The key differences between Licences and Leases

As a landowner, have you ever considered whether it is more appropriate to licence or lease your property?

When making this decision here are a few key tips to keep in mind.

Licence

A licence permits a licensee to non-exclusive possession to use and occupy the licensed area in accordance with the terms of the Licence Agreement. The licence period is often short-term, which offers flexibility for both parties. Licences are often used in circumstances like hiring a lecture room, community hall, conference centre, mobile telecommunications tower, storage-space or car-space. Terminating a licence is reasonably straightforward; it simply concludes at the end of each licence period, whether that is a few hours, a day, or 12 months.

The licensee pays a licence fee for using the premises and may be responsible for certain expenses such as outgoings if specified in the license agreement. As a licensee, you are not protected under any tenancy laws or the Transfer of Land Act 1958 (Vic).

Lease

A lease of property or land grants a proprietary interest in land and a right to exclusive possession to the tenant. Leases are afforded a degree of protection under the Transfer of Land Act 1958 (Vic) and the Retail Leases Act 2003 (Vic). Similarly, the terms and conditions of a retail lease are governed by legislation, which can be both beneficial and detrimental for a landowner.

A lease is generally used in circumstances where premises are being occupied full time (not including any area intended for use as a residence).

A Retail Lease arises where the terms of the lease relate to premises being used, or to be used, wholly or predominantly for the sale or hire of goods by retail or the retail provision of services such as a café, clothing shop, certain warehouses, or premises in a building located entirely on any of the first three storeys of a building.

A lessee may request the landowner to register a lease for any term exceeding three years with the Land Titles Office of Victoria, indicating the lessee’s interest in the property. Some Australian states require a lease to be registered, but the registering of a lease is not compulsory in Victoria. 

It is important to consider the purpose and use of the land or property. Do you prefer a long-term tenure offering exclusive possession of a premises or a short-term arrangement, which cannot be registered and does not vest the licensee with an interest in the land?

Landowners often mistakenly enter into a transaction thinking it’s a lease when, in fact, they have created a licence instead or vice versa.

In the event of a dispute, a Court is likely to examine the contents of the document by determining the nature of the right which the parties intend the person entering upon the land shall have in relation that land. For this reason, licence agreements and leases should be carefully drafted reflecting the parties’ intentions.

Lewis Holdway Lawyers provides legal advice in relation to licence agreements and retail leases.

Contact Ita Wong ita.wong@lewisholdway.com.au or John Wardlaw johnw@lewisholdway.com.au if you have any questions about this topic.