Residential Licenses

Introduction: What is a license?

A license is where someone is given permission to occupy a property or room but does not acquire the rights of a tenant.

This often appears an attractive proposition to a landlord, who may not wish to be bound by the landlords repairing covenants or want his occupants to acquire security of tenure.

It was particularly attractive prior to 1989 when the Rent Act 1977 applied to tenancies and it was difficult to recover possession of property. However, if you try to set up a license in a situation where the occupation would normally be a tenancy, this may in fact cause you more problems than if you had accepted it was a tenancy from the start.

In a landmark case in 1985, the court held that in a situation where an occupier has exclusive possession of a property or part of a property and is paying a rent, then normally a tenancy will be created.

This case involved a situation where a landlord was trying to circumvent the Rent Act 1977 by getting the occupants to sign a ‘license agreement’ which stated that the occupation was pursuant to a licence, whereas in fact their occupation contained all the elements of a tenancy.

This case (Street v. Mountford) is the authority for the rule that in a license/tenancy context, it is what actually happens that is important, not what is written on any document signed by the parties, and that you cannot make what would otherwise be a tenancy into a license simply by getting the occupier to sign a document headed ‘License Agreement’.

Note: in this article I am only looking at residential occupation, and the rules discussed will not necessarily apply to agreements for lock up garages, storage space etc.

There are some situations where a license will in most cases be created automatically, rather than a tenancy.

Common situations where licenses are created:

Lodgers

If you have a situation where someone is renting out a room in their house to a lodger, and shares living accommodation, such as the kitchen, bathroom, and sitting room with him, then this will normally be a license agreement and the lodger will not acquire any tenants rights.

This is probably the most common situation where licenses are created. So common is it, that the government has accepted that in this sort of situation income is rarely declared, and has provided for a ‘rent a room’ tax free income allowance of £7,500.

However that if a lodger remains in occupation after the original landlord has sold the property on, he may acquire tenants rights.

I have a special free website on lodger issues called the Lodger Landlord.

Employees

If an employee, as part of the terms of his employment, is genuinely required to occupy residential accommodation for the better performance of his duties, then his occupation will be under a license and will not be a tenancy.

Examples include a gamekeeper required to live in a cottage on the estate where he works, a surgeon whose post required residence within the hospital, and a hotel manager occupying rooms on the hotel premises.

However, a license will NOT normally be created if an employee is provided with cheap accommodation by his employer as a ‘perk’.

The important point is that occupation of the accommodation is part of the terms of his employment. If it is not, then he will have a normal assured shorthold tenancy (or protected tenancy if he has been in occupation since before 1989).

A landlord/employer in this situation should, therefore, make it clear in the occupier’s contract of employment that the employee is required to reside in specified living accommodation, and should also make it clear that this is for the better performance of his duties.

No intention to create legal relations

In some situations, no tenancy will be created because the circumstances of the letting make it clear that the occupier was only intended to have a license to occupy the property and nothing more.

However, this category is generally limited to family arrangements, acts of friendship, or generosity.

Be warned though, that even in a family situation, the courts will probably imply a tenancy if the occupant is paying rent. It is really best, when allowing friends or family to live in the property, either just to allow them to stay rent free for a very limited period, or to get them to sign a proper tenancy agreement and pay you rent.

Otherwise, if things go wrong and you want them to leave you could be faced with a messy court case with no proper paperwork.

Serviced accommodation

If you provide services, such as cleaning, where you need regular access to the room, then the occupancy will almost certainly be a license rather than a tenancy.

This is the situation with most hostel and hotel accommodation.

However note that for this to be a genuine license, you should actually provide the services. If your agreement with the occupier refers to services but in fact, they are never and have never been provided, then, in reality, you may have a tenancy.

‘Sharing’ arrangements

If the agreement is to share a bedroom, for example where a number of people share a dormitory (and perhaps keep their possessions in a locker) then this cannot be a tenancy as the person does not have ‘exclusive possession’.

