When you go to enter into a leasing arrangement or agreement you can expect that upon signing the document you will be granted exclusive possession of the land or premise you have leased. In some cases, it can be hard to determine whether a license or lease has been granted. However, common instances of exclusive possession are where the tenant has been given permission to exclusively use and occupy the premise. Continue reading this Legal Kitz blog post to learn more about exclusive possession.
What is exclusive possession?
The right of exclusive possession also includes the ability to exclude others from entering the premises or land, even the landowner or landlord. It is also important, that premises or property is clearly defined in the agreement, and it can be locked or enclosed, otherwise it may not be considered a lease. For example a lease may grant exclusive possession for the lease of a building or specific room in an office suite. What is important is that the tenants have the right to remove the other from the premises and it can be locked.
What about when your licence is a lease?
In Australia, the issue of what is considered a lease vs license was decided by the High Court in Radaich v Smith. The lessor, Radaich, drafted the agreement in terms that avoid language that could indicate the existence of the lease. Radaich was trying to merely license use of their premise for the purpose of operating a small milk bar, for a period of five years. Additionally, Radaich was granted the keys to the bar and the ability to lock the shop after their business operations effectively giving her exclusive possession, under the title of a license. At the creation of the agreement, it may have been thought that by labelling the agreement as a license, the lessor would have not had to grant the lessee exclusive possession. Issues arose when the parties entered the deed of arrangement for the premise Radaich was given the right to occupy the premise for a period of five years and then sought to apply for a fair rent. Smith in response stated that the nature of the agreement was a license and not a lease. To determine whether the agreement was a lease or license, the court heard from both parties. The lessor argued that the intention of the parties was to enter an agreement, that only granted a license, not exclusive possession, and therefore no lease existed.
On the other hand, Radaich argued the nature of the agreement should be considered a lease because the nature of the agreement gave her exclusive possession. The court referred to the substance of the agreement and not its form. It did not take into consideration the meaning of the word licence, instead, it focused on the formation of the arrangement. On the assessment of the substance of the agreement, Radaich had given exclusive possession to the bar, by giving a clearly defined premise as evident of the milk bar, for a period that allowed Radaich to lock the bar and exclude anyone from using the premise. Therefore, to determine whether an agreement is a lease or licence the substance of the agreement must be assessed. On the assessment of the facts, the court found the agreement to be a lease.
Why is exclusive possession important?
The distinction between a licence and lease is important, because granting exclusive possession confers a proprietary interest from the lessor to the lessee. This gives the lessee the right to have an absolute beneficial interest in the land (allowing the lessee to enjoy the benefits of the land).and. Critically, this arrangement is a lease if the ownership of the premise or the lease changes hands. The grant of exclusive possession protects the interests of the lessee, which means the new owner must respect and honour the original agreement when the lease was entered into with the old owner.
Do sub-leases have exclusive possession?
In 2016, the Supreme Court of Victoria heard a case where the owners of an Airbnb premise found out their tenants, had leased their premises to guests. The issues before the court were whether the tenants were only given a mere license to use the premise without the benefits of exclusive possession, or whether the tenants did in fact have exclusive possession and could sub-lease the owners Airbnb. The court stated that a mere license is a personal right, granted by the owner of the premise to enter to premises. This does not include the right to exclude everyone else from the premise. However, in this case, a lease with exclusive possession is where the owner or landlord can be refused entry. For example, if an individual invited another person over for dinner, they are giving them a license to enter their property for dinner. They do not grant them any other right; therefore, exclusive possession does not arise. Furthermore, if the individual is asked to leave then they must do so, otherwise, they may be liable for trespassing.
The court found that the tenants were able to sub-lease the premise to the Airbnb guests. Because when the tenants signed the original lease with the owners of the premise, they were themselves granted exclusive possession along with the rights to enjoy the benefits of the land. They were also given the right to exclude the owners from entering the premise and the right to granted entry to the premise. As seen in the case of Radaich v Smith, the substance of the agreement was assessed by the court and not the form. The court could not take notice of the terms and conditions of that Airbnb, which expressed that the Airbnb guest only had a mere license under the agreement. Instead, focused on the advertisement that suggested that the Airbnb guest would not have shared the premise with any other individual, and enjoy all the entitlements that come with exclusive possession.
In order, to determine the nature of exclusive possession, the substance of the agreement must be assessed. Exclusive possession is found where an individual has been granted the right to exclude everyone else from the use of the land or premise, for a specific term, and can enjoy the benefits that come from the land.