What are the differences between a lease and a license?

Understanding the differences between a lease and a license is crucial for anyone dealing with property arrangements in England and Wales. Whether you’re a business, landlord, or tenant, knowing how these arrangements differ can affect your rights and obligations. For specialist advice on property disputes and agreements, visit our Business Disputes Solicitors page.

In this article, we outline the legal distinctions, highlight recent case law concerning the requirement for a term certain, and offer practical guidance to avoid pitfalls in structuring occupation agreements.

The legal context of leases and licences

The differences between a lease and a license centres on the rights each arrangement grants the occupier and the requirements each must satisfy. A lease grants exclusive possession of land for a specified period, whereas a licence is a personal permission to occupy without conferring proprietary rights.

A central requirement for a lease in England and Wales is the existence of a term certain – which is a fixed or ascertainable period at the outset of the agreement. Licences, by contrast, are more flexible and need not be for a fixed duration.

Defining a lease

A lease is a proprietary interest in land that gives the tenant exclusive possession for a fixed period or a period that can be clearly determined from the outset. This is known as a ‘term certain’ whereby the tenant is entitled to exclude all others, including the landlord (except for limited rights reserved in the lease, such as inspection).

• Exclusive possession: The right to control the property and decide who enters.
• Term certain: The length of the lease must be clear from the beginning.
• Proprietary interest: Rights can sometimes be assigned or sublet.
• Statutory protections: Leases attract certain legal protections and formalities, especially if exceeding three years.

Defining a licence

A licence is a personal, contractual right to occupy or use property. It does not grant exclusive possession, nor does it create any estate or interest in the land. The occupier is there under terms that allow the licensor regular access or control.

• No exclusive possession: The owner can access and move the licensee at will.
• No term certain required: Can be for a fixed period, rolling, or on demand.
• Personal right: Cannot be transferred or assigned.
• Fewer statutory protections: Licences are more easily terminated.

Why does “Term Certain” matter? (recent case law update)

Lease v Licence: The importance of a term certain

The Court of Appeal has handed down judgment in AP Wireless II (UK) Ltd v. On Tower (UK) Ltd [2025] EWCA Civ 971, reaffirming the long-standing principle that a lease must have a term certain to be valid.

The dispute concerned a 1997 agreement with a minimum term of 10 years, continuing thereafter subject to 12 months’ notice to terminate. The court upheld on appeal that such an agreement fails the term certain test and therefore constitutes a contractual licence, not a lease.

This is a timely reminder for those in practice to review the terms of leases and licences with care. Agreements lacking a clear term certain risk being reclassified as licences, impacting statutory protection and security of tenure.

Key differences between a lease and a licence

Practical examples: Lease vs Licence

• Lease: Renting an office with a 5-year fixed term, sole keys, and the right to exclude the landlord except for repairs.
• Licence: Using a meeting room in a shared workspace, where the operator can change your allocated room at any time.

If the arrangement is for an uncertain period or the owner retains ongoing rights of access and control, it is much more likely to be a licence.

Real-world case study: The term certain test in action

The recent decision in AP Wireless II (UK) Ltd v. On Tower (UK) Ltd [2025] EWCA Civ 971 highlights how the courts approached the differences between a lease and a license when a term certain is absent. In this case, the agreement provided for a minimum term of 10 years, continuing thereafter on rolling terms subject to 12 months’ notice. The Court of Appeal ruled this failed the term certain test and was a licence rather than a lease.

Expert insights: Drafting and reviewing agreements

Legal practitioners advise:

• Always specify a clear term certain in lease agreements to avoid reclassification as a licence.
• Use clear language about possession and access rights.
• Review existing agreements in light of recent case law.
• Seek legal advice when in doubt about the classification of an agreement.
• Be aware that the courts look to the substance, not just the terminology used in the agreement.

Our dedicated team are vastly experienced in advising landlords and tenants on a wide range of commercial and residential lease issues. If we can help support you regarding your lease, or classification of your agreement, do get in touch with us for expert legal advice.

Contact us for more information.

Benefits and challenges

• Benefits of leases
  • Provide security of tenure (statutory protections).
  • Allow long-term planning for both parties.
  • Can be assigned or sublet (with restrictions)
• Challenges with leases
  • Less flexibility in termination.
  • Greater statutory regulation and formalities.
• Benefits of licences
  • Greater flexibility for both parties.
  • Simpler to create and terminate.
• Challenges with licences
  • No proprietary interest or security of tenure.
  • Cannot be assigned or sublet.

FAQ

Can a licence ever become a lease?

If a so-called licence grants exclusive possession for a term certain, courts may decide it is, in fact, a lease, regardless of the label used by the parties.

Where can I get advice on leases and licences?

For tailored legal guidance on the differences between a lease and a license or disputes regarding property agreements, contact our Business Disputes Solicitors.

This article was produced on the 18th August 2025 for information purposes only and should not be construed or relied upon as specific legal advice.