However, sometimes landlords try to create a license where the occupier does not share his or her bedroom (other than with a spouse or equivalent partner).

This is the type of arrangement which was discussed in the case of Street and Mountford, mentioned in the introduction.

Normally, if someone has an agreement for a room in a shared house, then this will be an assured shorthold tenancy with the tenant having exclusive occupation of his designated room and shared use of the common parts of the property (e.g. kitchen, bathroom and sitting room) with the other tenants.

However, sometimes a landlord may wish to create a license agreement so he will not be bound by the normal covenants following a tenancy (such as the tenants' security of tenure or the landlords repairing obligations). Here the landlord will state in the agreement that the occupant does not have exclusive occupation of his room and that the landlord reserves the right to move him to a different room in the property.

Sometimes this type of agreement will set up a genuine license situation. However, most Judges are hostile to them, regarding them (generally quite rightly) to be a ‘device’ on the part of the landlord to avoid the provisions of the housing legislation.

In the absence of very clear evidence that an agreement is a genuine license, a Judge in any case brought before him, will probably find that the occupation is a tenancy. The landlord may then find himself in a much worse situation than if he had accepted that the occupation was a tenancy from the start, as he will almost certainly be ordered to pay the tenant’s legal costs, and will find it more difficult to evict the tenant, as he will not have the proper paperwork.

Probably the best way for a landlord to genuinely create license agreements in a shared house situation, is by providing services, particularly cleaning services where the room is regularly entered and cleaned. If he can also show that he does sometimes move occupants from one room to another, then this will reinforce his case.

It follows on from this that an investment landlord should be wary of relying on ‘sharers’ license agreements in shared houses when purchasing an investment property, and would be best advised, unless services are genuinely provided to the occupiers (and it can be proved that this has been done throughout), to regularise the situation by issuing the occupiers with assured shorthold tenancy agreements either jointly or for their own individual room with shared use of the common parts.

Note: if the occupiers have been living in the property since before February 1998, further advice should be sought

Rent to Rent

In recent years the situation where a landlord will rent out his property to a second landlord for the purpose of subletting rooms out individually has gained a lot of popularity. 

This can work well, but care needs to be taken to get it right.  For example:

  • The 'middle' tenancy will not normally be a residential tenancy as the tenant is not renting the property to live in himself - he is renting it to sublet to tenants.  So it will be a commercial tenancy agreement
  • The agreements with the sub -enants will often be tenancies, even if they are described in the paperwork as a license, under the rule in Street v. Mountford as set out above.

Landlords need to be careful therefore about entering into this type of arrangement.  You will see in the sidebar a video interview with solicitor David Smith where he sets out some of the potential problems that can arise.

We do not have an agreement for the 'middle' landlord in this arrangement, on Landlord Law as we do not deal with non-residential agreements.  Anyone wanting advice in this situation is advised to contact our associated solicitors Anthony Gold, who can also deal with drafting up your paperwork. 

Property Guardians

This is a situation where a property which would otherwise be empty, is let on a temporary basis to people (the property guardians) to live in and also act as caretakers. 

Generally, the agreements are drafted on the basis that the occupiers are given limited rights and will also be required to leave at short notice.  whether these agreements are enforceable is a moot point.

You may be interested in an article I wrote on the Landlord Law Blog in 2013 about this situation >> here.

Accommodation on boats & caravans

Boats:
It is an essential feature of a tenancy that it relates to land (or part of a building built on land). Therefore if you rent out a boat, which is not fixed to land but moves from place to place, or even if it is stationary in moorings, this cannot be a tenancy.

All lettings of accommodation on boats will, therefore, be under a license.

Caravans:
So far as caravans are concerned, these will also be licenses if they are moving about from place to place. However, lettings of stationary caravans or mobile homes which are fixed in one place, and generally have services connected such as electricity and water, will be normal tenancies.

Generally, they will be assured shorthold tenancies.

