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Leases and Licenses Grow Increasingly Indistinguishable

BY Marc S. Intriligator
January 30, 2012

Lately, it has become fashionable for some property owners to call their standard occupancy agreements licenses rather than leases. Perhaps the document will also contain a recital, buried among the assorted “boiler plate” provisions, that the parties intend to create a license rather than a lease. And the parties are called “Licensor” and “Licensee,” rather than “Landlord” and “Tenant.” Otherwise, except perhaps for some carefully selected deletions, the document virtually is indistinguishable from a typical lease.

In theory, a lease both grants a real property interest in the occupied premises and contains contractual terms between the landlord and tenant. A license similarly contains contractual terms upon which the licensor is allowed to use space, but without granting a real property interest to the licensee. Consequently, a license is thought to be less protective of the space user's interests, and thus more desirable to the property owner, than a lease.

The trend favoring licenses over leases raises two basic questions. First, will courts likely honor what essentially is a label given by the parties to their legal relationship, or will they instead examine the substance of the transaction in order to classify the arrangement? Second, what are some of the advantages and disadvantages of being a licensor rather than a landlord?

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