License v Lease: Distinguishing the Oft-Indistinguishable

In the real-world realm of contractual use of another's land, law-makers around the world mostly now interfered with the common law and established rights and obligations, primarily as to tenancies, both residential tenancies and commercial tenancies.

All this has orphaned and abandoned the law of licenses to the windy avails of the common law.

But the legislative initiatives are almost always aimed at promoting the rights of tenants; something the common law did little of.

In the result of this concoction of statute law and common law, great uncertainty reigns when a person needs to know whether their relationship is a license or a lease, the qualification almost always with significant consequences. In this article, we put the bigger pieces of the jigsaw puzzle together.

The Tenancy

A person using land under a tenancy has a contract called a lease.

He or she is called a tenant and he/she has both exclusive possession for the duration of the time agreed upon, often referred to as the term of the lease.

lease v licenseIn the theory of law, a lease conveys a legal interest in land; a license does not.

Way back in a 1673 case, Thomas v Sorrell:

"A ... licence properly passeth no interest, nor alters or transfer property in any thing, but only makes an action lawful which without it had been unlawful."

In Baker v Gee, Justice Macdonald wrote, in

"Under the general law, and apart from the rental regulations, the relationship of landlord and tenant implies, as one of its essential features, the transmission of an estate or interest from the landlord to the tenant.

"A license does not create any estate or interest in the property to which it relates. It merely conveys a privilege in the use of the property and makes an act lawful which without it would be unlawful."

Exclusive possession used to be the hallmark of a lease but more recently, the common law courts recognize that licenses of real property which include exclusive occupancy as a term to benefit the licensee, does not in and of itself convert the legal relationship into a lease.

The state of the law is well summarized in the 1958 English case Addiscombe, a case cited with approval in Canada in Maple Leaf Services, where Justice Jenkins noted that:

"(T)he fact of exclusive possession, if not decisive against the view that there is a mere license, as distinct from a tenancy, is at all events a consideration of the first importance."

One author1 goes so far as suggesting that:

"If there is exclusive possession for a term and rent is paid, there is a presumption that the parties have entered into a tenancy agreement."

In Abbeyfield Society Ltd., the Society opened a "home for old people". Mr. Woods, then 85, was taken in to have one of the rooms, at £9 a week. For that, he was given "sole occupation of your room ... and two ... meals each day.... The Society must reserve the right to to take possession of your room should it at its discretion think fit ((upon one month's notice)."

The issue was whether Mr. Woods was a tenant, and therefore able to invoke the protection of the tenancy statute, or a licensee.

Lord Denning wrote:

"... a man may be a licensee even though he has exclusive possession, even though the word rent is used, and even though the word tenancy is used. The court must look at the agreement as a whole and see whether a tenancy was really intended.

"In this case ... the whole arrangement was so personal in nature that the proper inference is that (Mr. Woods) was a licensee....."

The License

The license has its own vocabulary (and an alternate spelling in UK English: licence): the user being called licensee and the owner, licensor.

There are law books on the common law of license but in a nutshell:

  • A license gives legal authority to the licensee to use the licensor's asset without which the use would be unlawful (such as, were the property real property,  trespass).
  • Licenses can be implied from certain fact patterns;
  • A license can be granted by an agent on behalf of the owner;
  • Simple licenses, without more, are revocable at the will of the licensor upon reasonable notice;2
  • Licenses ought to be in writing if possible; and
  • The Government often issues privileges to qualified persons to engage in otherwise prohibited conduct such as driving a motor vehicle or the sale of alcohol or pharmaceutical products.

In commercial usage, though formally licensees, individuals using the real property of others under a license, are often called occupants or guests; not tenants.

The Battle

In 1960, the Ontario Court of Appeal sought to summarize the entire debate by writing, in Re Br. American Oil:

"Wherever the relationship of landlord and tenant exists there is present the element of permission or consent on the part of the landlord, and subordination to the landlord's title and rights on the part of the tenant.

"There must be a reversion in the landlord, the creation of an estate in the tenant, and a transfer of possession and control of the premises to the tenant. The reservation of rent to the landlord is usual but not in all cases essential, and whether the rent reserved is payable in money or through some other medium has no particular significance.

"... (T)herefore ... the transmission of an estate to the tenant is an essential characteristic of the relationship of landlord and tenant. No estate in the land passes to a licensee and this, on the authorities, is the principal distinguishing trait between the two relationships.

"An agreement which confers exclusive possession of the premises as against all the world, including the owner, is a lease, while if it merely confers a privilege to occupy under the owner, it is a license. It is often difficult to determine whether a particular agreement is to be regarded as a lease or a license. Broadly speaking, however, the general concept of a license is that it is a mere permission to occupy the land of another for some particular purpose."

For a whole host of reasons, some persons - owners or prospective occupants - may wish to avoid the rigid and often pro-tenant provisions of residential or commercial tenancy statutes.

Some statutes, such as the 2002 British Columbia Residential Tenancy Act are alive to this and enlarge its scope by defining a tenancy agreement as:

"... an agreement, whether written or oral, express or implied, between a landlord and a tenant respecting possession of a rental unit, use of common areas and services and facilities, and includes a license to occupy a rental unit."

