Commercial Property Licence UK Guide: Lease vs Licence, Legal Requirements & Termination Rights 2025

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• What is the difference between a lease and a licence in the UK?
• What does it mean to have a commercial licence?
• What is a property licence in the UK?
• How does a commercial licence work?
• Avoiding Accidental Tenancy: Critical Compliance Points
• What are the three types of licensing?

What Is the Difference Between a Lease and a Licence in the UK?

Quick Answer: A lease grants exclusive possession of property, creating a proprietary interest with statutory protections under the Landlord and Tenant Act 1954. A licence merely permits someone to use property without exclusive possession, creating only personal contractual rights that can be terminated on short notice without court proceedings.

The distinction between lease and licence represents one of the most consequential decisions in UK commercial property law. Courts have consistently held since the landmark Street v Mountford [1985] case that substance prevails over form. Labelling a document as a “licence” provides no protection if the actual arrangement exhibits tenancy characteristics.

Exclusive possession forms the critical dividing line. When an occupier can exclude everyone from the premises, including the property owner except for limited inspection rights, they possess the hallmarks of a tenant rather than a licensee. This exclusivity, combined with periodic rent payments and a defined term, establishes a tenancy regardless of what the parties choose to call their agreement.

The practical implications extend far beyond legal technicalities. A tenant with security of tenure under the Landlord and Tenant Act 1954 can remain in occupation indefinitely, forcing landlords through expensive court applications to regain possession. Even successful opposition to lease renewal typically requires demonstrating statutory grounds and potentially paying substantial compensation.

Licences offer flexibility that leases cannot match. Property owners retain the ability to terminate arrangements quickly, relocate occupiers between spaces, and avoid the registration requirements and stamp duty land tax implications that apply to longer leases. For businesses seeking Commercial Office Lease arrangements, understanding when a licence might serve their needs better proves equally valuable.

What Does It Mean to Have a Commercial Licence?

Quick Answer: A commercial licence grants permission to occupy or use business premises without creating a tenancy. The licensee receives contractual rights to use the space for specified purposes whilst the licensor retains possession, control, and the ability to terminate the arrangement on short notice without court involvement.

Commercial licences serve as flexible alternatives to formal lease arrangements across numerous business contexts. Unlike tenancies, licences create no estate in land. The occupier receives only personal permission to use premises rather than any proprietary interest that might bind future owners or attract statutory protections.

The licensor’s retained control manifests through several practical mechanisms. Rights to enter the premises without notice, obligations to provide services such as cleaning or reception facilities, authority to relocate the licensee to alternative spaces, and the ability to permit multiple occupiers to share the same area all demonstrate the absence of exclusive possession that distinguishes licences from leases.

Business contexts where commercial licences prove appropriate include co-working spaces where multiple businesses share facilities, serviced offices with bundled amenities, Storage Facility Agreements for warehouse or archive space, pop-up retail units for temporary trading, event venue hire for functions or exhibitions, and desk space arrangements in shared office environments.

The absence of security of tenure makes licences particularly attractive for property owners who anticipate needing their premises back. Redevelopment plans, uncertain future requirements, or simply preferring maximum flexibility all favour licence arrangements over formal leases. Occupiers accept reduced security in exchange for correspondingly reduced commitment, shorter notice periods, and typically lower upfront costs.

What Is a Property Licence in the UK?

Quick Answer: A property licence in the UK is a contractual permission allowing someone to occupy or use premises without acquiring tenant status. It creates personal rights between the parties rather than any interest in the land itself, meaning the arrangement falls outside landlord and tenant legislation and can be terminated without formal possession proceedings.

Property licences operate across both residential and commercial contexts, though the legal frameworks differ substantially. Residential licences typically arise in lodger arrangements where the property owner shares accommodation with the occupier, whilst commercial licences cover the full spectrum of business occupation short of exclusive tenancy.

The UK legal position distinguishes between bare licences, which can be revoked at any time, and contractual licences, which incorporate terms governing the parties’ respective rights and obligations. Commercial property licences almost invariably fall into the contractual category, setting out licence fees, permitted uses, service provisions, and termination mechanisms.

