LEASES AND LICENSES
Differentiating between “leases” and “licenses” can be challenging, as these terms are often used interchangeably, particularly in the real estate sector. Despite this common usage, the two concepts have distinct legal implications, assigning different rights and responsibilities to the parties involved. For individuals engaged in property transactions in Kenya, understanding the differences between leases and licenses is crucial. This knowledge helps in choosing the appropriate type of agreement to suit their needs and reduces the risk of legal disputes by establishing clear terms and conditions from the outset.
This newsletter clarifies the components and classifications of leases and licenses, while also outlining the distinctions between them.
LEASES
Section 2 of the Land Act, 2012, defines a lease as “the grant, with or without consideration, by the proprietor of the land, of the right to exclusive possession of his or her land, and includes the right so granted and the instrument granting it, and also includes a sublease but does not include an agreement for lease.” Simply put, this means that a lessee (tenant) acquires the right of exclusive possession of the property from a lessor (landlord/owner of the property), excluding others, including the lessor and all persons claiming through them, for a specific period in exchange for a fee (rent). The lessee, therefore, has the right to use the property as if it were their own.
There are four (4) key elements of a lease:
- Right to exclusive possession
- Defined interest
- Defined premises or land
- Definite period
Right to Exclusive Possession
The lessee (tenant) must obtain the right to exclusive possession from the lessor (landlord/owner of the property), excluding others, including the lessor and those claiming through them.
In Street v Mountford [1985] UKHL 4, Lord Templeman reaffirmed the test for leases, stating that to constitute a tenancy, the occupier must be granted exclusive possession for a fixed or periodic term in exchange for a premium or periodic payments.
In Runda Coffee Estates v Ujagar Singh [1966] E.A. 564, the court held that spending money on another’s land, based on a representation from the owner that one could occupy the land, establishes an estoppel preventing the owner from ending that occupation, though it does not create a title to the land.
Defined Interest
A lease must pertain to a specific interest in the land capable of being assigned.
Defined Premises or Land
For a lease to exist, the property must be clearly defined or capable of being defined. In Heptulla Bros Ltd v Jambhai Jeshangbhai Thakore [1957] E A 358, the court found that no tenancy was created because the premises could not be sufficiently ascertained with precision.
Definite Period
According to Section 56(a) of the Land Act, a lease must be for a defined period or for the life of the lessor or lessee. If the term is not specified, the lease is considered a periodic lease.
In Lace v Chandler [1944] KB 368, a lease was deemed void due to uncertainty in the period, as the term “duration of the war” did not meet the required certainty for a lease term.
LICENSES
Section 2 of the Land Act defines a license as “permission given by the Commission (National Land Commission) in respect of public land or a proprietor in respect of private or community land or a lease, which allows the licensee to do some act in relation to the land or the land comprised in the lease that would otherwise be trespass but does not include an easement or a profit.”
In simple terms, a license allows a licensee to enter another person’s land under circumstances where such entry would otherwise be considered trespass. A license makes lawful what would otherwise be unlawful.
Section 20 of the Land Act recognizes the validity of licenses and stipulates the conditions under which they may be granted, including fees, duration, and terms set by the National Land Commission.
Common Law Classification of Licenses
A license can be classified as:
- Contractual License
- Bare License
- License Coupled with Interest
Contractual License
A contractual license arises from a contract between the licensor and the licensee, granting the licensee the right to use the licensor’s property according to the terms of the contract. It is less easily revocable due to the binding nature of the contract.
In Hurst v Picture Theatres Ltd [1914] 1 KB 1, the court held that the plaintiff had a license coupled with a grant to enter the theatre, which could not be revoked before the end of the spectacle.
Bare License
A bare license is permission granted without consideration or formal agreement, allowing the licensee to enter the licensor’s land for a specific purpose. It can be revoked at any time by the licensor.
License Coupled with Interest
A license coupled with an interest is tied to an interest in the property itself, and it cannot be revoked as long as the interest in the property remains. It confers both contractual and proprietary rights and may be assigned.
DIFFERENCES BETWEEN A LEASE AND A LICENSE
It can be difficult to differentiate between a lease and a license, leading to many judicial determinations. Courts consider the parties’ intentions, the nature and terms of the agreement, the relationship between the parties, and surrounding factors when deciding whether a lease or a license exists.
In Errington vs Errington and Woods [1952] 1 All E.R. 149, Lord Denning stated that exclusive possession alone does not automatically create a lease; if circumstances indicate that only a personal privilege was intended, the occupier will be considered a licensee.
In Street vs Mountford [1985] UKHL 4, the court ruled that the grant of exclusive possession generally creates a lease, while a grant short of exclusive possession results in a license, except in exceptional cases.
In Hecht v. Morgan [1957] E.A 741, the court emphasized that both parties must have a clear intention to create a lease, inferred from the surrounding circumstances.
In National Social Security Fund v Sokomania Limited & 3 others (2018) eKLR, the court held that the determination of whether an agreement is a lease or a license depends on the nature and terms of the contract, not the name assigned by the parties.
The table below illustrates the key differences between a lease and a license:
| LEASE | LICENSE |
|---|---|
| 1. Grants a lessee a proprietary interest in the property. This is a more substantial legal interest, typically allowing the lessee exclusive possession of the property for a specific period under the lease agreement terms. | A mere permission that allows the licensee to use the property for a particular purpose, but does not confer exclusive possession. It grants a personal privilege that does not amount to an interest in the property. |
| 2. Is granted for a fixed period, which can be short-term or extend up to several years, depending on the agreement. | Tends to be more temporary. |
| 3. Lessees enjoy significant legal protections under the law. For instance, eviction typically requires formal legal procedures and the fulfillment of specific conditions outlined in the lease agreement. | Offers less legal protection against eviction or termination of the agreement. The licensor can often terminate a license more freely, subject to the terms stated in the licensing agreement. |
| 4. Can be transferred or assigned to others unless the lease specifically restricts this. | Generally cannot be transferred unless the license expressly allows it. This non-transferability is due to the personal nature of licenses. |
| 5. Creating a lease usually requires more formal documentation, which might include registration with relevant authorities, especially for longer durations. | Can be created informally and typically does not require registration. Even verbal agreements can be upheld if proof of terms and licensee’s reliance can be demonstrated. |
| 6. Irrevocable unless the terms provide otherwise. | Revocable and can be revoked by the licensor more easily unless it is irrevocable under specific conditions (e.g., a license coupled with an interest). |
At WKA Advocates, we have a dedicated department specializing in Real Estate, Conveyancing, and Construction Law. If you are interested in any type of property, please contact us for legal guidance on the relevant agreements to ensure your rights, obligations, and interests are fully protected under the law.
We hope this information helps clarify the nature of leases and licenses in the real estate sector. However, the contents of this newsletter are intended to provide a general overview of the subject matter and should not be relied upon without seeking legal advice.
If you require further information or legal assistance regarding compliance or any other legal issue, please feel free to contact us at info@wka.co.ke, www.wka.co.ke, or +254 798 03 580. Our Nairobi office is located at Parklands, Valley View Business Park, 6th Floor, City Park Drive, Off Limuru Road.
