Licence vs lease for warehouse space

The difference in plain language

A lease gives a tenant exclusive possession of defined premises for a term. For that period the space is the tenant's to occupy and control, subject to the lease, and even the owner generally needs the lease's permission to come in. A licence is permission to use space without exclusive possession. The owner stays in control and lets the user in on the licence's terms.

In a warehouse, a leased space might be a walled bay with its own doors and keys. A licensed space might be a striped area of floor, some racking positions or a cage inside someone else's operation.

Exclusive possession is the test

The central question is whether the user has exclusive possession: the right to occupy the space and keep others out, including the owner. No single factor decides it; the arrangement is looked at as a whole. These pointers help:

The label doesn't decide it

Calling a document a “licence agreement” doesn't make it one. If the substance gives the user exclusive possession of defined premises for a term, the arrangement may be treated as a lease, with the rights and obligations a lease carries, whatever it's called. The reverse can also hold: a document headed “lease” for a shared area the owner controls may not create a tenancy.

So draft the arrangement to match what really happens on the floor, then run it that way. A licence that gives the user its own locked room and tells the owner to stay out is a lease in waiting.

Why it matters to owners

• Ending it. A licence generally ends on the notice it sets. A lease runs for its term, and ending it early generally needs a default or a clause that allows it.
• Control. Under a licence you keep the right to manage and rearrange the space. Under a lease, you've given possession away for the term.
• The land. A lease is an interest in land. Depending on its terms and whether it's registered, it can bind a buyer of the building. A licence is generally a personal permission.
• Your own lease. If you rent the building, both leasing and licensing space to others usually need your landlord's consent.

Why it matters to users

A lease gives you security: the space is yours for the term, and the owner can't simply ask you to leave. It also commits you, because rent is due for the whole term and leaving early depends on the lease. A licence gives you flexibility, often month to month, but less security; the owner can end it on notice, move you, or decline to renew.

If your business depends on staying put, with equipment installed, customers visiting or a business licence tied to the address, a lease is usually the better fit. If you need overflow storage for a season, a licence is often enough. The user's view of each is covered in month-to-month space and direct leases.

When each is appropriate

Each is covered in more detail: short-term licences, shoots and events, leasing out a unit and subleasing your surplus.

What each document should cover

Both need the parties; the space, shown on a plan; permitted use; the fee or rent and what's included; insurance, release and indemnity; condition at the end; and a clear ban on anyone living in the space. Then they diverge:

• A licence adds a statement that no exclusive possession is granted, the owner's right to relocate the user, access hours and rules, the notice period to end it, a goods policy, and the process for goods left behind.
• A lease adds the term and any renewal, base rent and additional rent with an annual reconciliation if it's net, repairs and maintenance, alterations, assignment and subletting, default and remedies, and restoration on expiry.

Get legal advice

Where the line falls is a legal question, and the consequences, from how you end the arrangement to what binds a buyer and what your landlord or lender must approve, can be significant. Have a lawyer prepare or review your standard forms once, then reuse them. Start with the options at Rent out, or size what you could offer with the rent-out planner.

Licence or lease? Questions to ask

• Does the user get a fixed, defined area that never changes?
• Who holds the keys, and can the owner enter freely?
• Can the owner move the user to another area?
• Is there a fixed term, or does it run until notice?
• Is the owner providing services, such as handling or security?
• Will the user install equipment or build out the space?
• Does the document match how the space is really used?
• If I lease the building, has my landlord consented?