Key characteristics that establish a genuine property licence rather than a tenancy in disguise include the licensor’s retained right of unrestricted access to the licensed area, provision of services beyond mere occupation such as reception, cleaning, or security, multiple occupiers sharing the same space either simultaneously or on rotating basis, express terms permitting relocation of the licensee to alternative areas, and short duration typically measured in months rather than years.

Understanding the Break Clause Notice requirements becomes relevant when commercial arrangements need early termination mechanisms, whether structured as leases with break rights or licences with contractual termination provisions.

How Does a Commercial Licence Work?

Quick Answer: A commercial licence works by granting the licensee permission to use specified premises for defined business purposes in exchange for periodic fees, whilst the licensor retains possession and control. The licence agreement sets out permitted uses, fee structures, service provisions, access arrangements, and termination rights without creating any proprietary interest in the property.

The operational mechanics of commercial licences differ fundamentally from lease arrangements. Rather than transferring possession to the occupier, the licensor grants permission to use premises subject to ongoing conditions. This permission can be structured around specific spaces, time periods, or usage rights depending on commercial requirements.

Fee structures vary considerably across different licence types. Hot-desking arrangements might charge daily or monthly rates for flexible workspace access. Serviced office licences typically bundle occupation with reception services, cleaning, utilities, and meeting room availability. Storage facility compliance considerations apply when licensing warehouse or archive space, with fees often calculated per square metre or storage unit.

Service provision distinguishes many commercial licences from pure occupation arrangements. The licensor’s obligation to provide reception coverage, maintain common areas, handle mail, or offer IT support demonstrates ongoing involvement inconsistent with the exclusive possession that characterises tenancies. These bundled services justify premium fee rates whilst reinforcing the licence characterisation.

Termination operates contractually rather than through statutory mechanisms. Notice periods typically range from seven days to one month, with immediate termination rights available for serious breaches such as non-payment, nuisance behaviour, or insolvency. Unlike lease termination, which may require court orders for possession, licence termination simply ends the contractual permission to occupy.

Avoiding Accidental Tenancy: Critical Compliance Points

If you haven’t already, download the free Commercial Property Licence Compliance Checklist to ensure your arrangement avoids accidental tenancy risks.

The consequences of an arrangement being recharacterised as a tenancy rather than a licence extend far beyond mere labelling. Security of tenure under the Landlord and Tenant Act 1954 grants occupiers automatic renewal rights, compensation entitlements, and protection against removal except on specified statutory grounds.

Courts examine the substance of arrangements rather than accepting documentary descriptions at face value. The following elements create serious accidental tenancy risk and should be avoided or carefully managed in any commercial licence:

Exclusive possession indicators: Granting control over a defined space that excludes others including the licensor suggests tenancy. Genuine licences should retain unrestricted licensor access rights and permit sharing of spaces with other occupiers.

Periodic rent-only payments: Simple monthly payments for occupation mirror tenancy rental structures. Including upfront fees, deposits, service charges, or bundled amenity payments distinguishes licence fee structures from straightforward rent.

No shared facilities: Exclusive use of an entire office or unit without access to shared meeting rooms, reception areas, kitchens, or other common spaces suggests the occupier controls rather than merely uses the premises.

Documented rights not exercised: Reserved rights of access, relocation, or service provision carry no weight if the licensor never actually exercises them. Courts treat paper-only reservations as attempts to disguise tenancies rather than genuine licence characteristics.

Long duration: Arrangements extending beyond twelve months with rolling continuation raise questions about permanent occupation more consistent with tenancy than temporary licence permission.

What Are the Three Types of Licensing?

Quick Answer: In UK property law, the three main types of licensing are bare licences (simple permission revocable at will), contractual licences (governed by agreed terms between parties), and licences coupled with an interest (linked to another property right such as profit-taking). Commercial property arrangements almost exclusively use contractual licences with detailed terms governing the occupation.

Understanding the licensing hierarchy helps property owners select appropriate structures for their commercial arrangements:

Bare licences represent the simplest form of permission. A guest visiting premises, a delivery driver accessing a loading bay, or a member of the public entering a shop all hold bare licences. These can be revoked at any time without notice or compensation, though reasonable time to leave must be allowed before the former licensee becomes a trespasser.

