A licence agreement authorises a landlord to permit another party to occupy their property. This length of time is to be set and it is typically for a specific purpose. A licence can be more appropriate than a lease in certain circumstances.
What Are The Differences Between A Licence or Lease Agreement?
The first significant difference is exclusivity. Exclusive possession can only be granted to a party by a lease and not by a licence. More specifically, this right is granted to a party to use the premises. The most common determinant is whether the occupied area has physical boundaries. A lease is needed if this is the case. On the other hand, a licence is needed if there are no physical boundaries.
The second key difference is proprietary interest. A tenant’s rights to the property is granted by a lease. Of note, a licence is simply an agreement with the landlord to temporarily use the space. A tenant under a lease holds specific rights and more security than an individual under a licence.
What Are The Key Provisions Of A Licence Agreement?
Both parties involved in a licence agreement need to agree on three factors. First is the licenced area, which must be clearly outlined. Licenses offer greater flexibility than leases do. The second factor is the term of the licence. The time of which the licensee has used the land must be outlined clearly. Licences typically are for short term arrangements, whilst leases are far more long term (usually more than 6 months). The last factor is the fee of the licensed area. The majority of licences required a license fee incurred by the licensee.
When Should A Licence Agreement Be Used?
A licence agreement can work for someone depending on the deal between both parties and specific factors such as the business and its location. A licence may be most appropriate for:
- Premises that are shared
- Working spaces with several businesses
- Car parks
Key Takeaways
A licence can be more appropriate than a lease in certain circumstances. Licences typically are for short term arrangements. A licence agreement can work for someone depending on the deal between both parties. It is important to seek legal advice before engaging in a license agreement to understand all the factors included such as fees.
Phil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.
