A lease by any other name will still be a lease

A question that appears to be asked more and more by (prospective) landlords of a residential property is, does it have to be a lease?

This question no doubt follows the concerns that landlords (prospective and continuing) hold resulting from the ever-changing landscape of residential tenancies in Scotland.

Can’t I just give them a licence? What about a commercial lease? Surely there must be some way of avoiding the private residential tenancy?

The short answer is that there is not. In the same way that a spade by any other name is still a spade, the same applies to leases. Well, unless what is being created isn’t in fact a lease.

A recent decision of the Sheriff Appeal Court considered the difference between a lease and a licence to occupy. In so doing, the Sheriff Appeal Court determined that the contract they were dealing with was a licence to occupy and not a lease.

Now, it is important to recognise that the facts and circumstances of this case were key to the Court’s decision. This is not a lesson in avoiding the creation of a private residential tenancy. As Sheriff Principal Ross made clear “Whether or not the parties have, inadvertently or otherwise, created a tenancy is a matter of contractual construction.

In this case, the Court found that there were several key factors that resulted in the contract in question being considered a licence rather than a lease. Those factors were:

1. The title and terminology of the contract. It was entitled a licence to occupy; the parties were referred to as licensor and licensee; and aside from some inconsistencies, the document generally referred throughout to its being a licence;
2. While the purpose of the contract could have been clearer, a reasonable interpretation was that the purpose was for the licensee to take occupation and access for the purpose of carrying out alterations and redecoration works at the property. The purpose was therefore a limited use and stopped short of granting a full right of use as a residential tenancy;
3. There was a clause which expressly stated that the Agreement would not constitute a Private Residential Tenancy and that the property would not be the only or principal home of the licensee and precluded the licensee actually residing in the property; and
4. While there were some inconsistencies in the drafting of this poorly drafted contract, the Court was satisfied that the contract was a licence rather than a lease.

There are other matters that one must consider when assessing whether a contract is (or has become a lease) such as whether or not the cardinal elements of a lease are present: parties; property; period of lease; rent; and exclusive possession. In this case, the Court found that it needn’t address such additional matters because the contract itself was sufficiently clear in its terms and its purpose.

So what does this mean? Can landlords create licences to occupy to avoid the private residential tenancy?

No. This case related to a very discrete set of facts and circumstances. If you have a residential property which you intend to allow someone to stay in, with exclusive possession, in return for rent, for any period of time, the chances are that you have a lease.