What are the Main Differences Between a License to Use a Space vs. a Lease?

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Usually, a lease demands an oral or written agreement between two parties, the landlord and the tenant. The tenant has the right to use the property in any way they like, as outlined in the lease agreement. The agreement provides a space for a specific time frame for a payable rent, and it gives the tenant exclusive occupation. A lease cannot be easily terminated until it expires (unless there is a break clause). Leases are a good transition to a longer-term solution.

A license does not always demand a written agreement. It can be granted without the licensee and the owner ever meeting. A license is an agreement that gives the tenant the right to occupy the space for a determined amount of time, usually when renting spare offices and desks within someone else’s space.

Here are the main differences.

Interest in Real Property

For the lease term, you have some ownership rights, as discussed in the contract. You have the right to keep anybody out, even the landlord, while a license does not provide any interest in the property.

Transferability

You can also transfer your lease to another person, i.e., when people sublet a space; however, you typically cannot transfer a license.

Revocability

A lease is not revocable by the landlord, while a license is.

The Pros of a License

  • With licenses, you have the flexibility to quickly move out. They have short notices which allow the licensee to take as much space as they need.

The Cons of a License

  • The license doesn’t provide long term security for tenants. A landlord can also serve notice to vacate.

The Pros of a Lease

  • A lease gives you the security of space at a payable rent.

The Cons of a Lease

  • Leases often have higher up-front and back-end costs, including agent’s fees, dilapidations, and fit-out costs.

Licenses are more suitable for companies that have an idea of where they will be in the short or medium term. They allow teams to grow easily while finding a new location.

Leases are better for companies that have a medium to long-term plan or have special requirements for their space. They can benefit from exclusive occupation and future security of space.

Under a lease, tenants have exclusive rights to the space and may be allowed to perform alterations. A license for space simply allows the tenant to occupy a space. Under some circumstances, leases need to be registered with the land registry, while this is not the case with licenses.

Do you need help finding the right option for you? For more information, you can reach me at joe@joekillinger.co

Written by

Entrepreneur-Investor-Founder. Posting tips and insights from my experiences in real estate, investing & entrepreneurship- https://www.joekillinger.co/

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