Key Takeaways:

  • Leases grant exclusive possession; licenses provide limited access and control.

  • Leases are often fixed-term and hard to revoke, while licenses are flexible.

  • Licenses are ideal for short-term or specific-use arrangements.

  • Leases are preferable for long-term property control and stability.

  • Consult a legal expert when unsure about which property agreement suits your needs.

If you own a business, there will likely be a time when you need to make important decisions regarding your business property management. Usually, most businesses need to choose between a lease and a license when it comes to property usage and control. 

While both leases and license agreements allow businesses to use property they don’t own, they vary significantly in terms of legal rights, control, and revocability. Knowing these differences can help you make informed decisions when entering into property agreements, whether for personal use or business purposes.

Understanding Leases vs. Licenses

A lease and a license both permit someone other than the owner to use a property, but they come with different levels of control and legal rights. 

Generally, a lease provides tenants with exclusive possession of the property. This means that you will have a legal right to occupy the space to the exclusion of others, including the landlord. 

A license, however, grants permission to use the property without giving you possession rights. This means your business will have limited usage and control over the property.

For business owners and property users, selecting the correct agreement type is critical to meet specific needs, whether they require exclusive property use or merely a temporary arrangement.

Lease vs. License: Key Differences

The main differences between a property lease and a license are in the way they grant possession rights, the way the rights can be transferred to another party and the term limits for using the property. Below is a detailed

explanation of lease vs license.

Exclusive Possession

The most significant difference between a lease and a license lies in exclusive possession. Leases grant tenants exclusive possession rights, meaning they can control and restrict access to the property. This right to exclusive possession allows tenants to occupy the property without interference from the landlord, who must provide reasonable notice before entering the premises.

In contrast, a license allows the licensee to use the property for specific purposes but does not grant exclusive possession. The property owner retains the right to enter and control access to the property, limiting the licensee’s usage rights.

Transferability

Leases are often transferable, allowing tenants to sublet the property to another party, provided the lease terms allow it. This flexibility can be beneficial for tenants who may need to move or reduce their property usage. However, landlords typically include clauses in leases that restrict or regulate subletting.

Licenses, on the other hand, are generally non-transferable. Since a license is a personal arrangement between the licensor and licensee, it cannot be transferred or assigned to a third party. This non-transferable nature makes licenses suitable for short-term or specific use scenarios where the licensee’s presence on the property is temporary.

Revocability

Leases are usually set for a fixed term, such as one year, and are not easily revocable by the landlord during that period unless the tenant violates lease terms. This fixed nature of leases provides stability for tenants, as they can rely on uninterrupted access for the duration of the agreement.

Licenses, however, are more flexible and can often be revoked at the owner’s discretion. This flexibility makes licenses ideal for temporary uses, such as renting a venue for an event or using a parking space. The revocability of licenses allows property owners to retain control and adapt the property’s use based on evolving needs.

Property Control and Rights

With a lease, tenants have more control over the property, as the lease grants them exclusive possession. This control allows them to use the property as they see fit within the terms of the agreement. For example, a tenant leasing an office space may modify the interior layout to better suit their business needs, as long as they adhere to the lease’s limitations.

In a license agreement, the licensee has limited control, as they are granted permission only for specific activities. For instance, a person holding a license to use a conference room cannot alter the room’s layout or exclude others from entering. The property owner retains more control, ensuring that the licensee’s use remains within the designated scope.

Below are some examples to explain the differences between a lease and a license in terms of property control:

  • Lease Example: A business leases a retail space in a shopping mall. The lease provides the business with exclusive possession, meaning it can restrict access to customers and employees during operating hours.

  • License Example: A business holds a license to use a public park for a weekend event. The license allows them to occupy the space for the event but does not grant them control over the park’s public access or usage beyond the specific event duration.

Contract Terms and Formation

Leases typically require a formal, written agreement that specifies essential elements, including rent amount, payment schedule, lease duration, and termination conditions. This structure ensures that both parties understand their obligations, creating a binding contract that holds up in court.

Licenses are often less formal than leases and may not always require a written agreement, particularly for short-term or casual arrangements. For example, purchasing a ticket to a concert grants the holder a license to occupy a seat, but it does not create a formal lease. Licenses are suitable for situations where exclusive property control is unnecessary, allowing for more flexible and temporary arrangements.

When to Choose a Lease vs. License

Leases are preferable for individuals or businesses needing long-term property use and exclusive control. For instance, renting an office or retail space for several years typically requires a lease, providing stability and exclusive access.

On the other hand, licenses are more appropriate for short-term, specific use cases where exclusive control is unnecessary. Examples include renting a space for a single-day event, obtaining permission to display art in a gallery temporarily, or using a property as a filming location. The flexibility and revocability of licenses make them ideal for these limited-use situations.

Legal Considerations and Final Notes

One important legal distinction between leases and licenses is enforceability. Leases create an interest in the property, giving tenants legal grounds to enforce their rights, including the right to exclusive possession. If a landlord attempts to revoke the lease before its expiration without cause, tenants can seek legal remedies.

With licenses, the rights are more limited and revocable. Because a license does not confer an interest in the property, licensees generally have fewer legal grounds to enforce exclusive possession. If the licensor decides to revoke the license, the licensee has little legal recourse, as they were not granted property rights under the agreement.

Given the complexities of leases and licenses, consulting a legal professional can help clarify which option suits your needs. For business owners or property users with specific requirements, UpCounsel offers access to qualified real estate attorneys who specialize in property agreements, ensuring you make an informed decision that aligns with your goals.

FAQs

What is a license owner? 

A license owner (licensor) is the person or entity that grants permission to use a property without transferring possession.

What is an example of a licensee? 

A concert attendee with a ticket is a licensee, holding a temporary right to occupy a seat.

What are the benefits of being a licensee? 

Licensees benefit from short-term, flexible usage without the responsibilities of long-term leases.