The features of a license

  • In a genuine license situation, a licensees rights are limited, and nothing like those awarded to tenants. For example:
  • There will be no statutory rent control
  • The licensee will have no security of tenure
  • Any deposit paid to the landlord does not have to be protected under the tenancy deposit legislation 
  • His occupation rights will be personal to him and he will be unable to assign them or pass them on to his spouse or family (as opposed to the succession rights of tenants in the Housing legislation)
  • The landlords repairing obligations as set out in the Landlord and Tenant Act 1985 will not apply

What rights does a licensee have?

Well, he is entitled to enforce his contractual rights. So he will be entitled to stay in the property during any fixed term in his license agreement, and he will be able to claim damages if he is forced out before this, or before any notice period in the agreement, has expired.

Although the statutory repairing covenants do not apply to licensors/landlords, they do have an implied duty to see that the premises are reasonably fit for the purpose for which they are let. And although the licensee will not have the security of tenure of a tenant, he will generally, unless he is a lodger, be protected under the Protection from Eviction Act 1977 which means that he can only be evicted by way of a court action.

What are the rules relating to the eviction of a licensee?

Generally, the Protection from Eviction Act 1977 protects all residential occupiers, including licensees. This means that it is a criminal offence for a residential occupier to be evicted other than by court proceedings.

If a licensee is protected under the Act, the licensor will have to give him proper notice to vacate (this should normally be by a written notice of not less than four weeks - ideally an old style Notice to Quit should be used) and then, if he has not left, issue proceedings.

Provided it is a genuine license agreement the licensor/landlord should be entitled to an order.

Note: landlords will not be able to use the accelerated possession procedure, as this is only available for landlords of assured shorthold tenancies using the ‘notice only’ possession procedure.

This procedure to be used, once the landlord has terminated the license, is the same procedure which is used to evict squatters - although the landlord will not be able to get an immediate order for possession as the occupier did not enter as a trespasser.  This is the procedure which should be followed, for example, by employers wishing to evict former employees from premises they were required to live in for their work, and landlords with genuine ‘sharers’ agreements for shared houses.

However, some licenses are excluded from protection under the Act. These are

  • Lodgers
  • Licenses granted to someone to occupy premises for a holiday,
  • Licenses where someone is allowed to stay in property rent-free, and
  • Occupiers of hostel accommodation provided by an authorised landlord, for example, local authorities and housing trusts.

In these circumstances, it is not a criminal offence for a landlord to evict the occupier without a court order, provided that there is no violence involved (which would put the landlord in breach of the Criminal Law Act 1977 which is the act relied upon by squatters).

I describe a procedure for doing this on my Lodger Landlord website, days 19 and 20 in the '20 days of tips'.  .

The future

The Law Commission in their Renting Homes report in 2006 suggested that the line currently drawn between licenses and tenancies should become less important and that licensees should be given more protection.

However, the Renting Homes Bill was not taken up by the government and there do not seem to be any proposals at the time of writing to address this issue.

Conclusion

There will be few situations where landlords today will have licensees in their properties as opposed to tenants. These will generally only be if they provide services, such as cleaning services, particularly for short-term holiday lettings.

There may also be occasions where a landlord will employ someone to act as janitor or manager of a shared house where occupation is part of the job.

However apart from this, if a landlord is letting out a shared house on individual agreements, it is often best to make these assured shorthold tenancies from the start rather than try to engineer a ‘sharing’ agreement.

Assured shorthold tenants do not have long-term security of tenure so landlords do not have the problems that they did under the old Rent Act. And any landlord seeking to avoid his repairing obligations by letting to ‘sharers’ will probably receive short shrift from any Judge hearing a disrepair claim brought by the occupiers.

However taking in a lodger into your own home remains a situation where the statutory protection given to occupiers is excluded, and landlords of lodgers are generally free to deal with their lodgers strictly according to the contractual agreement made, as well as being normally free from the obligation to pay income tax on the rent received - so long as this does not exceed the 'rent a room' allowance.

 

 

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