03 February 2015
Licensing v letting – the pros and cons
Moving into licensed property can be easier, quicker and cheaper than taking on a lease or buying a freehold property. Maria Mowberry, senior associate in the real estate practice at B P Collins LLP, explores whether licensing could be right for you.
Licensing property is often ideal for start-ups. You can get in fast and do not need to tie up capital in the property. For growing businesses, it gives you the flexibility to change premises easily as your business grows or your needs change.
The main advantages of a licence over a lease are:
- licences usually cover a relatively short period of time - up to two years, whereas leases usually run for many years
- most licences give both the landlord and the occupier the right to terminate the agreement by giving notice – one month is typical
- licences are inexpensive –landlords usually only ask for one month's fees in advance and a deposit, and legal fees are lower
- the landlord is responsible for the repair and maintenance of the property and the provision of communal services
- the landlord is responsible for insuring the premises, and any furnishings and fixtures that come with the premises
If it's hard to predict sales volumes and activity levels more than a few weeks in advance, a licence of, for example, of a unit in a serviced office block, means you can expand easily - into more or different units - if your business grows quickly. You can also often license extra office, storage or meeting room space for short periods or special projects.
Many landlords offering licensed offices provide optional, additional services too, such as a telephone answering service, typing and copying, basic office furniture, telephone lines (including the lines you need for internet access), and parking spaces on a pay-as-you-go basis. This means you do not need to commit to take on employees or sign up to third party contracts for these until you are confident you can justify it.
The disadvantages are:
- The number and variety of premises available on a licensed basis is limited compared to leased premises. However, your local council or Enterprise Agency may maintain a property register which lists both licensed and leased premises and some local authorities and Enterprise Agencies offer easy-in, easy-out licences for small business centres they own. Some private landlords with hard-to-let properties may also be prepared to grant licences for a time, while they are seeking tenants to take on a long lease.
- You do not acquire any tenancy or leasehold rights – for example, there is no right to renew a licence.
- You may not transfer the licence, sub-let all or part of the premises, or share the space with others.
- You are not usually allowed to alter the premises in any way - even to make improvements at your own expense.
- It can be more difficult than you think to get out of the licence. Usually, you can terminate by giving notice, but beware the occasional long, fixed-term licence with no get-out. Or, if you do have the right to get out of the licence, make sure it is not conditional on your full performance of every term. An unscrupulous landlord can often find some breach, however minor, that justifies refusing to let you get out of the licence.
- Limited access can create operational problems for you and security problems for the landlord – do you need unrestricted access to the building in the evening, at night and at weekends?
- There may be working restrictions affecting the premises - for example, if you expect a stream of visitors or to produce noises, smells, waste or any other nuisance that will affect your neighbours.
- You may not be able to put up the exterior signage you want, or carry out minor alterations to the property.
- The landlord may have the right to make you move to alternative, but comparable, rooms in the same property.
- If you are sharing a building, other occupants can change frequently. New neighbours could come in and be a nuisance.
We strongly recommend taking specialist legal advice when choosing whether to take a lease or licence, and before signing up to either. Contact Maria Mowberry or a member of the real estate legal team at B P Collins LLP on 01753 279087 or email email@example.com