Lease Agreement vs. License Agreement

A Commercial Landlord’s Possible Safe Haven in NYS

In almost every commercial property setting, the “mindset of categorization” by and between the “Owner” and “Renter” is that of “Landlord” and “Tenant”. The legal instrument used to memorialize their arrangement has customarily always been a “Lease Agreement”.

A “Lease” is the conveyance of exclusive “possession” of specific real property… for …”consideration”, or rent….which vests an “estate interest” in the Tenant. If the Tenant fails to timely and consistently pay rent, the Landlord cannot invoke “self help” (meaning: changing of locks; entering the subject Premises; touching or displacing any of Tenant’s personal items located inside the Premises) prior to initiating a formal Eviction proceeding, and subsequently obtaining a “Warrant of Eviction”; whereby a Sheriff is appointed by the Court (and designated legal authority) to gain entry to the Premises, change locks, and have the Tenant and all personal items removed.

This process takes time, money, and effort… especially in “Post- COVID New York State”. While the Tenant continues to inhabit the Premises, “rent free”, the Landlord, who now cannot Lease out the premises or collect rent while litigation is pending (and can take up to 3 years to be concluded) is highly prejudiced. Even if a formal “monetary judgement” is ultimately secured against the defaulting Tenant, the likelihood of the Landlord ever actually “collecting” any past due rent monies (or recovering litigation expenses) is very slim.

With that said, is there any alternate arrangement or relationship dynamic that can be entered into between a commercial Landlord and Tenant in New York State, that helps “level the playing field” for Landlords who assume the risk of defaulting Tenants who become “hold over” non-paying squatters…while years of costly and lengthy litigation ensues?

Enter… the “LICENSE AGREEMENT”.

Although “similar” to a Lease Agreement, a License Agreement allows “permissible acts to occur on the property” of another, that but for the Agreement, would otherwise not be permissable. This arrangement, unlike a Lease Agreement, does not create a Leasehold interest in the property; nor a formal “Landlord/Tenant” relationship.

The Licensor can revoke the license “at will”, typically by giving the Licensee 60–90 days written Notice. Moreover, as the “License Agreement” creates no “estate interest” in the Licensee, in the event of delinquent or missed monthly “service payments” (from Licensee to Licensor), the Licensor is legally permitted to utilize “self help”…meaning no Eviction proceeding is required and no “Warrant of Eviction” need be procured. The Licensor can change the locks and remove the Licensee’s items absent any legal hindrance; however the “self help” must be conducted in a “peaceful” and “non hostile” manner.

Essentially, the “License Agreement” functions dynamically similar to a Lease Agreement… however if monthly payments (referred to as “Monthly Service Fees”… NOT “rent”, as again, no Landlord/Tenant Relationship is created) ever cease… the Licensor need not “formally evict” the Licensee. Moreover, if ever during the duration of the License Agreement, a new prospective Licensee comes along and offers more “monthly service payments” or offers to use the space for a more “favorable use” to Licensor…the Licensor can terminate the existing License Agreement simply by giving the current Licensee the requisite days written Notice as reflected in the terms of the Licensing Agreement.

It must be noted that a License Agreement must be carefully drafted so as to include all the requisite verbiage and provisions that assure the Agreement “is not”, and “cannot” be construed or interpreted as a Lease Agreement. Also, a caveat of a License Agreement is that the Licensee “does not inhabit or live in the Premises at all times, but rather irregularly”. This is why a Residential Property “rental” scenario would not afford a Landlord the social justice benefit of a License Agreement, as is so afforded in a Commercial Property setting.

In summation, although limited in availability, New York State Landlords (at least in a commercial setting) do have options to help mitigate damages and costs they may sustain and incur, should the monthly income they depend on ever become comprised and/or cease.

DISCLAIMER: THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TO BE RELIED UPON AS LEGAL ADVICE. NO ATTORNEY CLIENT RELATIONSHIP IS CREATED BY THIS PUBLICATION. AN INDEPENDENT LEGAL OPINION SHOULD BE OBTAINED BY THE READER.