What is the Difference Between a Commercial Lease and a License to Occupy Business Space?

When one party agrees to let another party use its business space, they must agree on the terms of use, the fee, the term and how the occupancy will come to an end. This is referred to as a license to occupy space, which is different from a commercial lease. A commercial lease is an agreement between a landlord/lessor and tenant/lessee to lease real property. The landlord-tenant relationship creates a leasehold interest. A license to occupy real property, on the other hand, is merely a privilege to use the real property, and no property estate is created.

A license is generally revocable by either party upon notice, at will – with or without cause and is usually not assignable the way a lease can be assigned to another entity with the landlord’s consent. A license to occupy is generally a personal right of the party to the license. The tenant and landlord have a relationship governed by the terms of the lease, and all the rights and remedies available under landlord-tenant laws (including the eviction laws), whereas the laws of the contract govern a licensee and licensor.

Generally, a license is for a shorter term than a lease. The parties may prefer a license agreement for an event to be held in business space for a seasonal duration (such as a Halloween store or a Christmas shop) or as a “pop up store” (which is a test run to see if the business location works). Also, in the retail context, a license for space in a larger department store is often called a “concession.” An example of a concession is a makeup counter in a retail outlet.

In the office context, a landlord may give a tenant a license to occupy space in the building while the tenant’s permanent leased space is being constructed/renovated, sometimes called “swing space.” Another example of a license of space is when a company licenses a conference room for an industry conference event to another business entity that will be occurring over only a few days. The parties do not need to enter into a full-blown lease with long provisions for such a short duration.

Both the license and lease agreements will, among other things, list the parties, a description of the space to be occupied, with a floor plan exhibit if applicable, the term (commencement date to expiration date), the fee (called rent or license fee) and the insurance to be carried by both parties. Note: A license to use space for a one-time event where food and drink will be served should include appropriate liquor coverage under the insurance coverage.

The Bottom Line

A license offers more flexibility for parties wishing to occupy space for shorter durations, with a simpler form of agreement. A lawyer can assist in reviewing whether a license or a lease is most appropriate in a given context.