Contractual licences incorporate binding terms that govern the licence relationship. Commercial property licences fall into this category, with agreements specifying permitted uses, fee obligations, service provisions, notice periods, and termination rights. Unlike bare licences, contractual licences can only be terminated in accordance with their terms, and wrongful termination may give rise to damages claims.

Licences coupled with an interest connect the permission to occupy with another proprietary right. Examples include a licence to enter land to collect timber already purchased, or access rights granted alongside equipment maintenance agreements. The licence cannot be revoked whilst the underlying interest persists.

Commercial property arrangements typically require contractual licences with comprehensive terms addressing all aspects of the occupation. The Financial and Commercial Business Contracts guide provides broader context for structuring these commercial relationships within the UK legal framework.

What Is a Commercial Licence in the UK?

Quick Answer: A commercial licence in the UK is a contractual arrangement permitting business occupation or use of premises without creating a tenancy. It provides flexibility for both parties through shorter terms, simpler termination, and reduced formality whilst avoiding the statutory protections that apply to commercial leases under the Landlord and Tenant Act 1954.

The UK commercial property market increasingly utilises licence arrangements for flexible workspace solutions. Co-working providers, serviced office operators, and managed workspace landlords typically structure their offerings as licences rather than leases, enabling the short-term flexibility that modern business occupiers demand.

Regulatory considerations apply to certain commercial licence arrangements. Operators providing workspace to multiple businesses may need to consider business rates implications, health and safety obligations for shared premises, and planning permission for changes of use. The licence structure affects who bears these regulatory responsibilities.

From an occupier perspective, commercial licences trade security for flexibility. Businesses uncertain about their future space requirements, testing new locations before committing to longer leases, or requiring premises for defined project periods often find licences more suitable than the multi-year commitments associated with formal leases.

What Is the Difference Between a Commercial Licence and a Lease?

Quick Answer: The fundamental difference lies in exclusive possession and statutory protection. Leases transfer exclusive possession creating proprietary interests protected by the Landlord and Tenant Act 1954. Licences grant mere permission to use premises whilst the licensor retains possession and control, creating only contractual rights without security of tenure.

The practical implications of this distinction affect every aspect of the commercial arrangement:

Possession and control: Lease tenants can exclude everyone from their premises including the landlord except for limited inspection rights. Licence occupiers cannot exclude the licensor, who retains rights of access and control over the space.

Security of tenure: Commercial lease tenants gain automatic renewal rights under the 1954 Act, forcing landlords to establish statutory grounds for opposing continuation. Licensees have no such protection and must vacate upon proper contractual notice.

Assignment and subletting: Lease interests can typically be assigned or sublet subject to landlord consent, allowing tenants to exit obligations early. Licence rights are personal and cannot usually be transferred.

Formality requirements: Leases exceeding three years must be executed as deeds. Leases of seven years or more require Land Registry registration. Licences need only be in writing to be enforceable.

Businesses considering Commercial Subletting Agreements should note that subletting creates sub-tenancies rather than licences, bringing 1954 Act protections into play unless properly contracted out.

What Do You Need to Get Commercial Property?

Quick Answer: Acquiring commercial property rights in the UK requires understanding the type of arrangement suited to your needs, conducting appropriate due diligence, preparing necessary documentation, and ensuring compliance with legal formalities. For licences, requirements are simpler than leases, typically involving only a written licence agreement and payment of agreed fees and deposits.

The requirements differ significantly depending on whether you seek a licence or lease:

For commercial licences: Occupiers typically need to provide business identification, demonstrate ability to pay licence fees, confirm intended use aligns with permitted purposes, and agree to licence terms including any deposit requirements. References from previous landlords or accountants may be requested but formal covenant strength checks are less common than for leases.

For commercial leases: More extensive requirements apply including financial references, bank statements, accounts for established businesses, personal guarantees for newer companies, legal costs for lease negotiation and completion, stamp duty land tax for leases exceeding certain thresholds, and Land Registry registration fees for longer terms.

