Crucial differences between licence and lease

Each week, national law firm Simpson Grierson answers commercial property questions which can be emailed and headed "property problems". This week's question is answered by senior associate Daniel Kelleher and solicitor Lara Christoffersen who can be contacted at daniel.kelleher@simpsongrierson.com and lara.christoffersen@simpsongrierson.com

Q. I have been trading from commercial premises for a year. My landlord has informed me he is going to cancel what I believed to be my lease. Since looking at the document I signed it is actually called a licence to occupy. The licence still has another year left of the term and there are no clauses in it about cancelling the licence.

My landlord posted me a letter a couple of days ago that said he was cancelling my licence and wanted me out by the end of this week. He said the reason was that I was a month behind in my rent. I am not sure what a licence is, can you tell me what the difference between a lease and a licence is? Does having a licence rather than a lease mean my landlord can cancel my licence with the letter he sent me?

A. The essential difference between a lease and a licence is that a lease grants a legal interest in the land where a licence grants merely a personal right of occupation.

Further differences between a lease and licence include:

A lease grants a legal interest in the land and the registered owner has an interest which will bind the lessor's successors in title. A licence is a personal right that generally only binds the original licensor and original licensee.

A lessee has the legal right of exclusive possession of the land and may sue for nuisance or trespass on the land. A licensee does not have a legal right of exclusive possession and will not necessarily have the rights to take similar action.

The fact that you hold a licence of the premises rather than a lease does not alter the way in which your landlord can cancel the licence.

Sections 243 to 252 of the Property Law Act 2007 relate to cancellation of leases. Section 206 (3) of the act provides that those sections also apply to cancellation of licences (provided the licence was entered into after January 1, 2008).

Under s245 of the act a licensor can cancel a licence for non-payment of rent. However, there is a procedure the licensor must follow. This includes the licensor giving you written notice that you have breached the covenant in your licence to pay rent.

The notice must include certain elements for it to be enforceable. These elements include that the notice can only be served on you if the arrears in rent have existed for 10 days or more. The notice must also outline the amount that must be paid to remedy the breach - for instance, the amount of rent outstanding including any interest due in accordance with the licence or lease.

Further the notice must give you a timeframe of not less than 10 days (from the date the notice is served on you) to remedy the breach such as paying the outstanding amount.

Your licensor has sent you a letter which (on the information you have provided) does not fulfil the legal requirements relating to notice. Therefore your licensor cannot legally cancel your licence by merely sending you the letter in the form you describe.

It is probable that when you remain in the premises after the date he has indicated in the letter, your licensor will obtain legal advice and you will likely be served with a correct notice.

When you do receive a correct notice and that notice is served correctly on you, you will have to comply with the details in the notice in order to remain in the premises under your licence. You will have to pay the outstanding amount listed on the notice within 10 working days from the date the notice is served on you. If you do not, your licence could be cancelled.

The cancellation provisions of the act are a code and as such a lease or licence can only be cancelled in accordance with the act. The provisions cannot be contracted out of in the lease or licence document.

However, it is important you have a solicitor review your licence to check the provisions it contains.

The information contained in Commercial Property is intended to provide general information in summary form current at the time of printing. The contents do not constitute legal advice and should not be relied on as such. Specialist advice should be sought in particular matters.