Lease And License Agreements: Key Differences, Essential Conditions, And Legal Requirements

On alternate Saturdays each month, William and Kate make part of the bottom field of their farm, ‘Cambridge WK’, available as a market where local residents and businesses can hire stalls to sell their products.

The relevant hire agreement provided to the abovementioned residents and businesses, and signed by all parties, contains the following clauses:

Hire Agreement between Cambridge WK (WK) and the Hirer

1. The Hirer is entitled to exclusive occupation and use of stall number(s) [A1 and A2] for the period of one year from the date of this Hire Agreement. (A diagram is attached showing the number and location of each stall).
2. If the Hirer does not use any of the stalls for a particular day or month, then WK may allow other persons to use those stalls.
3. The Hirer must pay rental to WK before the end of each month. The rental payable is calculated by the number of stalls actually used during each month.
4. The Hirer must keep the stalls in good repair and sanitary order. WK may enter and inspect the stalls at any time.
5. Either party may terminate this Hire Agreement at any time by giving one month’s notice in writing. However, WK may terminate without notice if the hirer fails to pay rental, fails to repair any damage to the stalls or otherwise misbehaves.

Peter is the registered proprietor of 20 hectares of land in the Margaret River region of Western Australia. For many years he planned to develop the land into an exclusive residential complex. In 2012, Peter completed “Vintage Estate”, a cluster of 20 luxury homes dotted around a large artificial lake. Twelve homes have been sold and the others retained by Peter and leased to stressed mining executives. All owners of homes in “Vintage Estate” are entitled to private recreational rights over the lake, including access by boat ramps from each of the properties to the lake. Peter owns the land on which the lake is situated and maintains it.

In 2019, Peter decided to retire to the Tuscany region of Italy and sell his interest in “Vintage Estate”, and the land on which the lake is situated, to Andrews Pty Ltd (Andrews). Even though the sale has not yet been completed and its interest registered, Andrews is concerned about maintenance and insurance costs associated with the lake and plans to prohibit residents from using the lake for recreational purposes.

The owners of the homes claim their rights over the lake are in the nature of an easement.

Andrews claims the rights do not satisfy the four elements required to establish an easement.

Using the four-step process, explain whether or not the owners of the townhouses will be able to retain their rights to use the recreational facilities over the lake.

Lease Agreements: Legal Requirements and Essential Conditions

Lease

A lease is a contract in which a person is allowed to make use of premises or part of premises for a definite period of time. Lease provides exclusive possession of the premises to the individual however ownership remains with the lessor.. There are some essential conditions which must be contained in lease agreement which is prescribed as below –

• There is the intention of the owner and tenant to enter into a legal contract with each other.
• The owner should provide the tenant exclusive possession of the property.
• There should be a definite lease term of the lease period and periodic rent.

In the absence of any of the above three elements, there is no legal existence of lease. In addition to this, the lease agreement should be written and signed by involved parties.

License 

The license agreement is the contract that permits a person to enter, use and possess the premises in exchange for fee. It does not provide exclusive possession of the property. It means that property is not enclosed and the person is not allowed to lock the door to exclude other individuals. For creation of license agreement certain terms and conditions must be satisfied, which is described as follows –

• There is the intention of licensor and licensee to enter into a legal connection with each other.
• The licensor must not offer licensee with exclusive possession of the property.

A person can enter into a license agreement and can use only a part of the property. Normally, if a person wants to use property in a temporary manner then in such case license agreement can be preferable.

The main difference between lease and license is that lease provides the exclusive possession to the tenant during the term of lease period. By this exclusive possession, the tenant has rights to remove unwanted outsider including landlord. On the other hand, by the license agreement, licensee acquires the right to use the property and has not acquired the exclusive possession of the property; therefore he/she cannot remove any unwanted outsiders during the term of license without the prior approval of owner. Along with this some of the key difference between lease and license is described as below -

It has been already explained that in the lease agreement, tenant has right of exclusive possession of the property. They can expel an unauthorized visitor from the property. It assists that tenant can take action against landlord in case of infringement if he/she comes into the premises without consent of tenant and without authorization as per condition of lease. On the other hand, in case of license, licensee does not acquire exclusive possession of property; therefore landlord can enter into premises as per their will.

According to section 105 of the Property Law Act 1974, under the lease, it is duty of tenant to pay the specified amount of rent and maintain the premises in a good condition excluding in case of fire, flood or any related activity leading the premises not suitable for any purpose.  However, this condition can be modified by express terms of lease agreement. On the other hand, in case of license, the repair and maintenance obligation and payment of rent are based on the terms and conditions of license agreement.

