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What is the difference between a licence and a lease?

Posted in: Running a Business by Landmark on 02nd October 2018

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So, your business is on the lookout for office space and you’re sizing up various different commercial properties. As well as considerations such as the type of office you want, the amount of space you require and the location, it is also important to consider the type of rent agreement on the table.

 

The two main ways to let out or sublet commercial premises are licences and leases. Whilst the two terms are often used interchangeably, they’re two distinct legal concepts with very different rights and duties. It is therefore imperative you know the difference between them before signing on the dotted line of a rent agreement.

 

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What is a licence?

 

A licence grants a licensee the permission to occupy and use a property for a flexible amount of time. It is revocable, meaning it can be terminated by either party simply by giving notice. Licences are usually agreed for serviced offices or offices within someone else’s space – typically more short term solutions.

 

 

What is a lease?

 

A lease grants tenants a legal interest in the property for a specific term. This gives them the right of exclusive possession of a property, meaning lessees can use the property as they like. It is not revocable, so a lease cannot be terminated until it expires (unless there is a break clause). A lease can also be transferred to a different party.

 

 

What are the key differences between licences and leases?

Just by reading the above sections, you’re probably already noticing some of the differences between licences and leases. In this section we’ll go through these distinctions in detail, looking at factors like security of space, timeline of occupation, and interest in the property.

Flexibility and security of space

Because licences are revocable, a landlord can terminate the agreement whenever they like, no matter the period of licence agreed. However, significant notice must be served. Likewise, a tenant can also move out whenever they want to, making licences extremely flexible agreements. 

 

Choosing one of our serviced offices ensures you can enjoy this kind of flexibility yourself. This enables you to use your capital more freely, as you’re not tied down to a long term lease.

 

Leases cannot be terminated before the end of the term agreed – unless there’s a break clause or the tenant breaches a term of the agreement, like not paying rent or damaging the property. In addition, the lease runs with the land, meaning it is binding even if the owners change. This is not automatically the case with a licence – an agreement has to be stuck between the new and old owners and the licensee.

Interest in the property

As a licence merely grants a permission to use a land, tenants have no interest in the property and therefore have no say as to who can and cannot enter the property. With a lease, tenants are given an interest in the property and have a right to grant or restrict access to the property. This includes the landlord (aside from any rights of entry they may have, like to carry out works). Lesses can also make significant changes to the property, whereas licensees cannot. 

 

Whilst you won’t receive an interest in the property when renting out one of our serviced offices, you will get your own private space. We also have separate communal areas that are great for networking and collaborating with other businesses.

Timeline to occupation

Once a licence has been obtained, the waiting time to move into an office is usually quite short, typically between one week to a month. With Landmark, our private offices are usually ready to be moved into as soon as the client is ready. The move-in date usually depends on the expiry of the client’s previous office contract. With leased properties, there is usually a longer time to occupation, typically between 3 and 12 months.

Costs

Because office licence costs are typically all inclusive, they are easier to account for. This is unlike leases, where there could be substantial up-front and back-end costs, such as agent’s fees and fit-out expenditure. Here at Landmark, our serviced offices come fully furnished and work ready (including free high speed wired and Wifi internet) meaning you will not have to splash out on any hidden costs. We also employ a professional reception team and cleaners, meaning you can save on staff expenditure too.

Transferability

Unlike a licence, a lease can be transferred to a different party, although landlords will typically want to vet the incoming tenant to ensure they will observe the lease’s terms and be able to pay the rent.

 

 

Which agreement is right for your business?

What your business opts for depends on your circumstances. Licences are more suitable for businesses looking for a short-term option, as they are quick and simple to commit to, and are a lot more flexible. They are an effective solution for businesses renting out a serviced office or launching a pop-up. 

 

However, for organisations with a medium to long-term strategy, signing a lease makes more sense. Whilst there is a much greater commitment, the advantages of exclusive occupation and security of space means it is usually a savvier solution for more established companies.