§ 33.01 Introduction

• Jurisdiction: United States
• Publication year: 2022

§ 33.01 Introduction

[1]—Understanding the Distinctions

Most courts recognize distinctions between leases and licenses of real property and licenses to use real property. A lease gives the right of possession of the leased premises and exclusive use or occupancy of the property to the lessee for all purposes not prohibited by its terms. A license merely gives the licensee the right to enter onto the licensee's property for certain limited purposes. In other words, a license allowed the licensee to use space, but does not grant the licensee a real property interest. A license agreement for the use of real property is not a commercial lease of real property and income derived from a license agreement is not subject to privilege taxes.¹

In order to receive the benefits of a license agreement, the owner of the property must make sure that its agreement with the prospective user of the premises qualifies as a license instead of a lease.² A number of factors are considered when distinguishing between a lease and a license:

(1) The parties' intentions: Did the parties intend to create a lease or a license? Is that intention manifested in the specific terms of the transaction? Simply calling it a lease or license will not be decisive in determining the parties' intentions.³ Instead the court will look to the substance of the agreement to determine intent.⁴

(2) Occupancy rights: Does the grantee have the right to occupy a distinct and separate part of the premises (i.e., a defined parcel)? Exclusive possession of the leased premises is an essential characteristic of a lease. Additionally, there must be a conveyance of a definite space in order for the lease, rather than a license, to exist and both the extension and the location of the space within the lessor's premises must be specified.⁵

(3) Assignability of the grantee's right to possession: Assignability suggests a lease, whereas if the right to possession is merely a personal privilege a license is suggested.⁶

(4) Term: A fixed term suggests a lease.⁷ A license "denotes an interest in land in the possession of another which (a) entitles the owner of the interest to a use on their land; b) arose from the consent of the one whose interest in the land use is affected thereby; (c) is not incident to an estate in the land; and (d) is not an easement."⁸

(5) Level of control and possession conveyed: The nature of the transfer of absolute control and possession is what differentiates a lease from a license or any other arrangement dealing with property rights.⁹ Whether an agreement concerning the use of real property is a lease or a license depends on whether the agreement cedes a certain level of control and exclusive possession from one party to the other—a lease requirement.¹⁰ A lease conveys exclusive possession of specific property, creating a vested interest in exchange for (usually) the payment of rent.¹¹ "The license makes permissible acts on the land of another that would otherwise lack permission."¹² The licensor retains absolute control over the premises.¹³ Additionally, the license is revocable at the licensor's will and no estate is created.¹⁴ The agreement should contain a clause clearly stating that the licensor has the right to revoke at will. The licensor is able to avoid the long process of litigation, instead employing the self-help remedy to remove the licensee from the premises and thus regain possession. The self-help remedy exercised in the leasing context presents problems and dangers for the landlord.¹⁵ In New York, for example, if the court finds a landlord's exercise of the self-help remedy was improper—it may impose treble damages as a tenant remedy also with restored possession of the premises by the tenant.¹⁶

"Common law principles apply, and the owner-licensor has the absolute right to use peaceable self-help—at any time—to remove the licensee from the licensed premises for any reason or no reason."¹⁷ The issue still remains whether the self-help was in fact exercised peaceably. Still, in the license relationship, "the owner-licensor will not have to re-admit the ousted licensee to the premises, even if the self-help used is found to have been forcible and not peaceable."¹⁸ The licensor will only be subject to liability in the form of damages, which may be substantial—even treble if the removal of the tenant was done forcibly, but the court will not interfere with its ability to relicense the premises to another.¹⁹ Thus, the licensor will receive income from the premises while the court considers whether or not the self-help remedy was properly exercised. In either event, whether the owner is licensing or leasing the premises, it must exercise care when availing itself of the self-help remedy.

In contrast to the lease relationship, the license relationship does not create an estate in the licensee and there is no right to possession of the premises.²⁰ Basically, there are "three essential characteristics of a real estate license: (1) a clause allowing the licensor to revoke 'at will'...