Leases v licences in property legal agreements — the importance of exclusive possession

A recent court case has underscored the importance of exclusive possession in determining whether an agreement around property creates a lease or a licence.

Here, Charlotte Flanders outlines the key differences between these two types of legal agreements.

What is a lease? 

A lease is a legal agreement that grants exclusive possession of a property to a tenant for a defined period of time in exchange for rent. The tenant has certain rights of control over the property during the lease term.

What is a licence?

A licence is a permission granted by a property owner (licensor) to a licensee to occupy a property without conferring exclusive possession. The Licensor retains control over the premises and the licensee’s rights are more limited than in a lease.

Lease v licence — what’s the difference?

1. Exclusive possession

Exclusive possession is the hallmark of a lease. The Tenant has the right to exclude others — including the landlord — from the premises except under specific conditions (i.e., repair clauses or access rights). 

A licence doesn’t confer exclusive possession. The property owner may still retain control and enter the premises as agreed in the licence.

 

2. Transferability

Leases are generally assignable or sublet subject to the terms of the lease itself. 

Licences are typically personal to the licensee and can’t be assigned or transferred without the licensor’s consent. 

 

3. Duration and termination

Leases are granted for a specific term (whether long-term or short-term). Termination typically requires formal processes such as notice, by surrender or by the expiration of the term.

Licences are usually more flexible and can be terminated at any time with less formalities. 

 

4. Ownership and control

With a lease, the tenant has greater control over the property and may have the right to make alterations or changes subject to the terms of the lease. 

With a licence, the licensor retains the control and the licensee is usually prohibited from making significant alterations. 

Court judgment in AP Wireless v On Tower

In AP Wireless II UK Ltd v On Tower UK Ltd, the court considered whether an agreement between the parties was a lease or a licence to occupy. 

The key issue at play was whether the agreement granted exclusive possession to the licensee, which would characterise the agreement as a lease.

AP Wireless entered into an agreement with On Tower concerning the installation of telecommunication equipment on land. The agreement allowed On Tower to occupy and use parts of the land for its telecommunication infrastructure.

AP Wireless argued that the agreement was a licence rather than a lease, claiming that it retained control over the land and On Tower only had permission to occupy it for specific purposes. 

The Court held that the agreement was a licence and not a lease. The key finding was that On Tower didn’t have exclusive possession of the site and the agreement included provisions that allowed AP Wireless to retain control over the premises (such as the ability to enter and manage the land). 

The Court emphasised that the presence of conditions like the right of the licensor to inspect or alter the premises were indicative of a licence, rather than a lease.

Exclusive possession — a key distinguishing factor

This case reaffirmed that exclusive possession is a critical factor in distinguishing between a lease and a licence. If an agreement lacks exclusive possession and allows the property owner to retain control, it’s more likely to be considered a licence.

The decision also highlighted the importance of the parties' intentions and the wording of the agreement in determining the nature of the relationship. The Court focused on the practical realities of the arrangement, not just the labels used by the parties. 

This is a classic application of the leading authority Street v Mountford (1985) Ltd, where Kird Templeman famously stated that “you can call it a spade if you like, but if it has four prongs, it is most probably a fork”. 

In situations where the occupier doesn’t have exclusive control over the premises, it’s more likely that the agreement will be classified as a licence — even if it’s described otherwise. This distinction has significant legal and commercial implications, especially regarding rights of termination, transferability and the occupier's ability to assert control over the space.

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