Due diligence considerations for both arrangements include verifying the licensor or landlord’s authority to grant the arrangement, checking for restrictions in any superior lease or title, confirming planning permission covers intended uses, and understanding business rates and service charge liabilities.

The New Business Setup Guide provides comprehensive guidance for entrepreneurs navigating premises requirements alongside other formation considerations.

Can Foreigners Buy Commercial Property in the UK?

Quick Answer: Yes, foreigners can purchase commercial property in the UK without nationality restrictions. Non-UK residents face no legal barriers to ownership, though practical considerations include financing arrangements, tax implications including non-resident capital gains tax, anti-money laundering verification requirements, and potentially using UK-registered companies or trusts as ownership vehicles.

The UK maintains an open commercial property market accessible to international investors. No restrictions based on nationality apply to either purchasing freehold interests or taking lease or licence arrangements as occupiers.

Practical considerations for foreign investors include financing challenges, as UK lenders may have limited appetite for non-resident borrowers, potentially requiring larger deposits or alternative finance structures. Tax implications require careful planning, with non-resident landlords subject to income tax on UK rental profits and capital gains tax on disposals since April 2019 for commercial property.

Anti-money laundering regulations require property professionals to verify the identity and source of funds for all purchasers. Foreign nationals should expect more extensive documentation requirements and potentially longer verification timescales. The Companies House beneficial ownership register now extends to overseas entities owning UK property following the Economic Crime (Transparency and Enforcement) Act 2022.

For occupation rather than investment purposes, foreign nationals can take commercial licences without restriction, though immigration status may affect the right to operate certain businesses from UK premises.

What Kind of Business Can You Start Without a Licence?

Quick Answer: Many businesses in the UK require no specific operating licence, though all businesses need appropriate premises arrangements and must comply with general regulatory requirements. Professional services, consultancy, creative industries, e-commerce, and most office-based businesses operate without sector-specific licensing, though certain activities require registration, authorisation, or permits from relevant regulators.

The UK distinguishes between businesses requiring specific operational licences and those subject only to general business regulation. Understanding this distinction helps entrepreneurs identify compliance requirements before commencing operations.

No specific licence typically required: Professional services such as marketing, design, IT consultancy, accounting (though professional body membership may be mandatory for certain work), general consultancy, e-commerce retail of non-restricted goods, creative services including photography, videography, and content creation, office-based administrative businesses, and most business-to-business service providers.

Sector-specific licensing required: Financial services require FCA authorisation, legal services require SRA registration for solicitors, alcohol sales need premises licences from local authorities, food businesses must register with environmental health, and certain trades require specific qualifications or registrations.

Regardless of licensing requirements, all businesses operating from premises need appropriate occupation arrangements, whether Commercial Office Leases for longer-term exclusive use or commercial licences for flexible shared workspace.

The Employment Law pillar becomes relevant once businesses engage staff, with compliance requirements applying regardless of the premises arrangement.

Property Types Suitable for Commercial Licences

Understanding which property arrangements suit licence structures helps both licensors and prospective occupiers identify appropriate opportunities:

Co-working spaces: Shared workspace environments operate almost universally on licence terms. Hot-desking, dedicated desk, and private office arrangements within co-working facilities grant licensees access to workspace and amenities without exclusive possession of any particular area.

Serviced offices: Traditional serviced office providers structure their arrangements as licences, bundling occupation with reception services, cleaning, utilities, and meeting room access. The service element reinforces licence characterisation whilst justifying premium rates.

Storage facilities: Warehouse and self-storage operations typically use licence arrangements, particularly where operators retain access rights, may relocate stored goods between units, or share facilities among multiple users. The Storage Facility Agreement Compliance Checklist addresses specific requirements for these arrangements.

Pop-up retail: Temporary retail spaces in shopping centres, markets, or vacant high street units suit licence structures given their short duration and the landlord’s need to maintain flexibility for permanent letting opportunities.

Event venues: One-off or periodic use of halls, conference spaces, or function rooms operates as licensing rather than tenancy. The intermittent nature and retained licensor control distinguish these from continuous occupation.

