Lease or licence?
by Michael Aynsley on 27 July 2011
Commercial landlords on occasion need to recover rent arrears from tenants and repossess their property. The way the go about it will depend very much on whether they have a lease (covered by the Landlord Tenant Act) or a licence with their tenant.
A lease
The fundamental difference between the two is that a lease gives the tenant exclusive use of the property, to the exclusion of the landlord as well, for a set time period for a rent. One of the provisions of the Landlord Tenant Act is that the leaseholder has the right to renew the lease when the existing one expires.
A licence
On the other hand, a licence is for shared possession of the property, some services will also be included in the fee (e.g. utility bills, rates) and furniture, fixtures and fittings are also provided. The landlord has the right to terminate the licence with little or notice.
If an agreement is disputed and goes before a judge, he will decide whether it is a lease or licence based on the substance of the arrangement, rather than the wording used in the contract. A licence that is really a lease agreement disguised to avoid the Landlord Tenant Act will be deemed by a judge to be a lease with the protection the act provides the tenant.
Needless to say, there is far more detail and complexity to this matter, so I would strongly recommend that any landlord obtains professional advice from a lawyer on leases and licences.
Enforcement
In terms of enforcement, the method chosen to recover rent arrears or reposes the property does depend on whether there is a lease or licence in place. Leases allow the landlord to use either Common Law or go to Court to obtain a judgment and/or order. For licences, the landlord will obtain a judgment and/or order.
Rent arrears
Leases
- Distraint for rent, when the landlord instructs a Certificated Bailiff to enter the premises and remove goods to sell to recover the rent. The bailiff will usually attend the same or next day.
- A County Court Judgment (CCJ) for the rent arrears, which can then be transferred to the High Court and enforced by a High Court Enforcement Officer (HCEO) under a writ of fieri facias (fi fa). This is a longer process, but does allow the HCEO to attend other addresses where the debtor may have goods or assets. If the landlord also wishes to repossess the property, he can apply for a combined writ of fi fa and possession so both can be done at the same time
Licences
- The landlord will need to obtain a CCJ and have it transferred to the High Court for enforcement. He can also apply for the combined writ of fi fa and possession if he wishes to evict the tenant
Repossession
Leases
- The landlord can use Common Law to forfeit the lease if rent payment is overdue by a specified period – often 21 days. After this time the landlord can forfeit the lease simply by entering the property and changing the locks. Normally he would instruct a certificated bailiff to do this on his behalf. The landlord is then free to re-let the property to a new tenant.
- Alternatively, the landlord can obtain an order for possession and transfer it to the High Court for enforcement. As mentioned above, it can also be combined with a writ if fi fa for rent arrears
Licences
- The landlord will need to obtain the order for possession and transfer it to the High Court, again with option to combine it with a writ of fi fa for rent arrears
Pros and cons
The main advantage of Common Law is that it is very fast – a certificated bailiff will attend as soon as he possibly can once instructed. However, all costs are paid by the landlord.
Obtaining a judgment or order does take longer. However the two main advantages are that the HCEO can seize goods and assets belonging to the debtor at other locations and the costs are recovered from the debtor where enforcement is successful (where unsuccessful there is an abortive fee of £60 plus VAT per address visited).
If you would like to talk to us – at no charge - about how to recover rent arrears to repossess your property, please contact us.
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Disclaimer: The statements and opinions expressed in this article are those of the author and do not necessarily reflect those of Sheriffs High Court Enforcement Ltd, trading as The Sheriffs Office. Sheriffs High Court Enforcement Ltd does not take any responsibility for the views of the author. The author will not be held responsible for any comments posted by visitors to this site. Please note that this article does not constitute legal advice. The author has used his best endeavours to make this article as accurate and complete as possible, but requests that the reader be aware that the law of England and Wales frequently changes. The author strongly advises the reader to take legal advice before embarking on any enforcement action.
