminate as opposed to a Lease. A Lease typically requires:
(a) notice periods,
(b) compliance with statutory regulations and
(c) formal termination steps.
Further, there can be different arrangements to consider such as repair obligations, insurance responsibilities and so on.
As noted above simply stating an agreement is a Licence to Occupy does not prevent it from being legally considered as a Lease. Just because a contract is labelled as a Lease or a Licence to Occupy will not conclusively determine its legal status. Further, a poorly structured Licence to Occupy can unintentionally create a Lease. Therefore, whether something is classed as a Lease or a Licence to Occupy depends on each individual circumstance.
Given the different legal implications, it is important careful drafting and specialist advice is provided prior to entering into an agreement under Scots Law. Here at Complete Clarity Solicitors, our experienced team will be able to assist matters with a complimentary initial consultation. Please contact our team on 0141 433 2626.
Contact our Property Lawyers for advice on Leases and Licences to Occupy in Scotland today
If you are considering granting occupancy rights or are unsure whether a Lease or Licence to Occupy is appropriate, our experienced property lawyers at Complete Clarity Solicitors can help. We can advise on drafting agreements, reviewing existing arrangements and protecting your legal position.
Contact our Property Law team today on 0141 433 2626 to arrange your complimentary initial consultation.
