What’s the difference between a Tenancy Agreement and a Licence to Occupy?

21 October 2025 | Commercial Property |

A commercial Tenancy Agreement and a Licence to Occupy are both common ways for businesses to rent premises. Each has its own advantages and disadvantages and is it important to understand the difference, including the rights and responsibilities involved.

A Tenancy Agreement usually gives you the exclusive right to occupy a specific property or defined part of a property (e.g. a single office within an office block) for a set length of time. You will also normally have certain rights, such as to be granted a lease extension under certain conditions. A landlord may have to pay you compensation if they refuse to extend your lease and there will normally be limits on how much they can increase your rent by when renewing the lease.

A Licence to Occupy, however, is normally a much more limited agreement, giving the occupier the right to use a space, but not exclusively so. This means that they might be sharing with the owner or other individuals or businesses. A Licence to Occupy will normally be for 6 months or less as any agreement that runs for more than 6 months may be covered by the Landlord and Tenant Act 1954 allowing the occupier to claim a secure business tenancy.

Business tenancies are often favoured by larger, established business who need a significant amount of space to themselves, while the Licence to Occupy option is often popular with start-ups and sole traders who need relatively little space and do not want to be tied into a long, expensive tenancy.