A Licence to Occupy is a legal agreement used in England and Wales that grants one party (the Licensee) personal, non-exclusive permission to use and occupy specified premises owned or controlled by another party (the Licensor). Unlike a tenancy or lease, a licence does not create any estate or interest in land and does not confer exclusive possession on the occupier. This distinction, firmly established by the House of Lords in the landmark case of Street v Mountford [1985] AC 809, has fundamental consequences for both parties.

Under English property law, the critical test is whether the arrangement grants exclusive possession of defined premises for a term at a rent. If it does, a tenancy is created regardless of the label the parties use. If it does not — because the licensor retains genuine rights to share, supervise, or control the use of the premises — the arrangement is a licence. This principle has been affirmed and refined in subsequent cases including AG Securities v Vaughan [1990] 1 AC 417, Antoniades v Villiers [1990] 1 AC 417, and Bruton v London and Quadrant Housing Trust [2000] 1 AC 406.

The practical consequences of the licence/tenancy distinction are significant. A licensee has no security of tenure under the Landlord and Tenant Act 1954 (which protects commercial tenants) or the Housing Act 1988 (which protects residential tenants). A licence does not create a proprietary interest in land and therefore does not need to be registered at HM Land Registry under the Land Registration Act 2002. A licence is personal to the Licensee and cannot be assigned to a third party. If the Licensor sells the property, the licence does not bind the purchaser — unlike a lease, which may create an overriding interest under Schedule 3 of the Land Registration Act 2002.

Licences to occupy are commonly used in England and Wales for a wide range of purposes: shared office spaces and co-working arrangements, temporary use of commercial premises during a refurbishment, access to storage facilities, use of retail space within a larger store (such as a concession), occupation pending completion of a sale or lease, and charitable or community use of premises. They are particularly useful where the parties wish to maintain flexibility and avoid the statutory protections and obligations associated with a formal tenancy.

A Licence to Occupy is appropriate in situations where one party needs to use another party's premises but where a formal tenancy or lease would be inappropriate, unnecessary, or undesirable. The key consideration is whether the arrangement genuinely does not involve granting exclusive possession of defined premises.

Common circumstances in which a Licence to Occupy is used in England and Wales include: shared workspace and co-working arrangements where multiple licensees use the same open-plan space and the licensor retains control over desk allocation and access; temporary occupation of premises during a period between exchange and completion of a sale or lease; use of premises for a specific event (such as a pop-up shop, exhibition, or market stall) where the occupation is short-term and the licensor retains control; storage of goods in a warehouse or storage facility where the owner retains access and may move the goods; occupation by an employee or contractor as part of a service arrangement (known as a service occupancy); concessions within a larger retail or hospitality premises (such as a beauty counter within a department store); and charitable, community, or voluntary use of premises where a formal lease is not warranted.

A Licence to Occupy should NOT be used where the occupier will have exclusive possession of a self-contained property or unit, where the arrangement is for a long-term period and the occupier expects security of tenure, where the parties intend to create a proprietary interest that binds successors, or where the arrangement is being used as a device to avoid the statutory protections that would otherwise apply to a tenancy. English courts scrutinise arrangements carefully and will reclassify a sham licence as a tenancy if the true nature of the arrangement is one of exclusive possession at a rent.

For residential arrangements, a Licence to Occupy may be appropriate for lodger-type arrangements, temporary accommodation, or guardian schemes, but it should not be used as a substitute for an Assured Shorthold Tenancy where the occupier will live in a self-contained dwelling as their main home. For commercial arrangements, parties should consider whether the Landlord and Tenant Act 1954 security of tenure provisions would apply to a lease and whether the flexibility of a licence is more appropriate.

A well-drafted Licence to Occupy for use in England and Wales should include the following key elements to ensure legal clarity and to minimise the risk of the arrangement being reclassified as a tenancy by a court:

The express statement that the arrangement is a licence and not a tenancy is important, though not determinative. The document should make clear that it does not create any estate or interest in land, does not grant exclusive possession, and is personal to the Licensee. This should be supported by substantive provisions that genuinely prevent exclusive possession, not merely cosmetic wording.

The description of the licensed area should identify the specific areas the Licensee may use, while making clear that the Licensor retains the right to access, share, rearrange, or reallocate those areas. This is critical to preserving the character of the arrangement as a licence rather than a tenancy.

The permitted purpose clause should define the specific use to which the Licensee may put the premises. Restricting the use to a defined purpose reinforces the limited nature of the permission granted and distinguishes the arrangement from a tenancy, which typically grants broader rights of use.

The licence fee clause should specify the amount, frequency, and method of payment. Unlike a commercial lease, a licence fee is not rent in the technical legal sense. However, the payment of a periodic fee for occupation is one of the indicators courts consider when determining whether a tenancy exists, so the other elements of the licence must clearly negate exclusive possession.

The Licensor's retained rights are the most important provisions for ensuring the arrangement remains a genuine licence. The Licensor should retain practical and exercised rights to enter the Licensed Area at any time, to share the premises with other licensees, and to alter or reallocate the space. Sham provisions that exist only on paper will be disregarded by the courts.

The termination clause should specify the notice period and the circumstances in which either party may terminate the licence. A licence is inherently revocable (unlike a lease), and the termination provisions should reflect this flexibility.

The indemnity and insurance clauses should allocate responsibility for damage, loss, and third-party claims. Since the Licensee does not have a proprietary interest in the premises, the allocation of risk is particularly important.

The exclusion of third-party rights under the Contracts (Rights of Third Parties) Act 1999 is standard practice, as is the governing law clause specifying the laws of England and Wales.