Although on the surface an Agreement to Lease Space or a License to Use Space may appear similar, the rights embedded in the documents are inherently different.
In the absence of a document setting out the parties’ intentions, if the relationship deteriorates it can be difficult to determine whether the agreement constitutes a lease or a license.
From either party’s perspective, License Agreements are generally personal and specific to both the current operator and property owner. By legal definition, a lease is a bundle of rights given from the Landlord to the Tenant, which are embedded in the land. In comparison, a license merely conveys a privilege to use the property, making this act lawful.
Here are three key differences that are worth noting before entering into an Agreement to Lease Space or a License to Use Space:
When ownership of leased land is transferred, it remains subject to the rights granted in the leases tied to the property. The new owners cannot evict a tenant, increase the rent, or impose other financial obligations outside the scope of the governing document.
Comparatively, a License constitutes permission from an owner to use all or a portion of the owner’s property. A License does not create any estate or interest in the property to which it relates, and therefore there is no ability to register a License Agreement against title to land.
Generally speaking, License Agreements are made for significantly shorter periods – usually monthly, or perhaps a year-long term.
Leases are typically made for periods of no less than one year and can last for periods in excess of 25 years when renewal options are considered.
In the case of a License, since there is no ability to transfer the rights to the space, there is little to no value in the document itself and therefore subordination rights aren’t even a consideration. Basically – everyone else’s rights to the land supersede those of a Licensee.
In more official terms published by the Canadian Court of Appeal,
“An agreement which confers exclusive possession of the premises as against all the world, including the owner, is a lease, while if it merely confers a privilege to occupy under the owner, it is a license…the general concept of a license is that it is a mere permission to occupy the land of another for some particular purpose.”
Whether you are a land owner or potential lessee, it pays to be educated when it comes to a legal document of such high importance as a Lease Agreement or License to Use.
Before signing on the dotted line, carefully consider the following implications:
1. Unlike with a Lease, it is impossible to transfer interest in a pure license agreement.
2. Unlike a Lease, a License can easily be revoked, leaving you compromised.
3. A Lease grants the Tenant the exclusive right to use a property, while a License grants the Licensee a non-exclusive right to use the property as its legal ownership remains with the original licensor.