Lease Vs Licence

Landlords Property Guide Commercial property has two main types of rental agreements; lease and licence. Find out which one is the correct choice for you as a commercial property landlord with our bespoke guide.

Choosing to Lease or License Your Commercial Property

There are two different types of commercial property rental agreements. You can let your commercial property by entering into a traditional lease or entering into a licence.


A lease usually is entered into for a fixed period of time. The duration of a lease varies, but was typically 15 to 25 years. However, recent research by MOVEHUT suggests that the average length of a business lease has significantly changed and is now around eight years. The main advantage of a long lease is to offer you long-term stability and security of tenure.

Break Clauses

A break clause gives both the landlord and the tenant, an option to give notice during the fixed term of tenancy. This can be inserted into the lease and can be very effective. There can be single or multiple break clauses at pre-determined times. There are usually set terms of how and when these clauses can be executed. Usually a period of notice prior to executing the break is required, typically three to six months. There may be a penalty for exercising a break, which you will have negotiated through your agent. The precise notices and dates for executing a break must be adhered to correctly in order for the break to be effective and legal.


With a high degree of flexibility offered, licences could be highly beneficial to start-up businesses, as it may not be possible to forecast sales volumes, activity levels and space requirements over a long term for a potential tenant. It could also be highly advantageous if you are aiming to let your property to a small business looking for short-term property occupations. A licence is an effective solution for when renting out serviced offices or setting up a temporary shop.

The advantages of a licence for a landlord include:

  • Licences cover a relatively short period of time – in general up to six months, whereas leases usually run for many years and can have onerous conditions.
  • Most licences give both the landlord and tenant the right to terminate the agreement. A typical notice period is 28 days.
  • Solicitor’s fees are considerably reduced for preparing a licence.
  • You have the right to enter your property at any time (for inspection etc), as a licence does not create an interest in the property unlike a lease.
  • The tenant has no right to renew the licence once it has expired. You may prefer to offer licences instead of leases, so an upturn in market conditions can be reflected in the rents being charged.

A licence’s obvious disadvantage is that a long length of term is not guaranteed. This may affect the value of the property in the short term.


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