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If part of your land or farmyard is currently unused, then you may be considering allowing another person to use this vacant area for their own purposes. We always advise clients to document this sort of arrangement properly at the outset to minimise the risk of disagreements further down the line and, although there are some exceptions, you will normally be considering either a lease or a licence.
Firstly, it is important to understand the differences between a lease and a licence.
A lease is the most appropriate choice when certain criteria are met:
- Exclusive possession - the tenant uses the area without interruption.
- Specified term - the tenant can use the area for a fixed period, or a fixed period is able to be ascertained by reference to a termination notice period.
- Rent - this is usually payable by the tenant to the owner of the land. However, monetary consideration is not always necessary.
A lease can be bought and sold, and it also survives any changes in ownership. Therefore, if you were to sell your land, the lease would remain in force until it was ended by either the effluxion of time or explicit agreement between you and the tenant (surrender). Under the Landlord and Tenant Act 1954, if the lease is granted in relation to a property or land which is to be occupied by the tenant for the purposes of a business, the tenant will be offered additional security and you will have to satisfy further onerous conditions to bring the lease to an end.
Alternatively, when allowing another person to use your land, a licence could be granted. A licence is a contractual right and personal permission which essentially prevents the permitted act from being a trespass and allows the licensee to enter and use the premises for a particular purpose. It does not grant the licensee exclusive use of the land and is only appropriate where very short term occupation is required, often less than six months. A licence is personal and cannot be assigned.
Your first thoughts are likely to be that a licence is the more appropriate document to enter into with a potential user of your land. Often any agreement reached is for the third party to use your land for a short period of time and at a low or negligible rent. Both parties are also likely to be keen that the agreement remains flexible.
However, there is a significant danger when granting a licence that you could inadvertently grant a lease. Even if a document is labelled as a licence. If the licence granted is considered a lease, recovering possession of your land is likely to be problematic. Even if a short notice period is included in the licence, if the agreement is considered a lease covered by the Landlord and Tenant Act 1954, a minimum of 6 months’ notice to quit the tenancy would need to be given to the tenant and you would have to prove certain statutory grounds to bring the lease to an end. In short it can be a very costly mistake which can be avoided by taking advice at the outset.
In summary, before you enter into any agreement with a potential “tenant”, you should talk to your professional advisors and formally document the agreement. This will ensure that there is clarity and certainty for both parties and to avoid any unexpected and inconvenient security of tenure problems if you seek to recover possession of your land in the future.
If you would like to discuss any of the points raised in further detail please contact the Agricultural Team at Crombie Wilkinson Solicitors on 01653 600070.