Licence vs Tenancy UK — What Landlords Must Know

The Street v Mountford Test

Lord Templeman in Street v Mountford [1985] held that if an occupier has exclusive possession of premises for a term at a rent, a tenancy arises regardless of what the parties have called the agreement. The court looks at the reality of the arrangement, not the label. Three questions determine the outcome: (1) Does the occupier have exclusive possession? (2) Is there a definite term or periodic arrangement? (3) Is rent paid — or some other consideration (rent is not strictly essential following Ashburn Anstalt v Arnold [1989] Ch 1, but its absence can indicate no tenancy was intended).

• Exclusive possession: occupier has the right to exclude all others, including the landlord (subject to contractual access rights)
• Definite term: a fixed period or a periodic tenancy (weekly, monthly, quarterly, yearly)
• Rent: not strictly essential but near-universal in practice; nominal rent still suffices
• Label is irrelevant: calling an agreement a 'licence' or 'lodger agreement' does not make it one

Sham Licences — When Courts Look Behind the Label

Landlords sometimes try to draft around Street v Mountford by inserting clauses purporting to deny exclusive possession — for example, a clause allowing the landlord to introduce other occupiers, or requiring the occupier to share with strangers. The courts will look at whether these clauses reflect the genuine deal. In AG Securities v Vaughan [1990] and Antoniades v Villiers [1990] (decided together), the House of Lords held that where two agreements were entered simultaneously as part of a single transaction and together granted exclusive possession of a property, the agreements were a sham and a joint tenancy arose. The court will examine whether a right to share was ever exercised in practice, whether other occupiers were ever actually introduced, and whether the clause was a genuine contractual right or merely a device to avoid the Housing Act.

• Sham sharing clause: inserting a right to introduce other occupiers who are never introduced is a sham
• Simultaneous back-to-back agreements: treated as a single transaction — joint tenancy can arise
• Resident landlord: where the landlord genuinely lives in the property and shares facilities, occupation can be a genuine licence
• Genuine sharing: multiple occupiers independently contracted with no right to exclude each other — licence may arise (AG Securities)

Genuine Licences — Lodgers and Holiday Lets

Not all residential occupation is a tenancy. A genuine lodger — where the landlord lives in the property and provides substantial services such as cleaning, linen changing, and access to common rooms — does not have exclusive possession and is a licensee. The landlord must genuinely share the accommodation and provide services; a bare right of access to the room is insufficient. Holiday lets are also exempt from the Housing Act 1988 under s.1(1)(b) if the purpose is genuinely to confer a right of occupation for a holiday. A purported holiday let for a non-transient residential purpose is a sham (Buchmann v May [1978]). Licence to occupy clauses in commercial contexts (on-site workers, church halls, serviced offices) can be genuine where the occupier truly lacks exclusive possession.

• Genuine lodger: landlord resident; substantial services provided; landlord can enter freely at reasonable times
• Holiday let exemption: HA 1988 s.1(1)(b); genuine short-term holiday purpose required
• Service occupancy: employee occupies for better performance of duties; occupation ends on employment ending — no HA protection
• Gratuitous licence: family member or friend occupying with permission but no rent — no tenancy; terminable at will

Commercial Occupation — LTA 1954 and Licences

In the commercial context, the Landlord and Tenant Act 1954 grants security of tenure to business tenants who have a protected tenancy. A licence to occupy commercial premises does not attract LTA 1954 protection, which is why commercial landlords sometimes prefer licence structures for short-term or casual occupation. However, the same Street v Mountford principle applies: the court will look at the substance of the arrangement. If the occupier has exclusive possession and is paying a consideration for commercial use, a tenancy may arise and LTA 1954 protection will attach. To avoid this, the parties must contract out of LTA 1954 protection before the tenancy is granted by following the prescribed court procedure under the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003.

• LTA 1954 protection: attaches to business tenancies; right to renew at market rent; only excluded by valid contracting-out
• Licence to occupy commercial: no LTA 1954 protection if genuinely a licence — but courts scrutinise carefully
• Contracting-out procedure: landlord's warning notice; tenant's declaration (simple) or statutory declaration before solicitor (if fewer than 14 days notice given); then tenancy granted — only then is LTA 1954 excluded
• Tenancy at will: arises during negotiations or mortgage surveys; terminated by act inconsistent with continuance; no LTA 1954 protection (Wheeler v Mercer [1957])

Consequences of Misclassification

If a court finds that what was labelled a licence is in fact a tenancy, the landlord faces significant exposure. The occupier has Housing Act 1988 protection — they cannot be evicted without a court order and valid grounds. If a deposit was taken without protection in an authorised scheme, the s.214 penalty (1–3× the deposit) applies. Right to rent checks are mandatory for tenants but not bare licensees, so failure to check can also attract civil penalties. Gas safety records, EICR, EPC, and How to Rent booklet obligations all apply. Unlawful eviction of an occupier who is in fact a tenant is a criminal offence under the Protection from Eviction Act 1977 carrying up to 2 years' imprisonment.

• Housing Act 1988 protection: applies to assured and assured shorthold tenancies — court order required for possession
• Deposit penalties: s.214 HA 2004 — 1–3× deposit where not protected within 30 days of receipt
• Illegal eviction: criminal offence under PfEA 1977 — up to 2 years imprisonment; civil damages (Francis v Brown [1997])
• Regulatory obligations: EPC, EICR, gas safety, How to Rent, prescribed information — all mandatory for tenancies

Frequently asked questions