Understanding the difference between a lease and a licence is important for everyone involved with leasehold property, whether your a managing agent, freeholder or leaseholder. While the two terms are often used interchangeably, they have very different legal meanings. Misusing them can create confusion, legal disputes, and even affect the value of the block you manage.
This guide explains the key differences between a lease and a licence, highlights common pitfalls, and provides some practical advice.
What is a Lease?
A lease is a legally binding right to occupy a property for a set period of time. The crucial element is exclusive possession—the leaseholder can prevent others (including the freeholder) from entering the property, except where the lease allows.
Leases can last for many years—99, 125 or even 999 in long leasehold—and often feel close to ownership. They bring obligations such as paying service charges, following restrictions on alterations, and sometimes paying ground rent.
Because a lease creates a proprietary interest in the property, it is enforceable against future owners. This is why leases sit at the heart of leasehold management. A lease gives leaseholders statutory rights, including the right to extend their lease or challenge service charges.
What is a Licence?
A licence is much less formal. It is simply permission to use or occupy property in a certain way. It does not create ownership rights or exclusive possession. Examples might include, allowing a resident to park in a communal car park, granting contractors temporary access to carry out works, or informal consent for a leaseholder to keep a pet.
Licences are personal agreements, easier to cancel, and usually end if the landlord sells or transfers the property.
A licence is just a permission—it does not provide the long-term protections of a lease.
Why the distinction matters in block management
Getting this wrong can lead to significant problems:
- Service charge disputes – if arrangements are mislabelled, leaseholders may challenge service charges.
- Loss of freeholder control – calling something a licence when it operates as a lease may unintentionally grant leaseholders extra rights.
- Legal challenges – tribunals and courts look at the substance, not the wording. For example, if a “licence” grants exclusive possession for a fixed term, it will be treated as a lease.
For managing agents, this means careful handling of permissions, agreements, and any additional rights requested by leaseholders is essential.
Common pitfalls for Managing Agents
- Granting use of storage spaces, roof areas or parking bays under a “licence” that is in reality a lease.
- Attempting to avoid leaseholder protections by labelling something as a licence.
- Giving informal permissions for alterations or satellite dishes without clarifying whether a formal deed or licence is required.
Practical guidance for Managing Agents
- Look at the substance, not the label: ask whether the arrangement gives exclusive possession for a set term. If it does, it’s likely a lease.
- Formalise additional rights: when leaseholders want permanent changes, this may require a deed of variation, not just a licence.
- Take legal advice early: the right structure protects service charge recovery, landlord control, and property value.
Conclusion
Knowing the difference between a lease and a licence is more than just legal knowledge—it’s vital for smooth, compliant block management. Misunderstandings can create long-term disputes, damage relationships with leaseholders, and even affect the financial health of the block.
