Commercial Property Licences (England and Wales) 2026

At a glance

• A licence is a personal permission to use premises. Unlike a lease, it creates no estate or legal interest in the land, whatever it is called.
• Courts look at substance, not the label. Following Street v Mountford, an arrangement giving exclusive possession of defined premises for a fixed term at a rent is a lease in law, regardless of what the document says.
• "Licence" covers three different things in commercial property: a licence to occupy (an alternative to a lease), a licence to assign or underlet (a landlord's consent under an existing lease, Landlord and Tenant Act 1927, s.19(1)), and a licence for alterations (Landlord and Tenant Act 1927, s.19(2)).
• Qualified covenants get statutory backup. Where a lease says consent is "not to be unreasonably withheld," the Landlord and Tenant Act 1988 gives the tenant a right to a decision within a reasonable time, with written reasons if refused.
• A genuine licensee has no security of tenure. Part II of the Landlord and Tenant Act 1954 protects a "tenancy" (s.23) — a licence, having no interest in land, is never a tenancy, so the renewal rights in that Act never engage.
• Business rates follow occupation, not labels. Liability depends on who is in rateable occupation of the premises, whatever the arrangement is called.

What is a commercial property licence?

A commercial property licence is a contractual permission that lets one party use premises controlled by another for an agreed purpose and period, without creating an estate or legal interest in the land. Think of it as personal permission to occupy, rather than a right in the property itself.

That is the primary sense of the word, and the one most people mean when they ask about a "commercial property licence" — a flexible, short-form alternative to a lease. But the same word also describes two other, quite different documents that arise once a lease already exists: a licence to assign or underlet, and a licence for alterations. All three are covered on this page, because confusing them is a common and costly mistake.

Licence to occupy vs lease: the exclusive possession test

A tenant under a business lease may benefit from statutory protections, including security of tenure under the Landlord and Tenant Act 1954, which can give the right to renew the lease when the contractual term ends. A licensee typically has none of those protections and can be asked to leave when the contractual arrangement comes to an end.

The difficulty is that the label on a document does not decide which of these two positions applies. In Street v Mountford, a 1985 House of Lords decision, Lord Templeman held that where an occupier is granted exclusive possession of defined premises for a fixed term at a rent, the legal result is a tenancy — even where the parties expressly called the document a "licence" and stated it was not intended to create one. The court looks at what the arrangement actually gives the occupier, not what it is titled.

Why the label on the document does not settle the question

For a genuine licence to hold up, the licensor needs to keep meaningful control over the premises: the right to move the licensee to a different space, to share occupation with others, or to access the premises without needing permission first. If the reality is that the occupier has sole, exclusive use of a defined space for a set period in exchange for a fee, calling it a licence will not change how a court treats it. Getting this right from the outset — in what the agreement actually grants, not just what it is called — is the difference between a flexible arrangement and an unexpected business tenancy.

The three types of "licence" in commercial property

Licence to occupy

This is a standalone arrangement used instead of a lease — the type most businesses mean when they ask about a commercial property licence. It suits short, flexible, or shared arrangements: pop-up shops, managed workspace desks, seasonal storage, and similar situations where the occupier accepts reduced security in exchange for speed and simplicity.

Licence to assign or underlet

This is a different animal. Most commercial leases contain a covenant restricting the tenant from assigning the lease, underletting, charging, or parting with possession of the premises without the landlord's consent. Where that covenant is "qualified" — meaning consent is contemplated but can be withheld on reasonable grounds — section 19(1) of the Landlord and Tenant Act 1927 deems it subject to a proviso that consent is not to be unreasonably withheld, though the landlord can still recover reasonable legal and administrative costs of dealing with the request.

For leases granted from 1 January 1996 that are not residential ("qualifying leases"), the 1927 Act — as amended by the Landlord and Tenant (Covenants) Act 1995 — also lets the landlord and tenant agree in advance the specific circumstances in which consent may be withheld, or conditions on which it may be granted. Provided those circumstances actually exist, the landlord is not treated as withholding consent unreasonably by relying on them.

Once the landlord agrees, that written consent — the document itself — is commonly referred to as a "licence to assign" or "licence to underlet." It sits alongside the original lease rather than replacing it, and the outgoing tenant will usually still be asked to guarantee the incoming tenant's obligations under an authorised guarantee agreement.

Licence for alterations

Where a lease contains a qualified covenant against making improvements without consent, section 19(2) of the Landlord and Tenant Act 1927 applies the same reasonableness proviso: consent is not to be unreasonably withheld. The landlord can still require payment of a reasonable sum for any damage to, or reduction in the value of, the premises or neighbouring property, plus reasonable costs — and, where the improvement does not add to the letting value of the premises, can reasonably require the tenant to undertake to reinstate the space at the end of the term.

A related but distinct covenant covers a change of use rather than physical works. Section 19(3) of the 1927 Act provides that, for a non-structural change of use, no "fine" — a payment demanded purely for granting consent — may be charged, though the landlord can still recover reasonable costs and compensation for any resulting damage or loss in value.

As with assignment, the landlord's written consent to alterations is itself often called a "licence for alterations" or "licence to alter." See our detailed guide on alterations to commercial properties for how these applications are typically handled in practice.

The landlord's statutory duty to respond

Whether the application is to assign, underlet, or alter, the Landlord and Tenant Act 1988 adds a separate layer of protection once a qualified covenant is in play. Section 1 imposes a duty on the person who can consent — once served with a written application — to give consent within a reasonable time except where it is reasonable to refuse, and to serve written notice of the decision, including any conditions attached or the reasons for refusal, also within a reasonable time. Section 2 places an equivalent duty on anyone who needs to pass the application on to someone else whose consent is also required — for example, a superior landlord. A breach of these duties is actionable in its own right, separately from any dispute about whether the underlying covenant itself has been breached.