Car parking: Parking spaces within car parks or buildings typically form licence rather than lease arrangements, with the operator retaining control over allocation, access, and general management.

Commercial Licence Documentation Requirements

Properly documenting commercial licence arrangements protects both parties and reduces characterisation risk. Essential elements include:

Parties: Clear identification of licensor (property owner or head lessee with sublicensing authority) and licensee (the business or individual receiving permission to occupy).

Licensed premises: Description of the space covered by the licence, though deliberately avoiding language suggesting exclusive defined areas. References to desk space, workstation allocation, or general areas prove safer than precise floor plans.

Permitted use: Specification of activities the licensee may conduct, preventing unauthorised uses that might create nuisance or breach planning permissions.

Licence fee: Payment amounts, frequency, and methods including any provisions for fee reviews. Terminology matters: “licence fee” rather than “rent” reinforces the non-tenancy nature.

Services: Where the licensor provides services, documenting these supports the licence characterisation and clarifies respective obligations.

Access rights: Express reservation of the licensor’s unrestricted access rights and, crucially, documented evidence of these rights being exercised.

Duration and termination: Fixed term or rolling arrangements with notice periods and grounds for immediate termination.

The UK Business Legal Templates collection provides professionally drafted documentation for various commercial property arrangements.

If you’ve read this far, you’re already ahead of 95% of UK businesses struggling to understand commercial property arrangements properly.

Frequently Asked Questions

How quickly can a commercial licence be terminated?

Notice periods for commercial licences typically range from 7 to 28 days, with immediate termination available for serious breaches. Unlike leases requiring court proceedings for possession, properly terminated licences end the occupier’s right to remain without judicial involvement. However, licensors must still follow contractual notice requirements and cannot simply evict without proper termination.

Does a commercial licence need to be in writing?

Whilst oral licences can technically exist, commercial arrangements should always be documented in writing. Written agreements provide certainty about terms, evidence of licence rather than tenancy characteristics, protection for both parties in disputes, and clarity about permitted uses, fees, and termination rights. The absence of formality requirements that apply to leases does not mean documentation becomes unnecessary.

Can a commercial licence be renewed or extended?

Commercial licences can be renewed or extended by agreement between the parties, but crucially, licensees have no automatic renewal rights equivalent to security of tenure under the 1954 Act. Renewals should be documented as new licence agreements rather than assuming continuation, and careful attention to avoiding accidental tenancy remains necessary for extended arrangements.

Who pays business rates on licensed premises?

Business rates liability typically rests with the rateable occupier, which for genuine licence arrangements usually means the licensor rather than individual licensees. Where licensees have exclusive occupation of defined spaces, rates liability might transfer, though this itself suggests tenancy characteristics. The structure should be clarified in the licence agreement and considered when setting fee levels. Guidance is available from GOV.UK Business Rates.

What happens if a licensor becomes insolvent?

Licensee protection in licensor insolvency is significantly weaker than tenant protection in landlord insolvency. Licences create only personal contractual rights against the licensor, not proprietary interests binding on successors or insolvency practitioners. Administrators or liquidators can disclaim onerous contracts, potentially leaving licensees without premises. This risk factor merits consideration when choosing between licence and lease arrangements for longer-term business requirements.

Can I use a commercial licence for residential occupation?

Commercial licences should not be used to disguise residential occupation. Residential use engages different statutory frameworks including the Housing Act protections, and attempts to avoid these through licence labelling will be recharacterized by courts examining substance over form. Genuine commercial occupation with some incidental overnight stays (such as hotel arrangements) differs from permanent residential use.

Do I need planning permission for a commercial licence?

Planning permission requirements relate to the use of land rather than the legal structure of occupation. If the licensed use differs from existing planning permission or permitted development rights, change of use consent may be required regardless of whether occupation takes place under licence or lease. Licensors should verify planning status before granting licences for particular uses.

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Last reviewed: November 2025 | Next scheduled review: April 2026

Disclaimer: This guide provides general information about commercial property licences in the UK and should not be considered legal advice. Specific circumstances require professional legal consultation. Laws and regulations current as of November 2025. Regular updates are recommended as legislation evolves.