The Dirt Dictionary: L is for Lease (Or Maybe It’s a License)


“We need to lay-off three or four rooms in the new suite we’re renting, so let’s have a form of sublease—or is it a license?—ready to go.”

As the above words were uttered by an experienced lawyer, we can safely say that the distinction between a real estate lease and license has had smart people scratching their heads for some time now.

SEE ALSO: How Private Lenders Stepped In Where Banks Fear to Tread

Lease or license, and what difference does it make? I know many see a license as some more casual type of rental, but does it really make any difference? I mean in our scenario we’re just looking to lay-off a few offices until needed.

Legal Definitions:

Lease: the grant of an irrevocable legal interest in real estate giving exclusive possession of a certain space, for a certain term and for a certain amount of consideration (rent). All fixed. Parties: landlord and tenant. A legal interest in the “land” is conveyed. Tenant can transfer its leasehold interest.

License:  the grant a revocable, non-legal, interest of the right to use an undifferentiated part of the premises, typically on a non- exclusive basis; a privilege; use and occupancy; granted subject to licensor’s right to revoke, for a certain amount of consideration (a license fee). Parties: licensor and licensee. The license is considered personal to the party receiving it (licensee) and may not be transferred without risk of termination.

So, to summarize: the lease gives a tenant some specific space for a fixed term and a scheduled rent (and here’s the practical nub for landlords): it is not simply revocable and if there’s a default and landlord has to sue to evict, then landlord must establish the bona fides of the alleged default and tenant is entitled to a number of procedural, due process safeguards which can make the process a long, drawn out and costly affair. The license here is practically distinguished by being revocable in nature and per NY statute the licensee can be evicted on an expedited basis. (NY RPAPL Sec. 713 (7): summary (expedited) eviction may be brought where the license has been “revoked by the licensor” provided the licensee has been given ten days prior notice. (Also See Lally v. Fasano and related cases (citations omitted))

A lease by any other name….

One last “don’t” for a licensor looking to remain one in the eyes of the law: don’t designate a particular space for licensee’s exclusive use. In Miller v City of New York, 15 NY2d 34, 255 NYS2d 78, the NY Court of Appeals considered a case where The City granted the right to construct a golf-driving range in a public park and to operate the enterprise for twenty years. The parties designated the agreement as a “license” or “concession”; the Court held the agreement to be a lease: “…Although the contract speaks of a ‘license’ and avoids use of the word ‘lease’ it contains many provisions typical of a lease and conferring rights well beyond those of a license or holder of a mere temporary privilege *** A document calling itself a ‘license’ is still a lease if it grants not merely a revocable right to be exercised over the grantor’s land without possessing any interest therein but the exclusive right to use and occupy that land…” (15 NY2d at p 37-8, 255 NYS2d at p 80). (Emphasis my own.)

A number of cases seem to hold that whether a particular agreement constitutes a lease or a license, grant of privilege or concession is a question of fact which must be resolved by examining the elements of the agreement.

Tread lightly.