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An employee's occupation of residential property - Lease or Licence?

Suppose the owner of a residential property allows someone to occupy the property without monetary payment but with exclusive possession for a specified period. In return the occupier maintains the property. For example, the owner of a block of flats allows one of the flats to be occupied rent free by someone prepared to clean and maintain the common areas of the block. The facts are commonplace but, as a result of the subtleties of the legal framework in which the facts exist, litigation is also commonplace.

This article attempts to analyse the legal framework and to suggest an answer to the following question: Is the employee a tenant or a licensee? The difference is important. A tenant is protected by statute in a number of ways. A tenancy does not necessarily determine on the termination of the employment. A tenant has an interest in the land which is binding on all others. On the other hand, a service occupier, as opposed to a service tenant, has merely a licence, which is personal in nature, allowing the particular occupier to remain on the land. A licence determines automatically on termination of the employee's employment (whether or not the dismissal of the employee is fair).

No further notice is required, either at common law or under the Protection from Eviction Act 1977. However, although a licence may end immediately that notice is served, time must be given to the licensee to remove from the premises. If reasonable time is not given, the revocation of the licence is only operative on the expiration of a reasonable time. Whether anything is committed to paper, in respect of the arrangement reached between the parties, is not conclusive.

If the arrangement satisfies all the requirements of a tenancy, then a tenancy is produced even if the parties have insisted, whether in writing or otherwise, that they only intended to create and indeed have created a licence. As Lord Templeman has commented in this context: "The manufacture of a five-pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make, and has made, a spade." The traditional definition of a tenancy is a grant of land for a term at a rent with exclusive possession.

However, the presence or absence of these elements (term, rent, exclusive possession) is not conclusive to the determination of the nature of the employee's occupation of the land. If the employee occupier is a 'service occupier' albeit with exclusive possession, he is a licensee rather than a tenant. Lord Templeman defined a service occupier as: "a servant who occupies his master's premises in order to perform his duties as a servant."

He went on to comment: "In those circumstances the possession and occupation of the servant is treated as the possession and occupation of the master and the relationship of landlord and tenant is not created." Whether rent is paid is not conclusive. The statutory definition of a "term of years absolute" expressly contemplates the grant of a tenancy which is not at a rent. Indeed, no mention of rent was mentioned by Windeyer J sitting in the High Court of Australia when he made the following comments defining a tenancy:

"What then is the fundamental right which a tenant has that distinguishes his position from that of a licensee? It is an interest in land as distinct from a personal permission to enter the land and use it for some stipulated purpose or purposes. And how is it to be ascertained whether such an interest in land has been given? By seeing whether the grantee was given a legal right of exclusive possession of the land for a term or from year to year or for a life or lives. If he was, he is a tenant. And he cannot be other than a tenant, because a legal right of exclusive possession is a tenancy and the creation of such a right is a demise.

To say that a man who has by agreement with a landlord, a right of exclusive possession of land for a term is not a tenant is simply to contradict the first proposition by the second." The logic of these comments was commended by the House of Lords in Street v Mountford. Whether or not rent is paid in money is also not conclusive. If rent is rendered in services instead of in cash then the occupier might be a tenant. So, is the occupier a tenant if he occupies the property in return for the provision of services but a licensee if he occupies the property for the purpose of performing those services?

Not necessarily. The employee occupying the property in return for the provision of services is only a tenant if he has exclusive possession. How, then, can one determine whether the occupier is a tenant or a licensee? If the servant requires the premises he occupies in order the better to perform his duties as a servant then he is a licensee: "Where the occupation is necessary for the performance of services, and the occupier is required to reside in the house in order to perform those services, the occupation being strictly ancillary to the performance of the duties which the occupier has to perform, the occupation is that of a servant." Where it is impractical for the employee's duties to be carried out if the employee does not live at the premises in question, a term can be implied into his contract of employment requiring the employee to live at the premises.

So a residential caretaker of a school living in a school house 162 metres from the school, notwithstanding there was no express requirement for him to live there, was a service occupier (licensee). But a teacher occupying accommodation provided by his/her school, again with no express requirement for him/her to do so, was a tenant.

Another useful indicator suggesting that the occupier will be a licensee rather than a tenant is if there is something personal about the relationship to negative any intention to create a tenancy or there is no intention to create a legal relationship. The following statement of Denning LJ was subsequently cited with approval in the Court of Appeal: "In all the cases where an occupier has been held to be a licensee there has been something in the circumstances, such as a family arrangement, an act of friendship or generosity, or such like, to negative any intention to create a tenancy."

It is submitted that the legal position can be summarised thus: If an occupier has exclusive possession of the land, the services he provides can practically be carried out whether or not he lives on the land and the land is granted to him for a specified period, it is likely that the occupier is a tenant. Absent any of these elements and the employee is a licensee. Returning to the factual scenario and question posed at the beginning of the article. It is submitted that a court is likely to consider that it was necessary for the occupier to live in the flat in order the better to clean and maintain the common areas of the block of flats. As he is performing the maintenance service for the landlord in return for his occupation of the property, he is a service occupier. As such he is a licensee and not a tenant. If the occupier's duties for his landlord could have practically been performed without the occupier living on site, then he would have been a tenant.

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