A lease (also called a tenancy) is an estate in land that gives the tenant the right to exclusive possession of the property for a defined period of time. It is a property right, not merely a contractual right, which means the tenant can enforce the lease against third parties (such as a purchaser of the freehold) and not just against the original landlord. This distinction between a lease and a licence is one of the most important in land law.
The distinction between a lease and a licence is crucial because a lease creates a property interest (an estate in land) while a licence is merely a personal permission. A tenant with a lease has security of tenure, exclusive possession, and rights enforceable against successors in title. A licensee has none of these protections. Whether a person has a lease or a licence can determine whether they can be evicted, whether they have rights to compensation, and whether they are protected by housing legislation.
For an arrangement to be a lease (and not a licence), it must satisfy three essential requirements: (1) exclusive possession — the tenant must have the right to exclude all others, including the landlord, from the property; (2) a certain or definite duration — the lease must be for a fixed term or capable of being determined by a specific event; and (3) the arrangement must pass an interest in land. Rent is not strictly essential, though it is usual. These requirements were confirmed in Street v Mountford.
Exclusive possession means the tenant has the right to occupy the property to the exclusion of all others, including the landlord. The tenant is entitled to control who enters the property and under what circumstances. The landlord cannot enter the property without the tenant's permission (except in an emergency or pursuant to a reserved right in the lease). Exclusive possession is the single most important factor in distinguishing a lease from a licence.
Exclusive possession does not mean sole occupation. A tenant can share exclusive possession with others (such as family members or a spouse) and still have a lease. The key is that the tenant, not the landlord, controls who shares the occupation. If the landlord retains the right to dictate who shares the property with the occupier, this suggests the arrangement is a licence rather than a lease.
Exclusive possession may be absent where: the landlord provides attendance or services (such as cleaning, meals, or a live-in landlord), the landlord retains a high degree of control over the use of the rooms, or the arrangement is expressed as a licence. In these cases, the courts will look at the substance of the arrangement rather than the label applied by the parties.
For the SQE, remember that the label the parties put on the arrangement (whether they call it a "licence" or a "tenancy") is not determinative. The court looks at the substance of the agreement. If the occupier has exclusive possession for a fixed term, it is a lease regardless of what the agreement calls it. This is the central principle from Street v Mountford.
A fixed term lease is one that lasts for a specified period of time, such as 6 months, 1 year, or 99 years. The lease automatically ends when the fixed term expires (unless the parties agree to renew or hold over). The term must be certain — it cannot be left open-ended. However, the term can be made determinable by a notice provision or by the occurrence of a specific event.
A periodic tenancy runs from period to period (e.g., week to week, month to month, or year to year). Each period is a separate tenancy, but they run consecutively. A periodic tenancy can be created expressly (the agreement specifies that the tenancy runs from month to month) or impliedly (where a fixed term tenant holds over after the fixed term ends and the landlord accepts rent, creating a periodic tenancy at the rent payment interval).
A tenancy at will is a tenancy that can be terminated at any time by either party. It has no fixed term and no periodic intervals. It arises where the parties intend the tenancy to continue until one of them decides to end it. A tenancy at will is terminated automatically if either party dies or if a fixed term tenancy is granted in respect of the same property. It is uncommon in practice.
A tenancy at sufferance (also called holding over) arises when a tenant remains in occupation after the lease has expired without the landlord's consent. The tenant becomes a trespasser, but in practice, if the landlord accepts rent from the holding-over tenant, a periodic tenancy may be implied. The landlord can also take proceedings for possession. A tenancy at sufferance is the most precarious form of tenure.
| Type | Duration | Termination | Examples |
|---|---|---|---|
| Fixed term | Specified period (e.g., 1 year, 99 years) | Ends automatically on expiry | Assured shorthold tenancy, long leasehold |
| Periodic tenancy | Runs from period to period | Notice required (usually one period) | Monthly rolling tenancy, weekly tenancy |
| Tenancy at will | No fixed duration | Terminable at will by either party | Temporary arrangement while sale completes |
| Tenancy at sufferance | No lawful right to remain | Landlord can sue for possession; periodic tenancy may arise | Tenant stays on after lease ends |
Rent is not strictly essential for a lease to exist. A lease can be granted at a nominal rent, a peppercorn rent, or even without any rent at all. The provision of a rent is usual but not a requirement. What matters is that the tenant has exclusive possession for a certain duration. If these requirements are met, the arrangement is a lease even if no rent is payable.
