Licence to Use Property Agreements: What to Know
What is a license to use property agreement?
A license to use property is an agreement between two parties (the licensor and the licensee) allowing the licensee to use an asset owned by the licensor. The most common license to use property is a licence to use land. A licence conferred under a licence to use property is non-exclusive, meaning that the licensor, such as the landowner, may confer the same or similar licence to others .
A licence to use property is relevant in the following examples:
• Granting someone a right to enter your land to undertake works or other activities, such as roadworks on roads and streets;
• A school giving permission to a school friend of a student to come to their house and visit after school hours;
• A rental car conferring a licence for the use of a particular vehicle for a period of time in return for a fee;
• A television or other media channel licensing the right to an individual or group to appear on its channel for the purpose of giving a public speech;
• A music artist conferring a licence for a nightclub to play certain songs on their playlist.
Essential Components of a Licence Agreement
The license to use property of an individual or business can take many forms that allow the licensee to proceed on some course of action without interference from the licensor. Defining features of a license agreement include its revocability, duration and denial of exclusivity (David Horton & Thomas J. Miles, "The Contract as Property" (2008) 75 U Chicago Law Review 1099 at 1101.) Consideration, sometimes referred to as a "licence fee" (Hugh Beale et al., "Contract Law: Text, Cases and Materials" 3rd ed (2012 Globe Law and Business) at p. 337) is also necessary for the validity of a license. From the perspective of the licensor, this ensures compensation for injury or damage caused to the property by the licensee. For the licensee, providing consideration in the form of a fee or advantage helps ensure uninterrupted use (Hugh Beale et al., "Contract Law: Text, Cases and Materials" 2nd ed (2007 Last Minute Concepts) at p. 63).
Purpose, Quick Reference:
Duration – how long the license will remain effective; Revocability – if revoked, when, by whom, and under what circumstances; Non-exclusivity – whether the rights granted to the licensee are taken from the licensor and its ability to use the property; Consideration – how much the parties will receive or give in exchange for the disposal of the property.
Differences Between a Licence Agreement and a Lease Agreement
A license agreement for right to use property is much different than the right to use property that a lease provides. For instance, a lease provides for an exclusive right to possess/exclusive possession of real property (i.e. the exclusive right to occupy). A license for the right to use property is simply a permission to be on the property for some purpose (e.g. attend a concert, play golf, visit a casino). Additionally, a lease agreement is usually for a lengthy period of time (e.g. one year) and often contains renewal terms. On the contrary, a license for the right to use property is typically for a short duration such as hourly, daily, or seasonally.
In addition, leases are recorded in the land records so that they can be binding on any future purchasers or other interested parties to the property. However, if the license is not recorded, then it will terminate when the grantor no longer owns the property (ex. sold or transferred to someone). If nothing is recorded, the grantee will no longer have rights to the property or the agreement under certain circumstances. However, a license agreement may also contain an option to lease provision that provides for a new right to use property as delivered by a lease.
The Advantages of a Licence to Use Property
When compared to other property use agreements, a license agreement can offer the flexibility that either a short term or a long term agreement could not provide. Many times, there are various uses of your property in the near future that an owner may not want to commit to. A license agreement allows you to grant a party the ability to occupy your space under the specific terms and conditions set forth in the license agreement.
If you are not certain as to how long a party will need access to your property, or if you are uncertain that the party’s needs will not change in the short term, this type of agreement can certainly limit the risk to you as the licensor.
Another benefit is that there are often fewer requirements to terminate a license than there are for a long term lease. A termination provision can be of short duration and can sometimes even be an oral agreement between the parties. This allows the parties to be free to move on without the need to incur excessive costs.
In some instances, the financial and use obligations of the party granted access to the property may be less than for a tenant. For example, utilities may not be paid by the party given access to the property. The actual rent that is charged can be less than market rent.
Common Applications of Licence Agreements
The uses of a license to use property are numerous and range from renting space in a commercial building on a long-term basis to an event that occurs for a short time period. Some of the common scenarios include:
EXAMPLES OF COMMON USES:
The following are examples of license to use property agreements:
EXAMPLE 1: Long-Term Commercial Lease of Office Space
In this example, these people contract with a business for a fee to allow them to occupy space to operate a medical practice. In return, the business (or lessor) receives payment.
EXAMPLE 2: Temporary Occasional Space in a Restaurant
With this example, a restaurant owner licenses space to a body art studio . The body art studio operates its business in the space. Any furniture, equipment, and fixtures belong to the body art studio.
