In the modern legal landscape, the name given to a document or agreement may not accurately reflect its true nature. For instance, when you have permission to use someone else’s land for a specific purpose, you might have entered into a written agreement with the landowner that outlines the terms and conditions of your occupation. This agreement may be referred to as a license or licensing agreement, suggesting that you have a personal right to enter and utilise the premises.
However, upon closer examination, the so-called license could actually be a lease, granting you an interest in the land itself along with the rights and responsibilities of a tenant. In such cases, courts prioritise the substance of the agreement over its terminology, examining its true nature rather than its language to ascertain the genuine intentions of the parties involved.
Understanding the practical distinction between a lease and a license can help you determine your rights and obligations, preventing costly litigation in the future. Here are some key differences between the two:
Exclusive Possession: A lease grants the tenant exclusive possession of the premises, allowing them to remove unauthorised individuals, including the landlord, during the lease term. On the other hand, a licensee merely has a license agreement to occupy the property and lacks the right to exclude others.
Registration: A long-term lease (exceeding three years) may need to be registered on the title to protect against competing interests. However, a license cannot be registered and does not grant the licensee an interest in the land.
Rent and Repair Obligations: A lease typically entails payment of rent and maintenance obligations specified in the lease agreement, whereas a licensee’s responsibilities depend on the terms of the license.
Right to Assign or Sublease: A tenant under a lease may have the right to assign or sublease the premises with the landlord’s consent, while a licensee is generally unable to do so unless specifically permitted in the license agreement.
Right of Forfeiture/Re-entry: The landlord cannot forfeit a lease and retake possession without following legal procedures, such as providing notice of forfeiture and allowing the tenant an opportunity to rectify any breaches. However, a licensee does not have the same protection and may be subject to termination at the landowner’s will.
Other Differences: There are additional distinctions related to repair obligations, shared occupancy, subdivision approval requirements, and more, which vary between leases and licenses.
A prominent case example, Radaich v Smith [1959] HCA 45, illustrates the importance of examining the parties’ intentions rather than relying solely on the terminology used in the agreement. Justice Windeyer emphasised that the key consideration is the nature of the right intended for the person entering the land, rather than the labels or terms employed.
Therefore, when assessing your agreement, it is crucial to carefully review the entire document to determine the rights and interests the parties intended to establish, instead of relying solely on the agreement’s name or isolated terms. If you need help distinguishing your legal documents whether a lease or a licence, contact Legalease Lawyers on 0402 121 124 to guide you through the process.