Although rent is not essential, the payment of rent is strong evidence that the arrangement is a lease rather than a licence. Where the occupier pays a regular sum for the right to occupy, this suggests exclusive possession and a property interest. Conversely, where no rent is paid, the parties may have intended a licence or some other arrangement, though this is not determinative.
Do not confuse consideration with rent. Consideration is a contract law concept — something of value given in exchange for a promise. Rent is a property law concept — a periodic payment for the right to occupy land. An arrangement can have consideration without rent (e.g., a lease at a peppercorn rent where the tenant performs services for the landlord) and can have rent without consideration (e.g., a gratuitous lease). For the SQE, focus on the property law analysis.
A lease passes an estate (interest) in land to the tenant. This means the tenant has a property right that is enforceable against the whole world, including anyone who later acquires the freehold. A licence, by contrast, is a personal permission that allows the licensee to do something that would otherwise be a trespass. It creates no property right and is only enforceable against the person who granted it. This distinction is the fundamental reason why the lease/licence question matters.
A useful way to think about this: if the landlord sells the freehold, does the occupier still have the right to stay? If yes, the occupier has a lease (a property right). If the occupier's rights depend entirely on the agreement with the original landlord, it is likely a licence (a personal right). This is the practical test for whether an interest in land has been created.
In Street v Mountford, the House of Lords established the modern test for distinguishing a lease from a licence. Mrs Mountford signed an agreement described as a "licence" to occupy two rooms at a weekly "payment" (not called rent). The agreement stated that she had no exclusive possession. The House of Lords held that the arrangement was, in substance, a lease. She had exclusive possession for a weekly period in return for a payment. The label "licence" could not disguise the true nature of the transaction.
The case established the following principles: (1) the intention of the parties is irrelevant if the substance of the arrangement is that of a lease; (2) exclusive possession for a fixed or periodic term in return for payment is a lease; (3) the label used by the parties does not determine the nature of the arrangement; (4) a purported licence cannot be used to deprive the occupier of statutory protections available to tenants. Lord Templeman stated: "The manufacture of a five-part label cannot alter the nature of the transaction."
Street v Mountford had a significant impact on housing law. It meant that landlords could not avoid security of tenure and rent control legislation by labelling tenancies as licences. The case is the starting point for any analysis of whether an arrangement is a lease or a licence. However, later cases have refined the principles, particularly in relation to shared accommodation and non-traditional arrangements.
The primary test for whether an arrangement is a lease is whether the occupier has exclusive possession. If the occupier has exclusive possession for a certain duration, the arrangement is presumptively a lease, regardless of the label used. The burden is on the party asserting that the arrangement is a licence to show why it should not be treated as a lease.
A licence may be found where: the landlord provides attendance or services that require access to the premises (such as cleaning, changing bed linen, or providing meals), the landlord retains a high degree of control over how the occupier uses the rooms, the accommodation is provided as part of employment (a service occupancy), the arrangement is temporary or precarious, or the occupier shares living accommodation with the landlord.
In Ashburn Anstalt v Arnold, the court confirmed that the intention of the parties is relevant only in borderline or exceptional cases. Where the arrangement clearly gives exclusive possession for a certain duration, it is a lease regardless of the parties' intention. The court also confirmed that the three requirements (exclusive possession, certain duration, and passing an interest in land) remain the essential test for a lease.
