Lease or license Australia

Lease or licence – which is for me?

I know all this.  Just take me to where I can select a document to buy.

All property transactions are governed very strictly by statutory regulation.  Tenants are afforded the most protection as they are in a weaker negotiating position.

This article will be useful reading to both tenants and landlords. It is important that you have the right agreement in place and that you know your rights and responsibilities.

Choosing between a lease and license is simply a choice of convenience. Some situations suit a lease document better, some suit a license.

When to choose a lease:

Here are two examples of leases for illustration purposes:

a.                   If someone occupies your house as a holiday home, they are not protected by the legislation regarding leases.  However, if they sell their house and come to live in your holiday home, they are protected under the lease agreement legislation! 

b.                   Similarly, if you let your land to a farmer, he is protected.  If you let it to your neighbour to graze her horse, she is not protected.

As illustrated, each situation is unique. An arrangement where I allow you into possession of my property in exchange for a rent payment is, on the face of it, a lease or tenancy agreement (these words mean much the same thing).  A lease constitutes a continuing agreement, not a short term one.

When to choose a license:

A license generally comes out of the regulations provided by statute and the situation is very informal.  A lease creates “an interest in land”; a license does not.  With a license, the property owner is effectively saying “OK, you can occupy my property for a while, but I can interrupt at any time and ask you to leave.” To a property owner, the advantage of a license is that in certain circumstances, it is easier to exercise control. The disadvantage is that if the arrangement is to stay outside the regulated environment (and provide you with the associated benefits of flexibility), it must not be dressed in the clothes of a lease. So, if an issue about a licence comes to court, the judge will “prefer” treating it as a lease (so giving the protection to your licensee that he would have if he was a tenant). If you want your deal to be a licence, not a lease, you have to make sure you do not accidentally add terms, or even phrases, usually found in a lease.

Still confused?

There are some general rules about when to choose a licensee and when to choose a lease. If your scenario is not included in the list of license indicators below, treat it as a lease (as this is the way it will be interpreted in a court)

Net Lawman does not see it as part of our task to involve you in litigation - on the contrary, we try to keep you as far away from court as possible. All our documents are set up for a safe scenario.  We do supply licence forms, but only for situations where the circumstance are “cast iron” in favouring the interpretation of licence.

While the label the parties put on the document is a factor, it is by no means conclusive.  What matters is whether the terms of the transaction are characteristic of a license or of a lease. Unfortunately, there are no set rules.  The court will look at each case separately, so just very roughly:

These characteristics point to a lease:

•  there is a written agreement setting out the terms of occupation
• the area of occupation is precisely defined;
• the occupier enjoys exclusive occupation - it is not shared (except with other tenants)
• there are no services included in the money paid for occupation - but they might be stated as a separate item;
• the money paid does not cover a host of property outgoings too.
• the property owner cannot terminate the occupation on very short notice
• in the round, and subject to the terms of the arrangement, the occupier is in a position to say what goes on in the property.

These characteristics point to a licence:

• the landlord has not set up the arrangement with a view to avoiding the obligations he would have if the arrangement was a lease;
• the area of occupation may not be precisely defined
• the occupier shares some or all of the occupation, probably with the landlord;
• some services are included in the licence fee - Council rates, electricity or ironing!
• furniture, fixtures and fittings are included in the deal;
• the owner can terminate the occupation on little or no notice;

Which is best for me?

If your situation is any of the below, you require a licence:

• a multi-let office building with shared facilities, such as “serviced offices”;
• a lock-up garage;
• a license by you or me to allow our own limited company to occupy a room in our house as an office;
• a license for a lodger to occupy a room in your house;
• a holiday letting - even for several months;
• occupation of land for leisure - such a grazing ponies.

All other applications are best agreed through a lease document.

Relevant Net Lawman document templates:

Commercial property documents

Residential property documents