When to use a licence to occupy instead of a lease
You would put a licence agreement in place when you are renting space to another for their non-exclusive use.
Are you thinking of renting out a room, clinic or office? You may not need a full Retail or Commercial Lease to cover your arrangement because a Shared Office Space or Licence Agreement may suit your needs.
A licence generally does not give the licencee (the person you are licensing the space to) exclusive possession of the area. The landlord may be able to access the area freely, or it may be shared with others.
This is quite different to a lease, which gives the tenant exclusive use of the premises and an interest in the land that is second only to land ownership itself.
Think about a hairdresser, who rents out a space or a “chair” in his or her salon, to a beauty therapist – the licensor (the hairdresser) will still access and use the premises, but the beauty therapist is also able to work from the premises, in return for a licence fee.
A licence usually includes outgoings, facilities and amenities
Often in licensing arrangements, there is a shared use of facilities, such as toilet, kitchen, and common areas like a reception or waiting area. The licensee may have access to amenities such as tea and coffee making facilities, fridge, sandwich press, etc.
The landlord continues to pay for outgoings such as electricity and rates.
Expanding on the example above.
The therapist will usually be able to access shared floor area, sink, reception area, toilet, kitchen, tea and coffee making facilities. The therapist will not need to pay a share of rates or electricity – just a licence fee.
Additionally, on days the beauty therapist is not working, their room/chair/area can be used by someone else – that is, they do not have exclusive use of the salon, or even a room/space or chair.
Most leasing (as opposed to licencing) transactions in Australia are heavily regulated, for example, residential, retail and commercial leases are governed by specific state based legislation, which the landlord must comply with. The legislation attempts to provide minimum rights and protections to tenants and can be quite onerous on landlords.
Licences are a much more flexible arrangement that do not fall under the scope of the residential or retail leases legislation – so this can be seen as a huge positive for landowners.
However, you must be careful! Some landowners in the past have tried to pass off what is in fact a lease, as a licence. The courts are very quick to warn against this type of behaviour.
If you are licensing a room or space to another person, you must not dress a “lease”, in the clothing of a licence. That is, simply calling a “lease” a “licence” is not a way to escape the legislative regulations surrounding retail, commercial or residential leases. The circumstances surrounding the arrangement must be in line with what is considered to be a true licence.
Further, the language and terminology of a lease will be entirely different to that of a licence, as they are fundamentally different types of transactions. A lease is classed as a registrable interest in the land with certain statutory protections to the tenant. It is for exclusive use for a definite term and at a specified amount of rent. A licence is a right to use or occupy the premises in a certain way for a fee.
Knowing what is right for you
If you are entering into an arrangement where
- you do not have the right to occupy the space exclusively; and
- the property owner or other persons will still have access to the area you are using;
then a licence would most likely be the best option for you.
What are some other examples of a licence?
Some other examples may be:-
- storage space in a garage; or
- share office space or work space in a factory or on a farm
- natural therapists using a clinic space
- artists sharing a studio.
Can a Tenant be a Licensor?
It is possible for a tenant leasing a premises to sublet or license part of the premises but they would need the Owner's / Landlord's permission to do so. Subletting is generally covered in the original lease agreement.
The benefits of a licence
A licence allows you to get the most out of your premises by licencing areas out to others, whilst still allowing you to use and access the property.
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By Ian MacLeod