In Bruton v London & Quadrant Housing Trust, the House of Lords held that a licence can exist even where the landlord has no legal estate to grant. Bruton was a licensee of a housing association which itself only had a licence from the local authority. Despite the housing association having no legal estate to grant, the House of Lords held that Bruton had exclusive possession and the arrangement was therefore a lease (or more precisely, a tenancy at will, since the housing association had no estate to grant). This was a significant extension of the Street v Mountford principles.
In Antoniades v Villiers, the House of Lords held that an agreement described as a "licence" for two people to share a flat was, in substance, a joint tenancy. The landlord had tried to avoid rent control by granting a "licence" instead of a tenancy. The House of Lords held that the so-called licence was a sham. The two occupiers had exclusive possession jointly, and the restriction on them living together was unenforceable as an unreasonable restraint on the use of the property.
| Feature | Lease (Tenancy) | Licence |
|---|---|---|
| Nature of right | Property right (estate in land) | Personal permission |
| Exclusive possession | Yes (essential characteristic) | No |
| Enforceable against successors | Yes — binds purchasers of the freehold | No — only enforceable against the grantor |
| Statutory protections | Yes (e.g., Housing Act 1988, Protection from Eviction Act 1977) | Limited or none |
| Rent | Usual but not essential | May or may not be payable |
| Duration | Fixed term or periodic | Usually for a specific purpose or time |
| Label | Irrelevant — substance prevails (Street v Mountford) | Irrelevant — substance prevails |
A bare licence is the simplest form of licence. It is a personal permission to enter or use land for a specific purpose, given gratuitously (without payment). It can be revoked at any time by the grantor. Examples include permission to walk across a field, permission to fish in a lake, or an invitation to enter a shop. A bare licence gives no property rights and can be terminated without notice.
A licence coupled with an interest arises where the licensee has an interest in the land (or something on it) that requires them to enter the land. For example, a licence to enter land to remove timber or minerals that the licensee has purchased, or a licence to enter land to repair a wall that the licensee is responsible for. This type of licence is irrevocable (cannot be terminated) because it is coupled with a property interest. It continues until the interest is exhausted.
A contractual licence is a licence that is granted under a contract. The licensee has contractual rights against the grantor, but no property rights against third parties. The licence can be terminated in accordance with the terms of the contract. However, the licence cannot be terminated in breach of the contract. If the grantor purports to terminate the licence in breach of contract, the licensee may have a claim for damages or an injunction.
In some cases, a licence may acquire equitable protection through proprietary estoppel. If the grantor has made a promise that the licensee can occupy the land, and the licensee has relied on that promise to their detriment, the court may enforce the licence as an equitable interest. This can happen even though the licence is not a property right at common law. Proprietary estoppel is an important doctrine that can effectively convert a licence into a property right in equity.
Section 52 of the Law of Property (Miscellaneous Provisions) Act 1989 provides that a contract for the creation or disposition of an interest in land must be made by deed. This means that any lease for a term exceeding three years must be created by deed. Leases for three years or less can be created without a deed, provided they take effect in possession (i.e., the tenant moves in) and the term does not exceed three years from the date of grant.
A lease for a term exceeding three years must comply with two formalities: (1) it must be created by deed (LP(MP)A 1989 s.52, s.1(1)(b)), and (2) if the term exceeds seven years, it must be registered at the Land Registry. Failure to execute a deed means the lease takes effect as an equitable interest only (a contract for a lease specifically enforceable in equity). The tenant has equitable protection but not legal title.
Under LPA 1925 s.52(1) and the Land Registration Rules, a lease for a term exceeding seven years must be registered at the Land Registry to take effect as a legal estate. The registration is compulsory and the lease will not be a legal estate until registered. However, the lease will take effect as an equitable lease until registration. For registered land, the registration of the lease on the register protects the tenant's interest against third parties.
A lease for a term of three years or less is exempt from the requirement to be created by deed, provided that: (1) the term does not exceed three years from the date of grant, (2) the lease takes effect in possession (the tenant actually moves in and takes occupation), and (3) the rent is at a market rate or the lease is not at a rent substantially below market value. These leases can be created orally or in writing, and do not need to be registered.