EXAMPLE 3: Space Inside an Apartment Building
In this example of a fairly typical apartment building, a parking garage is on property owned by another. Instead of selling the spaces outright, the apartment building comes to an agreement with the parking garage business for a payment to the apartment building in return for the residents’ use of the parking spaces.
EXAMPLE 4: Storage Space
In this example, the convenience store contract with a third party for licensing storage space in its basement. The third party pays the convenience store for use of the space.
Factors to Consider
It cannot be overemphasized how important it is to have appropriate legal advice when drawing up a license to use property agreement and/or entering into it. The majority of cases I see where people lose out are because they did not take proper legal advice before setting it up, or its tendrils/mantra did not clearly set out what the parties understood to be the ground rules. One example of this is people thinking that it is a "licence" whereas it is actually an "easement". These have radically different implications – Ones that can be hugely damaging if they are not recognized before its too late.
In another case a person thought that a payment/monetary contribution by the "licensee" to assist with maintenance or refurbishment of the "property" was sufficient to convert it into a tenancy. Once again with the wrong legal advice, the parties failed to set out any conditions in the license agreement as to who would contribute towards refurbishment and how they would do so. Subsequently, as also happens, one party did not contribute at all or was unjustly enriched, forcing a costly and time-consuming legal fight to determine what their obligations were and to whom under the general doctrine of unjust enrichment (which is funny only in retrospect).
Many of the cases I see are of this nature, where there is a complaint from one or other of the parties (usually the "licensee") that what they thought they were "buying into" is not what they are now getting or are in fact restricted from doing. This not only leads to them losing out, but also sets them down the path of making an ill-judged decision when "all hell is breaking lose", cowed by intimidation from the other party, which can often have the upper hand – Unfortunately leaving them with egg on their face and unable to do anything about it thereafter. It is not uncommon for "licensees" to be told that they need to pay a much increased rent/charges thereafter if they wish to continue or that they need to renegotiate a completely new set of terms.
If you have taken legal advice but still drafted an inappropriate or discriminatory "license to occupy" agreement after all that, then you should think about talking to your lawyer. Remember always that it is better to seek legal advice before a conflict rather than after you’re embroiled in one.
In conclusion then: My advice is that you get legal advice prior to committing to a license to use property agreement so you don’t find yourself on the receiving end of the "trap" below as outlined in the case of Kenny v Preen (Kenny v Preen [1963] 2 QB 499): A licence "is personal permission to use property in some particular way which will otherwise constitute a trespass and is revocable at will… it is not like a contract of tenure… and unless a licence falls within those few or unusual cases where on public policy grounds revocation cannot be permitted, the licensor may with impunity revoke the privilege as abruptly as he pleases." (Beldam J).
How to Create a Licence to Use Agreement
When it comes to drafting a license to use property agreement, consider the following important steps:
1. Determine the Purpose
Consider what your license is for. Will it be to grant access to a property, or to allow for a member of the public to use a facility? Or do you want to give an external party to access a portion of your land, or property, for the purpose of affixing a structure such as a telephone tower?
2. Identify the Parties
As is the case with most agreements, there are going to be two parties involved in the process. Ensuring you have clearly identified the parties is essential.
3. Outline the Agreement
A property license agreement will never be a one-size-fits-all solution. There is a variety of types, and each of these will have different requirements, based on what it is you would like to achieve. It is vital to develop a comprehensive overview of the types of activities you want to include in the agreement, as well as the duration of this contract, and specific details about the property . To establish a solid understanding of what you would like to achieve with your license agreement, consider the following questions:
- When does the agreement begin and end, and can it be terminated prematurely?
- Is there a maximum number of uses outlined in the agreement?
- How many times per month will the property be required?
- Does the license allow for access to a portion of a property or the entire property?
- What are the particulars of how the space will be used?
- What are the responsibilities for upkeep and maintenance?
- Important Details
With a good outline and understanding of the agreement, you can begin to establish the finer points, such as:
- The creation date of the agreement
- The date of expiry
- Payment options, if applicable
- Details on liability (including insurance)
- Methods of terminating the license
- Assigning licenses to other parties, and what happens if the property is sold
- Customization
Although a license to use permit is quite a standard agreement, it is important for you to customize your version to reflect the types of activities that are going to be the focus. Our legal team will utilize the information you provide to cover the particulars of the license to use property agreement to ensure all bases are covered. Taking into consideration what it is you want to achieve with your licensing agreement is essential, and for this reason it might be a good idea to speak directly to our team, so we can ensure everything is covered prior to having the document created.