License Agreements: Legal Requirements and Essential Conditions

According to section 121 of Property Law Act 1974, landlord cannot in an unreasonable manner deny to accord to the suggested sublease. This section cannot be omitted by the express condition of the lease, but will only function in conditions where the consent of the landlord is required in an express manner.  On the other hand, in the license agreement licensee has a mere personal right to use and occupy the premises, and is not capable to enter into a sublease except the express conditions of the license agreement permit it.

In case of a lease, if tenant violates the repair obligation, then under section 112 of the Property Law Act 1974, landlord has right to recover the damages equivalent to the reduction in the value of premises. However, in case of forfeiture of lease, it is required by landlord to comply with conditions of section 124 that is related to notice.  On the other hand, in license agreement, repair and maintenance duty of licensee is based on terms of license.

On the basis of the above analysis, it can be said that lease and license agreement are different in nature. Further in the legal case of Radich V Smith (1959), whether the terms and condition between parties are considered as lease or license is properly explained. In this case, Radich entered into a deed of contract to carry milk bar out of the lock-up shop. Under this contract, Radich was granted sole and exclusive license and to carry their business of milk bar. However, in this case notwithstanding the use of term license, it was held by High Court that agreement is considered as lease, and premises were granted to Radich for specified period of time. Further, it was stated was High Court that Radich was implicitly permitted to remove unwanted visitors and to carry their business of milk bar without illegal entry or interference. This provides her a right of exclusive possession of the property for the period of her occupation, an arrangement more suitable with leasehold interest.

For the ascertainment, whether the agreement is considered as license or lease, it is required to take into account the entire agreement not just isolated conditions so that rights and interest of the parties intended to create can be determined in the proper manner. In the present case, it has been observed that there is an agreement take place between Cambridge WK and Hirer. On the basis of term of agreement, it has been seen that Hirer is entitled to exclusive occupation and use of stall. The term of agreement is one year from the date of agreement. Further, it is required by hirer to pay the rent at the end of each month. Moreover, obligations related to repair and maintenance of stall in good condition is possessed by the hirer. Both parties have right to terminate the contract by giving notice of one month. On the basis of above terms and condition, it has been seen that hirer has right to use of stall, and carry their business. Therefore, hirer was implicitly permitted to remove unwanted visitors and conduct their business. This provides a right to exclusive possession to hirer of the premises for the period of occupation. Further, obligation related to repair and maintenance is also possessed by hirer, which is another condition of lease. Moreover, it is also required by hirer to pay the amount of rent every month. By considering above analysis, it has been asserted that agreement between Cambridge WK and hirer is regarded as lease agreement. The main reason behind the same is that hirer acquired exclusive possession of the property, and has right to remove any unwanted visitors. Since, in the legal case of Radich v Smith (1959), high court applied the same ruling, therefore on the basis of this it can be said that agreement between Cambridge WK and hirer is considered as lease agreement as the arrangement between involved parties is more consistent with a leasehold interest.

Key Differences between Lease and License Agreements

An easement is referred as a right of enjoyment by one person over the land of another person. The right will affect by general proprietorship moralities. Generally easement is not having any purpose of obtaining the land or building far from original owner. The requirement of places such as garden, parking or some other assists towards the easement.

There are four elements which are required to be present for establishment of easement. The same elements are discussed by the court in the case of Re Ellenborough Park. These elements are described below –

Dominant and Servient land

There should be both dominant and servient land. Dominant land is advanced by the easement. Servient land is burdened by easement (Municipal District of Concord v Coles). It is required that there should be dominant land, and easement connected to that land.  Further, an easement cannot be present in gross, that is right cannot be provided to individual in a personal manner. At the time of granting easement, the grantor of land should possess some part of the land, because there is no easement if there is no land for it to attribute it. Moreover, for a valid easement, it is not essential that dominant land expressly defined, the court may on the basis of circumstances be able to identify the dominant land. On the other hand, for servient land, it is mandatory that there must be servient land which can be explained and pointed out. The same is provided in the legal case of Woodman v Pwllback Coillery Co Ltd.

The easement should be Accommodate the Dominant Land

The easement should be providing benefits to the dominant land. It should be linked with the enjoyment of the land as such; therefore a mere personal benefit is not sufficient. Along with this, there should be some close connection between dominant land and servient land. However, it is not essential that dominant land and servient land should be adjacent. Further, it is not required that benefit should be restricted to the dominant land only. For example, a right of way is considered as valid easement even it provides benefit to any person who passes by this route, who is not related to dominant land. In case of subdivision of dominant land, then benefit of easement would be enjoyed by both owners of the subdivided land. The same is prescribed in the legal case of Gallagher v Rainbow.