All three conditions for the three-year exemption must be met. If the lease is for three years or less but does not take effect in possession (e.g., the tenant does not move in immediately), it must be by deed. If the lease takes effect in possession but the term is longer than three years from the date of grant, it must also be by deed. The exemption is narrow and should not be relied upon where there is any doubt.
| Lease Term | Form Required | Registration | Effect of Non-Compliance |
|---|---|---|---|
| 3 years or less (takes effect in possession) | No deed required; can be oral or in writing | Not required | May be an equitable lease if does not take effect in possession |
| More than 3 years, up to 7 years | Must be by deed (s.52 LP(MP)A 1989) | Not required | Takes effect as equitable lease if not by deed |
| More than 7 years | Must be by deed | Must be registered at Land Registry | Takes effect as equitable lease if not by deed or not registered |
Section 54(2) of the LPA 1925 provides that a lease taking effect in possession for a term not exceeding three years from the making thereof may be created without a deed. This is the statutory basis for the three-year exemption. The section states that such a lease can be created orally or in writing, or even by implication from conduct (e.g., the landlord accepting rent and the tenant taking occupation).
Effluxion of time means the natural expiry of a fixed term lease. When the specified term of the lease comes to an end, the lease terminates automatically without the need for either party to take any action. No notice is required. The tenant must vacate the property, and the landlord is entitled to possession. If the tenant does not leave, they become a trespasser (or, more precisely, a tenant at sufferance).
When a lease ends by effluxion of time: (1) the tenant's right to occupy ceases, (2) any subleases granted by the tenant that extend beyond the original term also end (unless the subtenant has overriding rights), (3) the landlord is entitled to recover possession, and (4) the tenant must return the property in the condition required by the lease (usually in good repair, subject to fair wear and tear). The tenant's covenants (such as the covenant to pay rent) also cease.
Holding over occurs when a tenant remains in occupation after the lease has expired. The tenant no longer has any right to occupy and is technically a trespasser. However, the law recognises that holding over can create a new periodic tenancy if the landlord accepts rent from the holding-over tenant. The new periodic tenancy runs at the same rent interval as the original lease (e.g., if rent was paid monthly, a monthly periodic tenancy arises).
A new periodic tenancy by holding over arises where: (1) the tenant remains in occupation after the fixed term ends, (2) the landlord accepts rent from the tenant with knowledge of the holding over, and (3) the acceptance of rent is inconsistent with the landlord treating the tenant as a trespasser. The periodic tenancy is on the same terms as the original lease (except for the duration), unless the parties agree otherwise. A single rent payment may be sufficient to create the periodic tenancy.
When a tenant holds over, the landlord has several options: (1) accept rent and create a new periodic tenancy, (2) take proceedings for possession as a trespasser, (3) grant a new fixed term lease to the tenant, or (4) demand mesne profits (a higher rate of compensation than rent) for the period of holding over. The landlord's choice of action will depend on the circumstances, including whether the tenant is desirable, the state of the property market, and whether the landlord wants the property back.
If the original tenancy was an assured shorthold tenancy under the Housing Act 1988, the tenant may acquire additional protections on holding over. The statutory periodic tenancy that arises when an AST tenant holds over is also an AST, meaning the landlord must follow the proper procedure (s.21 notice, court order) to recover possession. This is an important practical point for residential landlords.
Does the occupier have exclusive possession?: Can they exclude the landlord and all others?
Yes: Presumptively a lease (Street v Mountford): The label does not matter — look at substance
No: Likely a licence: No exclusive possession means no lease
Is there a certain duration?: Fixed term, periodic, or determinable by notice/event
Yes: Confirms lease: Exclusive possession + certain duration = lease
No: Check for exceptions: Does the landlord provide services? Is there a high degree of control?
Does the arrangement pass an interest in land?: Is it a property right enforceable against successors?
Yes: It is a lease: Apply appropriate formalities (s.52 LP(MP)A 1989)
No: It is a licence: Personal permission only — no statutory tenant protections