The decisive test between a lease and a licence is whether exclusive possession has been granted
A worked RES examination question on lease vs licence, from our Paper 1 bank — with the rule it turns on, and why each of the four options is right or wrong.
The question
A property owner offers "a licence, not a lease" over a shop unit, hoping to keep the arrangement personal and revocable. In fact the occupier is given the unit to himself, for a fixed term, at a rent reserved monthly, and no one else may use the space during that time. The owner is adamant that, because the document is headed a licence, the occupier can be turned out whenever the owner pleases.
Consider the following statements.
- (i) The decisive test between a lease and a licence is whether exclusive possession is given.
- (ii) On these facts the arrangement is likely a lease despite being labelled a licence.
- (iii) Calling the document a licence is conclusive, whatever rights it actually confers.
- (iv) A lease gives the occupier a proprietary interest that a licence does not.
The answer, and why
Answer: A
The rule. The decisive test between a lease and a licence is whether exclusive possession has been granted. A lease gives exclusive possession and a proprietary interest; a licence is a personal permission. The label the parties use does not decide the matter.
Why A is correct. (i), (ii) and (iv) are accurate — the exclusive-possession test, the likelihood that this arrangement is a lease, and the proprietary interest a lease confers. (iii) is false: the "licence" label is not conclusive.
The other options.
- B adds the false (iii), making the label conclusive.
- C pairs (i) with the false (iii).
- D drops the correct (i), the exclusive-possession test.
Exam note. Exclusive possession makes a lease, whatever the document is called. The label does not govern.
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