When you’re looking to use someone else’s property for your business or personal needs, understanding whether you need a licence agreement or a lease is crucial. The distinction affects your rights, obligations, and the security of your arrangement. Here’s what you need to know about these two different legal instruments under NSW law.
Understanding the Core Difference
A licence gives someone permission to use property (like land, a building, or intellectual property) but doesn’t give them any ownership or exclusive rights. The person using the property (the licensee) can usually only use it for specific purposes, and the owner (the licensor) can still access and control the property.
A lease gives the tenant (lessee) the right to exclusively occupy and use the property for a set period. The tenant has more control and can usually stop others, including the landlord, from entering without permission (except in certain situations).
How Long It Lasts and Ending the Agreement
Licences are often short-term or flexible. They can usually be ended easily, sometimes even at short notice, depending on what’s in the agreement.
Leases are usually for a fixed period (like 1 or 5 years). Ending a lease is more formal and must follow the terms of the lease and the law.
Technical Legal Rights and Interests
A licensee doesn’t get any legal interest in the property. They usually can’t transfer their rights to someone else unless the agreement says so.
A tenant on the other hand gets a legal interest in the property for the lease term. They may be able to assign or sublet their interest, depending on the lease. Accordingly, a lease is a more secure way to occupy property owned by someone else for both the tenant and the landlord.
When to Use Each Agreement
Licence agreements are typically used for shorter-term ad-hoc arrangements. For example, in relation to property, a licence agreement might be used where a licensee is only using part of the property, like a yard at the back of an industrial property to park trucks and store machinery (with no access to the rest of the property).
Leases tend to be more long-term propositions, and usually involve exclusive use of the whole property, such as renting a commercial building for your office and any associated rights to things like car parking spaces.
Registration and Property Sales
Leases of commercial or retail premises that are for a term of 3 years or longer are also usually registered on the title of the property which formally acknowledges the tenant’s legal interest in the property. This means if the property is sold, the tenant’s rights are not interfered with and continue with the new owner.
Making the Right Choice for Your Situation
If you are looking for a shorter-term, flexible, ad-hoc arrangement, a licence agreement may be the best instrument for you.
If you are looking for something more long-term and formal in nature (for both landlord and tenant), a lease might be a better fit.
The choice between a licence and a lease can have significant legal and financial implications for your business or personal situation. Our property law team can help you understand which arrangement best suits your needs and ensure your agreement is properly structured to protect your interests. Contact us today to discuss your property requirements.
