What is the difference between a lease and a licence?

Understanding the basis on which someone occupies a property is key to them understanding their legal rights and obligations. This is key when it comes to lease and licence agreements, which have very different legal implications for occupiers and landlords.

In this article, we consider the differences between a lease and a licence and how this was applied by the Court of Appeal in the recent AP Wireless II (UK) Ltd v On Tower (UK) Ltd [2025] case.

What is a lease?

A lease is an agreement which:

Creates an interest in land: An interest in land is the right that a person holds in relation to land or property. A lease will grant a person a leasehold interest in land which binds third parties and any successors in title.
For a term of years absolute: A term of years absolute means a period of time which can be determined from the outset of the lease. This might be a fixed period of time, such as one year, five years or even 99 years. It could also be a periodic time, i.e. a lease which runs for successive periods such as weekly, monthly or yearly.
Grants exclusive possession of the property: Exclusive possession is an essential component of a lease. It means that the tenant has the right to exclude everyone else from the property including the landlord subject to the terms of the lease and any rights reserved. It demonstrates that the tenant has control of the land not just a permission to use it.

A lease is typically formed as a contract which imposes mutual rights and obligations on the parties. Whilst rent is usually payable and is a good indicator that an agreement is a lease, it is not a crucial characteristic of a lease.

The advantages of leases:

Landlords know how long they will have a tenant in their property which provides certainty of income, making it easier to forecast cash flow and plan for mortgage payments, maintenance and investments. Tenants, especially those in fixed-term arrangements, also benefit from the predictability of rental payments and protection from unexpected eviction.
Tenants of commercial leases have the additional benefit of statutory security of tenure under the Landlord and Tenant Act 1954 (unless their lease is contracted out of these provisions).

The disadvantages of leases:

Leases can be complex, lengthy documents, often requiring legal input which can make them more costly and time consuming to produce.
The statutory security of tenure can create difficulties for landlords seeking to regain possession of their properties in cases where their tenants wish to renew terms.

What is a licence?

By contrast, a licence is a personal right to occupy land and is merely a form of permission. It is not an estate in land, does not entitle the licensee to exclusive possession of the land and can be revoked at any time or in accordance with the terms of the licence. Due to it being a personal right, a licence cannot be assigned; it exists purely between the licensor and the licensee.

Licences are useful for a few reasons:

For simple arrangements where a licensor may want to retain a greater degree of control over land, including retaining access.
Typically they are simpler agreements and therefore much quicker and cheaper to agree.
They are useful where a tenant may want to occupy a property quickly but the lease has not yet been completed.

There are some disadvantages to licences too:

The Landlord and Tenant Act 1954 does not apply to licences, so they are not protected in the same way as a lease and can be ended without notice. This creates risk for commercial occupiers.
Parties may intend to create a licence but inadvertently create a lease conferring additional rights on the licensee (see below).

How do I know which type of agreement I have?

The type of agreement depends on the specific facts. More crucially, the name given to an agreement does not determinate the type of agreement - a key point noted by Lord Templeman in Street v Mountford [1985]:

“The manufacture of a five-pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade”.

An agreement may purport to call itself a licence, but if it has all the hallmarks of a lease, then the agreement would likely be a lease. The substance of the agreement is important, not the form.

It is critical to appreciate the difference between a lease and a licence because they have different legal implications. If an occupier doesn’t know what type of agreement they have, it can create risks for both them and the landowner - especially when it comes to deciding what happens at the end of the tenancy.

Case law

The Court of Appeal recently determined that an agreement between telecom investment company, AP Wireless UK, and television and radio transmission company, On Tower UK Ltd, was in fact a licence. It was previously unclear whether the agreement was a lease or a licence, because it was not obvious whether the agreement had been granted for a term of years absolute and the document had been generically labelled an ‘agreement’.

AP Wireless contended that the agreement was a lease for three reasons:

The agreement was not for a term of uncertain duration.
The agreement created a valid term certain for a minimum of 10 years, terminable by giving two months’ notice.
Even if the agreement was void, an annual periodic tenancy ought to have been inferred.

The judge disagreed with AP Wireless’ three arguments and dismissed the appeal. The agreement continued to be interpreted as a contractual licence due to the uncertainty of the agreement’s duration. This case is a useful illustration of some of the defining features of each type of agreement, and how the courts will look to the substance of an agreement to determine its true identity.

For more information please contact the property litigation team.