Analysis: There are important distinctions in law between those who occupy a premises under a tenancy or under a licence
The current housing crisis has generated a huge demand for rental properties. This demand, coupled with the high levels of regulation within the residential rental sector, create a risk that landlords might be tempted to avoid their statutory obligations by getting occupants to sign a carefully drafted (and potentially bogus) licence rather than a tenancy agreement.
An important distinction is made by the law between those who occupy a premises under a tenancy or lease, and those who occupy a premises under a licence. Those who occupy under a tenancy of a ‘dwelling’ are subject to the protections afforded by the Residential Tenancies Act 2004.
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The 2004 Act places limits on the extent to which the rent can be increased, particularly in rent pressure zones, where there is a rent cap of 2% or the rate of inflation, whichever is lower. Another key protection is that tenants who have been in possession for six months become entitled to a tenancy of unlimited duration (sometimes referred to as a ‘Part 4 Tenancy’). This means that the landlord can only terminate the tenancy in certain circumstances: for example, if the tenant is in breach of their obligations, or if the landlord wishes to sell the property. Even where the landlord does have a legitimate reason to terminate the tenancy, the 2004 Act sets out lengthy notice periods.
Traditionally, the statutory protections afforded to residential tenants were not available to occupiers under licence agreements. However, a decision was made in 2019 to extend certain protections available under the 2004 Act to students who occupy student accommodation under a licence agreement. With the exception of student licensees, occupiers under a licence are denied the protection of the 2004 Act and their relationship is governed by the licence agreement.
Whether the agreement is a tenancy or a licence may have to be determined by a Residential Tenancy Tribunal. While these tribunals should be applying the law which has been developed by the courts on how to distinguish a lease from a licence, the difficulty is that the courts have had to deal with this problem in an entirely different commercial context.
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The case law typically involves an occupant of a garage or a shop claiming that his licence is in fact a lease so that he is entitled to a new business lease (under the Landlord and Tenant Amendment Act 1980) on the expiry of the current arrangement. Often the agreement will specify that there is ‘no intention to create the relationship of landlord and tenant’ and that ‘the owner retains possession’. If the occupier does not have exclusive possession of the premises, this will lead to a finding that the agreement amounts only to a licence.
While, simply labelling the agreement a licence, will not determine the matter, the inclusion of other clauses which limit the occupant’s possession or control over the premises will influence the court. For example, a relocation clause (allowing the owner to relocate the occupant to a different premises) or a clause allowing for on-the-spot inspections of the premises or imposing regulations governing its use are often associated with a licence classification.
It is sometimes said that the Irish courts take a ‘contractual approach’ to the lease/licence distinction and are highly influenced by the express terms of the agreement. This is appropriate when dealing with two commercial parties who are in an equal bargaining position and, having received independent legal advice, will be aware of the repercussions of signing a licence.
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But this approach is not suitable when dealing with disputes over whether the agreement amounts to a licence or tenancy in a residential context. The Irish courts have yet to be presented with circumstances equivalent to those in Street v Mountford (where the occupant signed the agreement presented by Mr Street, a Bournemouth solicitor, which was couched in licence terminology with a view to evading the protections conferred by the UK Rent Act 1977).
The House of Lords ruled that if the agreement presented all the key hallmarks of a tenancy, namely ‘exclusive possession’ for a ‘term’ at a ‘rent’, a tenancy was to be presumed regardless of any expressions of a contrary intention in the contract. This ‘hallmarks’ approach is more suitable when dealing with the lease/licence distinction in a residential setting.
Such an approach also allows the court or adjudicator to look beyond the express terms of the agreement to identify shams and investigate if a tenancy existed ‘on the ground.’ For example, if the owner included a clause in a licence agreement allowing new occupants to be introduced to a small one-bedroom apartment, the clause is likely to be treated as a pretence as in reality, the occupants would be in exclusive possession. In these circumstances, in Antoniades v Villiers (1990), Bingham LJ commented ‘a cat does not become a dog because the parties have agreed to call it a dog.’
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There is evidence to indicate that the Residential Tenancy Tribunals may be adopting a hallmarks approach in practice. In one decision, the tribunal was not convinced that clauses in a licence restricting visitors and allowing the owner’s staff unrestricted access were enforced and concluded that, in substance the tenant had exclusive possession. In another decision (O’Sullivan v Conlan), the tribunal severed a clause from an agreement which allowed the landlord and his family to stay in the premises with the tenant on weekend visits for matches!
Where a landlord offers a potential occupant a licence rather than a tenancy, these tribunal decisions may provide some reassurance to tenants and highlight that landlords considering this option run a risk that their agreement will be treated as conferring a tenancy.
Legal advice will be of no benefit to renter who will typically be presented with a licence agreement on a ‘take it or leave it’ basis
In 2003, the Law Reform Commission recommended the introduction of statutory guidelines to assist the courts in making the distinction between a lease and a licence. These proposals seem to have been drafted with commercial arrangements in mind and require the courts to give effect to the contract between the parties provided the parties have had the benefit of independent legal advice.
Legal advice will be of no benefit to a residential occupant who will typically be presented with a licence agreement on a ‘take it or leave it’ basis. If legislation is introduced to give effect to these statutory guidelines, they should be supplemented with a statutory ‘presumption of a tenancy’ to operate in the case of a residential occupancy. This would clarify the law and reflect what appears to be happening in practice in a judicial and legislative vacuum.
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The views expressed here are those of the author and do not represent or reflect the views of RTÉ
