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Explanatory Notes
Licence to Share Occupation of Business Premises
This licence from a landlord permits the tenant to share occupation of its leasehold premises with a third party, including a group company, where the lease contains an absolute prohibition against the tenant parting with or sharing possession or occupation of the Premises. This licence is personal to the tenant and is not a variation of the tenant's lease. Situations where a licence to share occupation may be required are as follows: (1) To authorise a concession arrangement or a franchise arrangement in a department store or shop. (2) Where a tenant wishes to share occupation of its premises with a business associate or group company. (3) Between a tenant and an assignee between exchange and completion of an assignment of a lease, where the assignee requires occupation pending the completion of the assignment. Our comments on the specific sections are set out below.
SECTION 1 DEFINITIONS AND INTERPRETATION Group company: this definition is referred to in section 2.2.2 of the licence, which allows the tenant to share occupation with group companies. The licence defines 'group' by reference to section 42 of the Landlord and Tenant Act 1954. Two companies shall be taken to be members of a group (1) if and only if one is a subsidiary of the other or both are subsidiaries of a third company or (2) if the same person has a controlling interest in each. Lease: the details of the lease under which the tenant holds the Premises should be inserted here. Premises: the address of the premises demised by the lease should be inserted here. Sharer: The details of the sharer should be inserted here. This definition provides 2 options. Either: • The sharer is a named company; or • The sharer is the concessionaire or the franchisee from time to time of the tenant. SECTION 2 CONSENT TO SHARE Note that the licence does not require the sharer to enter into any contractual relationship with the landlord. If the terms of the licence are breached, the landlord will take action against the tenant. Section 2.1 states that the landlord will consent to the sharing arrangement despite the absolute prohibition in the lease in consideration of the tenant entering into the licence. This section also provides some optional wording for the landlord to charge the tenant a sum of money in exchange for the landlord's consent to the sharing arrangement. The sum to be charged will depend on the bargaining powers of the landlord and the tenant. Where there is an absolute prohibition in the lease against sharing possession or occupation of the premises, the landlord is under no obligation to consent to the sharing arrangement. Section 2.2 states that the licence is conditional on a number of issues, some of which are optional depending on the type of arrangement and premises which are the subject of the sharing arrangement. The optional sections cater for the circumstances where (1) the tenant wants to share occupation of the Premises with a group company or (2) the tenant wants to share the Premises with a concessionaire or franchisee. If the latter, the landlord may want to think about limiting the number of sharers that can share the Premises at any one time with the tenant and this is covered in section 2.2.4. SECTION 3 COSTS Section 3 specifies that all costs associated with the licence will be met by the tenant. SECTION 4 INDEMNITY This section requires the tenant to indemnify the landlord in respect of all costs and claims arising out of a breach of the terms of the licence. SECTION 5 GUARANTOR Guarantees are construed strictly against the person in whose favour they are given and are subject to many technical rules which can result in the release of the guarantor from liability. One thing which can release a guarantor from liability is a variation of the underlying contract. Although this licence is not drafted as a deed of variation, as a precaution, it allows for a guarantor to be a party and includes sections recording the guarantor's consent to the sharing arrangement. SECTION 6 NOTIFICATION OF SHARING OF OCCUPATION This section is optional and depends on whether the registration and notification of dealings and occupation section in the lease is so widely drawn that it already requires this type of arrangement to be notified to the landlord. If the lease does not contain sufficient wording to cover a sharing of occupation arrangement, then the landlord should insert section 6 in the licence. SECTION 7 NOTICES This section sets out the procedure for serving notices. SECTION 8 CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 The exclusion of the operation of the Contracts (Rights of Third Parties) Act 1999 is excluded, the effect of which might otherwise be to give certain third parties the benefit of provisions in the lease. SECTION 9 APPLICABLE LAW A simple governing law and jurisdiction section has been inserted. This is not an essential requirement if the property is in England and both the landlord and tenant are companies incorporated in England, but such a clause is certainly needed if one of the parties to the licence is an overseas company.
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