If you grant a licence to use a commercial premises (or part of a commercial premises), you could be forgiven for thinking that this will prevent the user (or licensee) from successfully claiming tenancy rights. However, if a dispute arises, a court can look behind the terms agreed by the parties to determine whether, in reality, the agreement has the characteristics of a lease or a licence. So, even if you think you have a licence in place, a court might determine that what actually exists is a lease.
If the user can establish a credible basis for arguing that the licence is, in reality, a lease, this could have far-reaching consequences. It may mean that the user is entitled under Irish landlord and tenant law to remain in the property for a further period. In such circumstances, the owner may be prevented from removing the user pending the determination of the tenancy claim. This will restrict the owner's freedom to deal with the premises and may have negative implications for the value and marketability of the premises.
'TRUE NATURE' OF THE AGREEMENT
While the courts are generally slow to look behind the terms of an arm's length agreement, they are willing to do so in certain cases. The critical factor is the 'true nature' of the agreement, as distinct from the label given to it by the parties.
The concept of 'exclusive possession' is relevant here. Exclusive possession is key to establishing tenancy rights. If the user can show that he enjoyed exclusive possession of the premises, it will have a strong argument that the arrangement is a tenancy, though described on paper as a licence.
For example, the Irish High Court has found that what was described as a 10- year licence of a newsagent's premises at a DART station was, in reality, a lease. The user had fitted out the premises at the outset, had not been required to give a set of keys to the owner, and the owner had left him to his own devices for 10 years. The user had exclusive possession for that period. This was, in reality, a lease, even though the agreement was referred to as a 'licence', provided for the payment of 'licence fees' as opposed to 'rent', and described the parties as 'licensor/licensee' rather than 'landlord/tenant'.
By contrast, in another case, the operator of a food and beverage concession at a chain of petrol stations failed to establish exclusive possession because:
- the owner had access to all areas of the stations (including the licensed area) at all times;
- the user had to use the main entrance of each station (which was controlled by the owner) to access the licensed area; and
- the user had to make arrangements with the owner to ensure delivery access at night time.
The Irish High Court found that the day-to-day conduct of the parties accorded with the terms of the licence originally agreed by the parties.
PRACTICAL TIPS TO MINIMISE RISK
So how do you minimise the risk of a user establishing tenancy rights? The starting point is a robust written licence in which the user agrees that no tenancy rights arise.
It is also crucial that the conduct of the parties reflects the terms of a licence, rather than that of a lease. Merely describing the arrangement as a licence is not sufficient – this must be reflected in practice on the ground.
In practical terms, it is key that the owner retains an element of control over the premises. This might include some or all of the following measures:
- Controlling the opening hours of the premises and any ability of the user to access the premises outside of those hours.
- Retaining a set of keys and access fobs.
- Knowing the alarm codes at the premises.
- Making regular visits to the premises and having unrestricted or largely unrestricted access.
- Taking responsibility for the appearance of and upkeep of the premises or, at least, maintaining control over these aspects.
- Maintaining responsibility for the supply of utilities to the premises, the cost of which can be passed on to the user.
- Referencing payments made by the user for the use of the premises as 'licence fees', not 'rent'.
- If terminating the licence, complying with any termination provisions and if renewing the arrangement, not allowing the user to remain without a licence in place.
These, or other similar measures, should be considered in order to prevent a successful claim of tenancy rights by the user.
While it is important that a licence contains all of the essential elements of a licence and states that no tenancy rights arise, it is essential to actively manage the relationship. Care should be taken to ensure that the day-to-day conduct of the user accords with the terms of the licence and does not take on the features of a tenancy. If this
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.