Easement: Four Elements Required for Its Establishment

Dominant land and servient land should be owned by different person

Since no person can obtain the rights against themselves, therefore it is provided by the common law that for a valid easement the dominant land and servient land must be owned by a distinct person. According to the common law, if the land is subject to easement for the advantage of another land, and afterwards dominant and servient land comes into ownership and occupy by the same person, then in such case servient land is terminated by operation of law. This ruling has been applied by the court in the legal case of Post Investment Pty Ltd v Wilson.

On the other hand, this situation has been amended by law to permit developers to establish development with easement in place –

• Even if benefitted or burdened land by easement have the same registered owner then in such case document of easement can be registered.
• Only because of servient land comes to be allocated to the dominant land, and then also easement cannot be extinguished.

Easement should be able of making the subject-matter of the grant

It is essential that easement should not be explained in too general and vague terms which assist in the creation of easement incapable being allowed. The grantor should be able to grant the easement and grantee should be able to receive it. In the legal case of Owner of East Fremantle Shopping Center west Strata Plan 8618 v Action Supermarkets, it was held by court that right to park is considered as valid easement. Further, in the case of Tujilo v Watts, right to use full land for recreational purpose is also considered as valid easement.  Further, right should be one of benefit or utility, not only for recreation. The right to use a park is not only for recreation purpose due to a beneficial feature of residence and therefore has value.

Further, there are a number of ways by which easement can be created such as –

• By the way of express grant.
• By the way of implied grants.
• By the way of prescription.
• By the way of equity.

If the grantor expressly grants an easement to the grantee, then it is referred as easement by way of express grant. It is required that the grant should be in writing. However, if the essentiality of writing does not comply then easement would take effect in equity only. Further, implied grant is applicable in case subdivision takes place and owner retain some part of the land. In case easement is granted by way of prescription, the claimed right should have been constant and without any disturbance, for at least a period of twenty years. It should not be fraudulent.

Along with this, in case of violation of easement, there are several remedies available such as abatement, damages, relief, injunction, and Tort in nuisance.

Will the Owners of the Townhouses Retain Their Rights to Use the Recreational Facilities over the Lake?

In the present case, Peter is the registered owner of land and has constructed 20 luxury apartments around the great artificial lake. Out of 20 apartments, Peter sold 12 apartments and others are leased to mining officers. All owners of the house entitled to private recreational right over the land, comprising access by boat ramps from their land to the lake. The land is owned by Peter and maintains it. In the year 2019 Peter decided to sell this land to Andrews Private Limited, however sale has not been completed. Since Andrew is disturbed due to cost associated with insurance and maintenance, therefore, wants to restrict the member from using the lake for leisure objective.

In this case, dominant land is benefitted by the easement and servient land is burdened by the easement. Further, dominant land is connected with easement. The recreational right is not limited to the individual purpose as it is provided to all owners of department. Further, there is also close connection among dominant land and servient land. It has been observed that easement is also providing benefit to the dominant land. Since, in this case land and lake is not situated adjacent, but it is not essential element for a valid easement. Along with this, the third element is also satisfied is the present case, as the dominant land and servient land is owned by distinct person. Moreover, Peter is capable to grant the land and owner of the apartment are able to obtain it. The right to use a lake is not only for recreation purpose due to a beneficial feature of residence and therefore it has utility.

Therefore, it can be said that all four elements required for establishing an easement is satisfied and claimed by Andrew is not appropriate. Thus, Andrew cannot restrict resident from using lake for leisure, amusement, or recreational purpose.

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Online

Commercial Law [30 June 2019]< https://www.corneyandlind.com.au/commercial-law/lease-vs->licence/>

Case Laws

Concord Municipal District v Coles  [1905] HCA 35

Gallagher v Rainbow [1994] HCA 24

Post Investments Pty Ltd v Wilson [1990] 26 NSWLR598

Pwllbach Colliery Co Ltd v Woodman [1915] AC 634

Radich v Smith [ 1959] HCA 45

Re Ellenborough Park [1956] Ch 131

The Owners of East Fremantle Shopping Centre West Strata Plan 8618 v Action Supermarkets Pty Ltd  [2008] WASCA 180

Tujilo v Watts [2005] NSWSC 209