A licence to occupy and a commercial lease are two of the most common property agreements used in UK business. On the surface, they can look similar — both involve one party paying to use another party’s space. But the legal differences between them are substantial, and choosing the wrong type of agreement can have serious consequences for your business.
Whether you’re a business owner searching for premises or a landlord looking to let a property, understanding these two options is essential before you sign anything. This guide breaks down what each agreement means, how they differ, and which one might be right for your situation.
What is a licence to occupy?
A licence to occupy is a personal permission granted by a property owner that allows someone to use a space for a defined purpose and period. Crucially, it does not give the occupier exclusive possession of the property, meaning the landlord (or licensor) retains the right to access the premises.
Because a licence to occupy is a personal arrangement, it cannot be transferred to another party. If the business using the space changes hands or the licensee wants to move, the licence does not travel with them — it simply ends.
Licences are popular in situations where both parties want a quick, flexible, and relatively low-cost arrangement. Common examples include:
- Pop-up retail units and market stalls
- Shared or co-working office spaces
- Temporary storage arrangements
- Concession stands within larger commercial premises
One important point: a licence to occupy does not fall under the Landlord and Tenant Act 1954. This means the occupier has no statutory right to renew their agreement or remain in the property when the licence expires.
What is a commercial lease?
A commercial lease is a legally binding contract that grants a tenant exclusive possession of a property for a fixed term. Unlike a licence to occupy, a lease gives the tenant a legal interest in the land itself — not merely permission to use it.
This distinction matters because a commercial lease is treated as a property right. It can, in most cases, be assigned to another party or sublet, and it provides the tenant with far greater legal protection than a licence ever could.
A typical commercial lease will set out:
- The rental amount and payment schedule
- The permitted use of the premises
- Repair and maintenance responsibilities
- Whether the tenant can sublet or assign the lease
- Break clauses and termination conditions
Most importantly, a commercial lease will often be protected by the Landlord and Tenant Act 1954, which gives tenants security of tenure. This is one of the most significant legal protections available to business tenants in England and Wales.
Choosing between a licence to occupy and a commercial lease?
The type of agreement you use can affect how long you can stay in a property, what rights you have, and how easily the arrangement can end. Get advice from a commercial property solicitor before signing any agreement.
Key differences between a licence to occupy and a commercial lease
The distinctions between these two agreements go well beyond the name on the document. Here’s how they compare across the most important legal and practical considerations:
Exclusive possession
This is the defining legal factor. A commercial lease grants the tenant exclusive possession — the right to occupy the premises and exclude all others, including the landlord, except where specific rights of entry are written into the lease.
A licence to occupy does not grant this right. The licensor can typically enter the property and may even allow others to use it simultaneously, depending on the terms of the agreement.
Security of tenure
Security of tenure is the statutory right for a business tenant to renew their commercial lease at the end of the term. Under the Landlord and Tenant Act 1954, a landlord can only refuse renewal on specific legal grounds.
A licence to occupy carries no security of tenure. When the agreed period ends — or if the licensor gives notice — the occupier must vacate without any automatic right to renew or stay. This leaves licensees in a considerably more vulnerable position, especially when their business relies on a fixed location.
Transferability
A commercial lease can generally be assigned to another business, subject to the landlord’s consent. This makes it a valuable business asset in its own right — something that can be sold or passed on as part of a business transfer.
A licence to occupy is entirely personal to the licensee and cannot be transferred. If the business is sold or the licensee wishes to vacate, the licence simply terminates.
Cost and formality
Commercial leases are formal legal documents that may need to be registered at HM Land Registry (particularly those over seven years). They require more detailed drafting, negotiation, and legal input — all of which adds to the time and cost involved.
A licence to occupy is simpler and quicker to put in place. For businesses needing short-term access to a space, this lower barrier to entry is often part of the appeal.
When should you use a licence to occupy vs a commercial lease?
Choosing between a licence to occupy and a commercial lease comes down to what you actually need from the arrangement.
A licence to occupy tends to work well when:
- You need short-term access to a space without long-term commitment
- The arrangement is informal and both parties prefer flexibility
- You’re a landlord with vacant premises seeking temporary occupation while finding a permanent tenant
- Exclusive access to the entire space is not a business requirement
A commercial lease is the better choice when:
- You need long-term, stable occupation of a premises
- Your business requires exclusive control over the space
- Security of tenure and renewal rights are important to your operations
The lease forms part of your broader business assets
When a licence to occupy may actually be a lease
This is where many landlords and tenants get caught out. Simply labelling an agreement a “licence” does not make it one. Courts in England and Wales look at the substance of the arrangement, not the title of the document.
If a document described as a licence to occupy actually grants the occupier exclusive possession of the premises, a fixed term, and regular payment — a court may well determine that a commercial lease has been created, regardless of what the parties intended.
The landmark case of Street v Mountford (1985) established this principle, and it continues to be relevant today. For landlords in particular, this is a critical risk: an accidentally created commercial lease means the tenant could benefit from security of tenure and the full protections of the Landlord and Tenant Act 1954 — something the landlord may not have bargained for.
This is one of the key reasons why professional legal advice matters, whether you’re the party granting the agreement or the one signing it. At Lease Lawyer, our team works with both landlords and tenants to ensure agreements are structured correctly from the outset. If you’d like to understand your options, you can explore our
Ensuring your agreement is correctly drafted and categorised is exactly the kind of work our team handles every day. You can explore our full range of legal services for commercial property to see how we can help.
Why getting legal advice matters
Both a licence to occupy and a commercial lease come with their own risks if not structured carefully. The wrong type of agreement — or a poorly drafted one — can leave landlords unable to regain possession of their property, or leave tenants without the protections they were expecting.
Before entering into any commercial property arrangement, it’s worth asking yourself:
- Do I need exclusive possession, or is shared access acceptable?
- Is security of tenure important to my business continuity?
- Am I clear on what happens if I want to leave or the landlord wants me out?
- Could this agreement be misclassified by a court if challenged?
These are not always straightforward questions to answer without legal input. A specialist commercial property solicitor can review your circumstances and advise on the most appropriate type of agreement for your situation.
If you need a commercial lease professionally drafted or reviewed, our lease drafting and review service is designed to give you confidence that your agreement is legally sound and clearly reflects the intentions of both parties.
Summary: licence to occupy vs commercial lease
The difference between a licence to occupy and a commercial lease comes down to one fundamental question: does the occupier have exclusive possession of the property?
A commercial lease says yes — and with that comes a legal interest in the land, security of tenure, and a range of statutory protections. A licence to occupy says no — and in return, both parties get greater flexibility, lower costs, and a simpler arrangement that either side can bring to an end relatively quickly.
Neither option is inherently better than the other. The right choice depends entirely on the needs of the business, the duration of the arrangement, and what level of protection each party requires.
What matters most is that the agreement accurately reflects the true nature of the arrangement — and that it’s drafted clearly enough to withstand scrutiny if it’s ever challenged.
Our team of specialist commercial property solicitors can advise you on the right approach, draft a legally sound agreement, and ensure your interests are fully protected — whether you’re the landlord or the tenant. Get in touch with our team today to discuss your situation.
Need guidance on a commercial property agreement?
Whether you're granting space to a business or taking premises for your own operations, the structure of the agreement matters. Our commercial property solicitors help landlords and tenants draft, review, and negotiate licences to occupy and commercial leases so the arrangement works exactly as intended.