Despite the popularity of online retail, there are certain attractions to still having a physical space for customers to touch and feel your goods and engage with your team. Businesses will typically enter into a lease or licence agreement for their bricks and mortar store. This article explains the difference between a lease and licence to help you make the right decision.
What is the difference between a lease and a licence?
The main difference between a lease and a licence is that a lease gives you exclusive possession of a premises. This means that you:
- have exclusive rights to use and occupy the premise; and
- can remove or exclude other people from the premises, including the landlord.
In contrast, a licence only gives you a right to use and occupy the premises for a particular purpose. You cannot exclude other people while occupying premises under a licence.
Should I enter into a lease or a licence?
Most businesses enter a lease agreement for their bricks and mortar store. The last thing you want is for other people to be occupying and using the premises while you are trading. Provided your lease is properly drafted, it can also provide a greater level of security and formality to the arrangement when compared to a licence. The lease agreement clearly sets out the rights and obligations of tenants and landlords, and can be negotiated to suit each parties’ needs.
However, some businesses may benefit from the flexibility of a licence agreement. Licences are generally for a shorter term and may be more appropriate if you are only looking for a temporary space, for example if you have a pop-up store.
What happens if the property is sold?
However, a purchaser is not bound by a licence unless they have agreed to its transfer or assignment. This means that if you are licensed to use the premises, you may not be able to use or occupy it under the new owner.
- Leases give you exclusive possession of a premises while licences do not.
- Tenants are able to exclude other people from the leased premises, including the landlord.
- Most businesses choose to enter a lease agreement for their bricks and mortar premises.
- Licences may be appropriate for more temporary property arrangements.
How can Gladwin Legal help?
Gladwin Legal are experts in property law and have extensive experience in advising businesses. If you require assistance in drafting, reviewing or negotiating your commercial lease or licence, please contact us at or 1300 033 934.