The distinction between a tenancy and a licence is one of the most important concepts in English housing law. Getting it wrong can have serious consequences for landlords, including giving an occupier far more legal protection than you intended. This guide explains the difference, the legal tests, and why it matters under the Renters' Rights Act 2025.
What Is a Tenancy?
A tenancy is a legal interest in land. It gives the tenant the right to exclusive possession of the property for a defined or periodic term in exchange for rent. A tenant has statutory protection, including security of tenure, the right to have their deposit protected, and the right not to be evicted without a court order. Under the Housing Act 1988, most residential tenancies in England are assured shorthold tenancies (or, from 1 May 2026, periodic assured tenancies under the Renters' Rights Act 2025).
What Is a Licence to Occupy?
A licence is simply personal permission to occupy a property. It does not create a legal interest in land. A licensee has no security of tenure, no right to remain once the licence is terminated, and is not covered by the Housing Act 1988 or the Renters' Rights Act 2025. Common examples of licensees include lodgers, guests, and people staying in hotels or hostels.
The Exclusive Possession Test
The leading case on distinguishing a tenancy from a licence is Street v Mountford [1985] AC 809. The House of Lords held that if an occupier has exclusive possession of a property for a term at a rent, the arrangement is a tenancy regardless of what the parties call it. You cannot turn a tenancy into a licence simply by labelling the agreement a "licence." The substance of the arrangement, not the label, determines its legal character.
Exclusive possession means the occupier has the right to exclude everyone else from the property, including the landlord. The landlord may retain a right to enter for inspections or repairs, but this does not negate exclusive possession as long as the occupier has overall control of who enters on a day-to-day basis.
When Is an Arrangement a Licence?
A genuine licence exists where the occupier does not have exclusive possession. The most common example is a lodger who lives in the landlord's own home. The landlord retains overall control of the property, provides services such as cleaning or meals, and enters the lodger's room freely. Because the lodger does not have exclusive possession, the arrangement is a licence.
Other genuine licence situations include:
- A service occupier who lives in a property as a requirement of their employment
- A temporary arrangement where someone stays while looking for permanent accommodation and the arrangement lacks the characteristics of a tenancy
- A family arrangement where a relative is allowed to stay without any intention to create legal relations
Sham Clauses
Courts are well aware that some landlords try to dress up tenancies as licences. In Antoniades v Villiers [1990] 1 AC 417, the House of Lords held that sham clauses designed to negate exclusive possession would be disregarded. A clause saying "the licensor reserves the right to share the property with the licensee" will be treated as a sham if it does not reflect reality. Similarly, splitting a single occupation into multiple "licences" to avoid creating a joint tenancy will be examined carefully by the court.
Why Does This Matter?
The consequences of getting it wrong are significant. If you believe you have granted a licence but a court determines it is actually a tenancy, the occupier has full statutory protection. You will need a court order to evict them using the correct Section 8 grounds under the Renters' Rights Act 2025. You may also face penalties for failing to protect their deposit and failing to provide the written statement of terms required by the RRA.
Lodgers and the RRA
Genuine lodgers — people who live in the landlord's own home and share living accommodation with the landlord — are not covered by the Renters' Rights Act 2025. The RRA applies to assured tenancies, and a lodger does not have an assured tenancy because they lack exclusive possession. You do not need to protect their deposit in a government scheme, you do not need to provide the RRA written statement, and you can ask them to leave by giving reasonable notice. However, the Protection from Eviction Act 1977 still requires reasonable notice.
Take Action
Make sure your tenancy arrangements are properly documented. Generate a complete, RRA-compliant tenancy agreement and all supporting documents for £29.99.
For more on how the RRA changes landlord obligations, read our Plain English Guide to the Renters' Rights Act 2025 or check the Section 8 Grounds for Possession guide.