Despite being a really simple answer, this seems to be a question that confuses many in the HMO world – with potentially disastrous consequences. I’m not pointing the finger in judgement here – as I too was one of the landlords who didn’t understand the difference, and made an incorrect choice on one occasion as a result.
After discovering my error, I was left with a feeling of discomfort, of vulnerability, which then lead me to seek out all the information I could find relating to landlord and tenant law. I wanted to be armed with information so an error like that simply wouldn’t happen again.
So off I trotted to study for my Nfopp (National Federation of Property Professionals) exams, where we covered the Housing Act and various other property and tenancy laws in great detail. I’d like to think of myself as having above average knowledge of landlord and tenant law nowadays, and therefore, adequately equipped to educate you on the differences between the two contracts.
So let’s get to the bottom of it…
Leases
Often called tenancies, leases are issued by a landlord and give permission for a tenant to live in a property for a period of time.
Three factors must exist for a contract to be a tenancy.
– is a rent charged?
– is the lease or tenancy for a stated period of time?, and
– does the occupier have exclusive possession?
Rent
Normally a rent must be charged. This will usually be a payment of money, but as with any other contract, the payment can also be in the form of goods or services.
Stated Period of Time
Leases are created for a fixed period of time, which can range from a week, month or year, up to 99 or even 999 years. For most HMO lettings, it would be a 12 or six month period, or sometimes shorter. (NB; tenancies for less than six months actually give the tenant the right to remain in the property for a minimum period of six months, if they so desire).
Exclusive possession
When determining whether the occupier is a tenant or a licensee, the main deciding factor is the issue of exclusive possession.
Exclusive possession means that the tenant/s have the sole right to live in the property, so in the case of HMO’s, the tenant/s could be renting a room exclusively, or they could have shared possession of the entire house/flat (a joint tenancy – typically given to groups of students).
As long as there is exclusive possession, the courts will see the occupation as a lease, even if the landlord has called it a license, or used techniques such as vague and non-specific wording in the contract or having no locks on room doors. This is the bit that trips up a lot of landlords who try to avoid issuing leases.
“As long as there is exclusive possession, the courts will see the occupation as a lease”
So in that case, who would be a Licensee?
– someone renting a spare room from the owner/occupier (ie, a lodger)
– an au pair living at the property with the family
– a cohabiting partner living at the property, who is not named as a tenant
– someone who has the owner’s permission to stay at the property (eg a friend whose house has been damaged by a storm and is staying in the owner’s property until their home is liveable again)
– an employee whose company had taken the tenancy of the property.
A licensee might pay rent and occupy for a certain period of time, but they would not automatically have the right to exclude others from living at the property.
It is for this very reason, the lack of rights that a licensee has, that some landlords try to issue licenses rather than leases. And it is for this very reason that the courts are particularly protective and supportive of those who have been issued licenses when indeed they are lawfully entitled to a lease agreement.
As a HMO landlord operating a business of renting rooms (or whole properties), whether for those receiving benefits, for young professionals or for students, the occupiers will almost always be considered tenants, and should therefore be given tenancy agreements rather than licenses. Make sure you stay on the right side of the law, and always issue the correct contracts.