Security of tenure: why a licence sits outside the Landlord and Tenant Act 1954

Part II of the Landlord and Tenant Act 1954 gives business tenants the right, in most cases, to apply for a new tenancy when the contractual term ends. Section 23 defines exactly what Part II applies to: a "tenancy" where the property is occupied by the tenant for the purposes of a business. A licence, because it creates no interest in land, is not a tenancy — so however business-like the occupation looks, and however long it runs, Part II never applies to it.

This is a separate question from contracting out. A genuine lease can have its security of tenure deliberately excluded by agreement between landlord and tenant, using the procedure in section 38A of the 1954 Act — a formal process involving advance notice to the tenant and a signed declaration before the lease is granted. That procedure exists precisely because a real lease would otherwise attract Part II protection. It has no role to play with a licence, because a licence was never within Part II to begin with.

Business rates and commercial licences

Business rates liability follows rateable occupation, not the label on the paperwork. The property's rateable value is set by the Valuation Office Agency, and liability for the resulting bill generally falls on whoever is in practical occupation and control of the space. Where a licensee has a genuine, exclusive degree of occupation, the rating authority may treat them as the liable party even though the arrangement is a licence. Where the licensor retains real control — for example, a shared managed workspace where desks rotate and the operator keeps the master keys — liability is more likely to stay with the licensor. Because this depends on the facts on the ground rather than the document's title, it is worth addressing who is responsible for rates explicitly in the written terms.

Worked examples

A pop-up retailer taking a unit for twelve weeks

A homeware brand, fictional for illustration, agrees to occupy a vacant unit in a shopping centre for twelve weeks over the festive period. The centre operator retains keys, can relocate the retailer to a different unit if needed for centre management reasons, and the fee is described as a licence fee rather than rent. Because the operator keeps genuine control and the arrangement is short and clearly temporary, this points toward a licence to occupy rather than a lease — but if the retailer were instead given sole, unshared use of a specific unit for the whole period with no relocation right, the same facts could tip toward a tenancy under the Street v Mountford test.

A tenant wanting to add a mezzanine floor

A tenant under an existing ten-year lease, fictional for illustration, wants to install a mezzanine floor to create extra storage. The lease contains a qualified covenant against alterations. The tenant submits a written application. Under section 19(2) of the 1927 Act, the landlord cannot unreasonably withhold consent, but can require the tenant to pay for any resulting diminution in the value of the building and to undertake to remove the mezzanine and reinstate the space at the end of the term, since the addition does not increase the letting value of the unit itself. Under section 1 of the 1988 Act, the landlord must respond within a reasonable time and give written reasons if refusing.

A tenant selling the business and assigning the lease

A tenant selling their café business, fictional for illustration, needs the landlord's consent to assign the remaining five years of the lease to the buyer. The lease is a qualifying lease granted after 1996 with pre-agreed conditions for consent — for example, a requirement that the incoming tenant's financial standing meets a specified benchmark. If that condition is genuinely met, the landlord's consent, recorded in the licence to assign, should follow; if the landlord drags out a decision beyond a reasonable time without explanation, that delay can itself be a breach of the 1988 Act, independent of whether the underlying assignment request was ever unreasonable to refuse.

Risks and common mistakes

• Calling an arrangement a licence when it functions as a lease. If the occupier has exclusive possession for a fixed term at a rent, the label will not protect either party if the point is ever tested.
• Confusing an absolute covenant with a qualified one. An absolute covenant against assignment or alterations gives the tenant no statutory right to ask for consent at all — that is a different starting point from a qualified covenant, where refusal must be reasonable.
• Acting before consent is granted. Assigning, underletting, or carrying out alterations without the required consent is a breach of covenant, and can expose the tenant to forfeiture risk even where consent would probably have been granted if asked for.
• Ignoring the 1988 Act timetable. Landlords who let applications sit unanswered risk a separate claim for breach of statutory duty, on top of any argument about the underlying request.
• Assuming a licence avoids business rates. Liability follows occupation and control, not the document's title — a badly drafted "licence" can still leave the occupier holding the rates bill.

Getting a commercial property document right

1. Work out which of the three situations applies. Are you creating a standalone occupation arrangement (licence to occupy), or asking for consent under an existing lease (licence to assign, underlet, or alter)? Each has a different legal starting point.
2. Check whether the relevant covenant is qualified or absolute. This determines whether the landlord must act reasonably at all, before anything else is negotiated.
3. Agree the commercial terms before drafting. For a licence to occupy: length, fee, permitted use, access, shared facilities, insurance, and exit terms. For a licence to assign or alter: any conditions, costs, and reinstatement obligations.
4. Make sure a standalone licence reflects a true licence. Avoid language granting exclusive possession or an interest in land, and keep the licensor's control genuine and real.
5. Track the statutory timetable for consent applications. Serve written applications clearly, and know that the 1988 Act gives a right to a timely, reasoned response.
6. Plan for the end of the arrangement. Set out notice periods, reinstatement obligations, and how any deposit or outstanding fees are settled, so the exit is clean regardless of which type of document is in play.

This is legal information, not legal advice. It explains the law of England and Wales in general terms and does not take account of your specific circumstances, and reading it does not create a solicitor–client relationship. LegalDocuments.co.uk is not a law firm and is not regulated by the Solicitors Regulation Authority. The law described was accurate as at August 2026 and is subject to change — always check GOV.UK and legislation.gov.uk for the most current position. For advice on your situation, speak to our telephone legal advice service or consult a regulated solicitor.

Last reviewed: August 2026 · Next review due: August 2027 or on legislative change.