How a tenancy is distinguished from a licence

The decisive factor is the granting of exclusive possession for a fixed period at a stated consideration

There are many cases where there is confusion as to whether the legal relation between parties is a tenancy or a licence. The issue becomes substantial when dealing with the relation between the owner of premises and their occupant, since it may be a tenancy which has become statutory.

Owners of premises used for business may grant their use and management to another person through a written agreement for a fixed or periodic term at a stated consideration. They call the agreement a licence, the consideration a licence fee and the occupant is called the licensee.

However, the aforesaid agreement is really a tenancy which may have become statutory. The words used by the parties are not of significance in identifying whether their agreement creates a tenancy or grants a licence. The agreement should be seen as a whole together with the transaction. Parties cannot turn a tenancy into a licence merely by calling it one.

The president of the Rent Control Court of Limassol and Paphos, George Pagiasis, examined the topic in his judgement issued in eviction petitions E169/2021 and E58/2022, dated September 29.

Regarding a tenancy becoming statutory, he stated, the tenancy is a bilateral agreement that concerns a real fact and requires actions that document it. A rental agreement is mostly concluded expressly and in writing. But it is possible for a tenancy to be established on the basis of the intention and conduct of the contracting parties. Based on the doctrine of the contractual relationship, the rental agreement binds only the contracting parties, except for specific exceptions such as, for example, agency, assignment of rights and renovation.

‘Statutory’ is a contractual tenancy on which the Rent Control Law has come into force, with the result that the relationship between the parties can no longer operate contrary to the statutory provisions. A statutory tenancy is related to the premises and does not depend on the owner-tenant relationship. It is not a contract, but the personal right of the statutory tenant to not be removed from the premises.

Meanwhile, a licence essentially concerns legalisation of a situation which would otherwise be considered an illegal intervention on the land. Existence of a fixed period, the determination of the commencement and expiry date of a contract, as well as existence of an agreed consideration, infer the existence of a tenancy rather than a licence. The most decisive element, as to whether there is a licence or tenancy, is whether the right of ‘exclusive possession’ was given. Without this, there is no tenancy.

The concept of possession is not only limited to establishing physical possession, but has a wider dimension and means the legal right to possession. In practice, this means that the tenant, as the holder of the legal right to possession, has the ability to evict anyone from the property, whether a third party who illegally takes physical possession, or even the owner himself. This does not apply where a licence is granted.

On identifying which of the two applied, the court decided the disputed contract undoubtedly constituted a tenancy. First, the descriptive character of the contract was not a decisive factor. It is the substance which matters. Second, all the conditions for the existence of a valid rental agreement were satisfied. Specifically, it had a specified duration “starting on January 1, 2014 and ending on December 31, 2019”. Moreover, not only was a specific consideration specified, but, further, through the reference that “the aforementioned licence fee will be prepaid on the first day of each month”, there was an obligation to pay it, strengthening the position that it was a tenancy.

In addition, it was particularly decisive that the respondents in the application essentially admitted that they maintained exclusive possession of the property in question.

As a consequence, the court concluded that there was a tenancy which became statutory and issued an order for the recovery of possession of the premises, due to the existence of arrears of rent, a judgment for arrears of rent, mesne profits, legal interest and costs.

George Coucounis is a lawyer practicing in Larnaca and founder of GEORGE COUCOUNIS LLC, Advocates & Legal Consultants, www.coucounis.law, coucounis.law@cytanet.com.cy