Lease v. License – What’s the Difference?

In my travels over the years, I have come across instances where business people have confused the distinction between a lease and a license. The distinction is important because the rights and obligations of the parties can be significantly different depending upon what the true relationship is determined to be.

Initially, simply labeling an Agreement a "License Agreement" or “Lease” does not make it so. Our courts will look to the terms of the Agreement to determine whether it is a License or a Lease. While the distinction is sometimes difficult to discern, the consequences of getting it wrong can be significant. For example, if an owner simply locks out an entity it believes to be a licensee but that is actually a tenant, the tenant has potential claims against the owner for any number of causes of action, including, but not limited to, wrongful eviction, trespass, and breach of contract.

So, what will a court look to in order to ferret out the nature of the relationship between the parties? Generally, a lease exists where the owner agrees to turn over exclusive possession of the property to another for some period of time. A license, on the other hand, is an agreement that gives the licensee permission to use the land only at the owner's discretion. A license is freely revocable, and does not provide for protection for the licensee against interference by the licensor.

Does the document give the non-owner any rights in the premises, such as the right to perform repair work or to be responsible for security? Must the owner give notice before terminating the agreement?  Does the document contain a “cure period” in the event of a default by the non-owing party? Is there a holdover provision in the document? If the answer to these questions is “yes,” then it is unlikely that the arrangement between the parties is a true license, even if the document is titled as such, and is probably a lease.

If you have any questions about this post or any real estate matters, please contact me at tpmckeown@nmmlaw.com.