Procurement 13 February 2017

Licenses and leases: What’s the difference in terms of business rate liability?

The key difference between licences and leases of premises, is exclusivity of use

The two most common ways of letting out or sub-letting commercial premises are licenses and leases. In his latest article, business rates advisor Mark Allen takes readers through some important differences.

It seems sensible that the renter or occupant of a business premises may require an explanation as to the difference between licenses and leases.

It is important to understand that the nature of the occupancy will determine who is liable for the business rates on the property by law.

The License

A license allows you to occupy and use the property for commercial reasons, preventing the occupation from being trespassed, but because the license can be non-exclusive, other people can also occupy the property under a separate license.

The landlord will hold rights of possession and the licensee partial possession depending on others being in occupation, each responsible for their part.

If the licensee is the only occupant then they indeed have exclusive possession and will be liable for the business rates. If the landlord holds rights of exclusive possession they are liable for the business rates.

The licensee would be responsible for the inside area and the landlord for the outside of the property and the land. Using this method of renting allows the landlord flexibility for more than one occupant and also short-term licensing.

If there is more than one occupant or the occupant has to vacate the property at certain times then it can be seen that they do not have exclusive possession, and the liability for business rates is that of the landlords.

The license does not necessarily allow exclusive possession of the property. A license is not a lease, it simply allows the licensee to use a specified part of the premises for activities as authorized.

When the agreement ends the licensee must leave the premises unless the landlord has agreed to renew the contract/license, the new license may differ from the original agreement.

There seem to be more opportunities for either party to release themselves from a license due to its nature, for example the owner not keeping the structure of the building sound or letting the land go wild leading to vermin, also the licensee may not respect the internal area of the building.

If a situation occurs and the licensee releases themselves from the license exclusive possession of the premises and responsibility for the business rates reverts back to the landlord.

As soon as the responsibility becomes that of the landlord an email must be sent to the council to make them aware of the change in circumstances. I have found on occasions that councils have not always been told of the change of possession and that it has reverted back to the landlord.

This has caused problems and confusion when the council sends out the rates bill to the previous occupant, instead of the landlord leading to the landlord on occasion denying repossession of the building.

Continue reading for more information on leases and business rate liability. 

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