Licence to occupy

A licence to occupy is a personal permission granted by a property owner that allows someone to use a property or room for a defined purpose, without giving them the legal status of a tenant or the security of tenure that comes with it. The essential legal distinction between a licence and a tenancy was established by the House of Lords in Street v Mountford [1985] AC 809: wherever an occupier has exclusive possession of residential accommodation for a term at a rent, the arrangement is a tenancy regardless of what the parties call it. The label applied by the landlord is irrelevant, only the substance of the arrangement matters. GOV.UK guidance on tenancy types explains when different arrangements arise.

Licence versus tenancy: the exclusive possession test

The defining characteristic of a tenancy is exclusive possession, the right to exclude everyone from the property, including the owner, except in limited circumstances such as access for repairs. A licensee does not have exclusive possession. They have permission to be present, which the licensor can revoke, vary, or restrict in ways a landlord cannot do to a tenant.

In practice, the test is applied by looking at the reality of the arrangement: can the owner require the occupier to move to a different room? Does the owner retain access to the accommodation? Does the occupier share living space with the owner or others? Where the honest answers are yes, a genuine licence is likely. Where the occupier has their own front door, their own kitchen, and no shared facilities with the owner, and the owner could not enter without the occupier's consent, the arrangement is almost certainly a tenancy, whatever the written agreement says.

If a court finds that what was labelled a licence is in fact an assured tenancy, the occupier acquires full security of tenure under the Renters' Rights Act 2025, including the right to remain under a periodic tenancy that can only be ended on statutory grounds for possession.

When a genuine licence to occupy arises

There are three principal contexts in which a genuine residential licence arises in practice.

Lodger arrangements. The most common genuine residential licence is the lodger arrangement, where the property owner shares their home and living facilities (kitchen, bathroom, or living room) with the occupier. Because the resident landlord retains unrestricted access and the occupier does not have exclusive possession of any part of the property, the arrangement is a licence under section 3A of the Protection from Eviction Act 1977. The occupier is an excluded occupier who can be asked to leave on reasonable notice without a court order. The lodger entry covers the full legal mechanics, notice requirements, and Rent a Room tax relief.

Licence to occupy before completion. In residential conveyancing, a buyer who wishes to access a property before the completion date may be granted a licence to occupy under Standard Condition 5.2 of the Law Society's Standard Conditions of Sale (5th Edition). This specifically provides that the buyer is a licensee, not a tenant. The licence expires on the completion date and carries risks for both sides, if completion does not occur, the seller must take legal steps to recover possession.

Temporary or tied accommodation. Service licences, where accommodation is provided as a condition of employment, and other short-term non-exclusive arrangements may also constitute genuine licences rather than tenancies, though the courts scrutinise these carefully.

The sham licence risk and new criminal exposure

Lord Templeman in Street v Mountford warned that courts should be "astute to detect and frustrate sham devices and artificial transactions whose only object is to disguise the grant of a tenancy." A sham licence is an agreement labelled as a licence that is, in substance, a tenancy, typically a self-contained property let to an occupier with exclusive possession, where the "licence" label is used to avoid the legal obligations that come with an assured tenancy.

The consequences of a sham licence have always included civil exposure: the occupier can apply to the court or First-tier Tribunal for a declaration that they hold an assured tenancy, with all the statutory protections of the Renters' Rights Act 2025 flowing from that finding. From 6 April 2025, the risk became materially greater. The Digital Markets, Competition and Consumers Act 2024 introduced prohibitions on unfair commercial practices. Using a sham licence to give a residential occupier a false impression that they do not have Housing Act 1988 rights is now potentially a criminal misleading action under section 226 of the DMCCA 2024, with the Competition and Markets Authority having power to impose substantial civil and criminal penalties. This adds a regulatory enforcement dimension to what was previously a matter of civil litigation only.

The safeguard for landlords is straightforward: use a licence to occupy only where the arrangement genuinely fits, where shared facilities, resident landlord occupation, or another recognised non-exclusive context is present, and document that genuine character clearly.

Landlords who use genuine licence arrangements should keep the written agreement and supporting evidence in August's document management store, so the record of the arrangement's genuine character is accessible if it is ever questioned.

Ending a licence to occupy

A genuine licence can be ended by giving reasonable notice as specified in the written agreement, or, where no agreement exists, notice aligned to the payment period. For excluded occupiers (lodgers sharing with a resident landlord), no court order is required once notice has expired. The criminal offences of harassment and unlawful eviction under the Protection from Eviction Act 1977 apply regardless of whether the arrangement is a licence or a tenancy, the licensor must not use or threaten force to recover the property.

For a practical guide to the most common genuine residential licence arrangement, taking in a lodger, the written agreement, and the Rent a Room tax relief, see our guide to taking in a lodger in 2026.

Frequently asked questions

What is the difference between a licence to occupy and a tenancy?

The legal difference turns on exclusive possession. A tenant has the right to exclude everyone, including the landlord, from their accommodation. A licensee only has permission to be present, which the owner can revoke or vary. If exclusive possession is granted for a term at a rent, the arrangement is a tenancy, regardless of whether it is called a licence. The test was established in Street v Mountford [1985] AC 809.

Is a licence to occupy legally binding?

Yes. A licence to occupy is a contract between the licensor and licensee and is legally binding on both parties. The licensee's obligations, to pay the licence fee, comply with house rules, and leave on notice, are enforceable. The licensor's obligations around safety and non-harassment also apply. What a licence does not give the occupier is security of tenure or the statutory rights that come with an assured tenancy.

What is a licence to occupy before completion?

In conveyancing, a buyer who needs to access or occupy a property before the sale completes may be granted a licence to occupy under Standard Condition 5.2 of the Law Society's Standard Conditions of Sale. This confirms the buyer is a licensee rather than a tenant, so the seller retains the right to end the arrangement if completion does not occur. The risks for both parties are significant, the buyer may lose money spent on work if the sale falls through, and the seller faces complications around buildings insurance and mortgage conditions.

Can a landlord use a licence to avoid giving tenants their legal rights?

Not lawfully. If the substance of the arrangement is that the occupier has exclusive possession of residential accommodation for a term at a rent, the courts will find a tenancy regardless of the licence label. Since 6 April 2025, using a sham licence to deprive a residential occupier of their statutory rights may also constitute a criminal unfair commercial practice under the Digital Markets, Competition and Consumers Act 2024, with regulatory enforcement by the Competition and Markets Authority in addition to the civil consequences.