Fortunately, as to British Columbia, that attempt to include licenses into the residential tenancy statutory scheme is practically defeated by deferring to the term rental unit which the same statute defines as, with emphasis added, "living accommodation rented or intended to be rented to a tenant"!

In any event, in Donnol Entreprises, Justice Killeen considered a similar statutory definition at §54(6) of the Ontario Condominium Act, 1978, which defined a lease as including "a license to use or occupy ....":

"I do not read these statutory provisions as mandating a Court to construe an occupancy arrangement in an agreement of purchase and sale as a tenancy agreement to which the Landlord and Tenant Act automatically applies unless the plain wording and meaning of the agreement itself authorizes that construction.

"While §54(6) defines the word lease as including a license, it is inaccurate to say that this latter expanded definition of lease is intended to remake the terms of an agreement .... that is not to say that every occupancy provision in every agreement automatically becomes a lease so as to bring into play the provisions of the Landlord and Tenant Act."

In Just v Stewart, Just told the court he was a landlord and he wanted to evict Stewart, the alleged tenant for unauthorized subletting. The court held that the arrangement that Stewart had with the alleged subtenant was not a lease:

"They (the so-called subtenants) paid no rent, had no key and had not the exclusive use or possession of the whole or any part of the demised premises. They were, in my opinion, simply licensees and not tenants. The tenant retained possession and control of the whole of the premises, and merely permitted this firm to make use of them in conjunction with himself, but without parting with any of his own legal rights to the whole of the premises."

Thus, the form of an agreement does not necessarily determine whether the legal relationship is a lease or a tenancy.

One Canadian author (Bentley) wrote:

" ... if the agreement between the parties is reduced to words, its interpretation is not a matter of words but of substance. Putting the document in the form of a lease and calling the parties landlord and tenant cannot make a license into a lease. Likewise, parties cannot turn a tenancy into a license merely by calling it one."

More recently, in Levy (2004), Justice Rice wrote:

"Tenancies ... run with the land and are thereby assignable and not revocable except by the rights reserved by the grantor.

"A license confers rights that are personal and, even in respect of land, are generally revocable and not assignable except according to the terms of the license. To determine which it is, the relationship must be examined and possession alone is not determinative. There are cases where rights initially granted by license mature over some length of time into a tenancy ...."

In R v Boos, the Crown tried to convict an alleged landlord for entering premises protected by the residential tenancy statute. The owner argued that he was licensor, not a landlord.

The occupant had lived in the building, the Columbia Hotel, for almost 20 years, and the same room for ten, when he was told to leave.

Justice Spencer wrote:

"Was this a tenancy or a license? The relationship, whichever it was, is one of contract to be determined by a consideration of the evidence to see what the parties agreed upon between them.

"The law relating to the distinction between the two shows that a tenancy must involve the grant of exclusive possession of the premises to the tenant, but that even with exclusive possession a tenancy need not necessarily exist. One must look to the intention of the parties."

The court found that the relationship was one of license and not of tenancy, adding that the most significant considerations were:

"That the owner limited the occupier's right to have whomever he pleased visit his room, both by reserving the right to refuse entry to unsuitable visitors and by imposing a curfew upon all visitors;

"That the owner retained the means of access to Mr. Borgstad's suite by means of ... keys;

That (the) owner reserved the right to evict occupiers for cause without giving them any notice;

"That occupiers were free to vacate the premises without notice."

REFERENCES:

  • Abbeyfield Society Ltd. v Woods, [1968] 1 All ER 352
  • Addiscombe Garden Estates Ltd. v Crabbe, [1958] 1 QB 513
  • Baker v. Gee, [1945] 3 W.W.R. 555
  • Bentley, C. and others, Williams & Rhodes Canadian Law of Landlord and Tenant (Toronto: Carswell, 2009), page 1-9.
  • Donnol Enterprises Ltd. v. Norley, 14 RPR 214 (1980, Ontario County Court)
  • Elster, B. editor, BC Strata Property Practice Manual (Vancouver: Continuing Legal Edication Society, 2008), page 11-15 (note 1).
  • Henderson v Toronto General Trusts Corp., [1928] 3 DLR 411 (ONCA, note 2)
  • Just v Stewart, 12 DLR 65 (1913, Manitoba Court of King's Bench)
  • Levy v Parkwood Manor, 2004 BCSC 295
  • Maple Leaf Services v Essa, 37 DLR 2d 657 (1963)
  • Portman, E., and others, "Landlord and Tenant", Canadian Encyclopedia Digest, 3rd Ed., Volume 21, Title 83 (Toronto: Carswell, 1998), pages 83-79 to 83-80.
  • Re Br American Oil and DePass, 21 DLR 2d 110 (ONCA, 1960) 
  • Residential Tenancy Act, Statutes of British Columbia 2002, Chapter 78, §1.
  • R v Boos, 5 RPR 242 (BC, 1978)
  • Southern Music Ltd. v Warsimaga, 31 AR 441 (1980)
  • Ten Ten Sinclair Housing Inc. v Jaehrlich, [1988] 5 WWR 696
  • Thomas v Sorrell, 124 ER 1098 (1673)

Published: Thursday, April 16, 2009
Last updated: Thursday, January 10, 2013
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