Should you lease or licence your business premise?

A lease arises when a party grants another party a legal right to exclusive possession of premises for a specified period of time in return for the payment of rent. A lease gives rise to property rights in the land.

Alternatively, a licence arises when a party grants another party a contractual right to occupy a premises in return for the payment of a licence fee. A licence does not entitle the licensee to exclusive possession of the premises.

If the following circumstances apply to you, we would recommend you negotiate a licensing agreement if:

the premises are intended to be shared with others;
the premises are not enclosed e.g. car parking spaces, and therefore exclusive possession for a specified duration is not guaranteed; or
the premises will be occupied temporarily for a short-term arrangement.

On the other hand, if you prefer:

the right to exclusive possession of the property whereby the landlord cannot interfere with your business unless otherwise specified in the lease;
your interest to be noted on the formal title of the property to ensure greater security;
the premises to be occupied permanently for a long-term arrangement; or
stability with little variance to your arrangement in future,

a lease agreement is the most suitable option for you.

The Fundamentals

Although both a lease and licence allows you to use or occupy premises, the main differences are outlined below:

Lease	Licence
A lease grants an interest in land which gives a tenant excusive possession and security of tenure.	A licence is a more flexible arrangement and does not afford the same security of tenure as a lease.
A tenant has a right to exclude all others from the leased premises.	A licence grants a contractual right to enter and use the premises for a particular purpose.
A lease creates an interest in land.	A licence creates a personal contractual right.
A lease runs with the land. If the owner of the land changes, the new owner must take the land subject to the lease.	If ownership in the land changes, then the licensee does not have any rights against the new owner of the land unless the licence is transferred by agreement from the old owner, the new owner and the licensee.

If you are unsure about what option is best suited to your circumstances or require assistance negotiating, drafting and reviewing your lease or licence agreements, contact the team at Antunes Lawyers on (02) 9964 0499.