Differences Between Leases And Licenses of Real Property

Differences Between Leases And Licenses

of Real Property

wners of real property seeking

to give a third party the right

to use all or a portion of their

property may do so through

the grant of a leasehold inter

est or a license. Leases are generally viewed

as more appropriate for a longer-term occu

pancy on an exclusive basis, and licenses

are generally viewed as more appropriate

for shorter-term arrangements and for non-

exclusive uses. In many cases, however, the

distinction between the two interests can

be blurred.

A lease typically grants to the lessee an exclu

sive right to specific property of the lessor for

a set term of years, in consideration of the pay

ment of rent. The lessee receives an interest in

the property for that set term, and such interest

is not revocable at will by the lessor (unless

expressly provided for in the lease).

In contrast, a license typically grants a right

or privilege to conduct one or more activi

ties of a temporary nature on the licensor’s

property. A license does not constitute a real

property interest. A license will usually be non-

exclusive, with the licensor and other parties

also having a right to use the licensed property.

Additionally, a license is generally revocable at

will by the licensor unless the agreement pro

vides otherwise.

Differences in Remedies

From a property owner’s perspective, enter

ing into a licensor-licensee relationship with a

user of its property can offer important advan

By Peter E. Fisch and Salvatore Gogliormella

May 28, 2024

Peter E. Fisch Salvatore Gogliormella

PETER E. FISCH and SALVATORE GOGLIORMELLA are partners

at Paul, Weiss, Rifkind, Wharton & Garrison.Bianca D'Agostaro, an

associate at the rm, assisted in the preparation of this article.

TRANSACTIONAL REAL ESTATE

May 28, 2024

tages. It is easier to remove a licensee from

the property than it is to remove a tenant. A

licensee does not hold an estate in the prop

erty, so absent a contractual agreement to the

contrary the property owner may terminate

the license agreement at will (for any reason

or no reason at all) regardless of whether the

licensee has defaulted.

In New York, a property owner that revokes

a license may elect to remove the licensee

either by serving a ten-day notice to quit and

commencing a special court proceeding or

by using peaceable self-help (e.g., changing

locks or disactivating a key card). If the court

finds that the self-help was forcible and not

peaceable, the licensee’s only remedy will be

damages. The licensee is generally not enti

tled to restoration of its right to use the prop-

erty or to equitable remedies, like an injunction

or specific performance.

In contrast, to remove a tenant and terminate

a lease agreement prior to the expiration of the

term, a landlord must generally go through an

eviction process, which can involve drawn-out

proceedings and is often expensive. The land

lord must provide the tenant with notice and

an opportunity to cure before the landlord may

commence an eviction proceeding.

Tenants may have defenses to an eviction

in New York. If an eviction is contested, the

process can take months, or even years—and a

property owner may lose opportunities to relet

the property and may not ultimately recoup lost

rents and expenses incurred in connection with

the eviction process.

Self-help rights against the holder of a

leasehold interest are generally not available

unless specifically provided for in the lease

agreement. Moreover, courts are generally

hostile to a property owner’s use of self-help

against a lessee, even when it is provided for

in the lease.

When a lessee is wrongfully removed from

a property, the lessee may be entitled to dam

ages, and would also be entitled to restora-

tion of its possession of the property (unless

the court determines that the property owner

would have nevertheless prevailed in proceed

ings to eject the lessee).

Even a license may be entitled to enhanced

protection if it is coupled with a leasehold

interest. For example, in Blenheim LLC v. Il

Posto LLC, 827 N.Y.S. 2d 620 (N.Y. Civ. Ct.

2006), a building owner leased portions of the

basement and ground floor to a restaurant

operator for 25 years, and the lease agree

ment included a “revocable license” to use

vault spaces in the building.

The property owner attempted to revoke such

license and remove the tenant from the vault

space. The restaurant operator argued that its

use of the vault space was necessary to its

restaurant business, and that the license was

therefore appurtenant to its lease and could

not be revoked.

The court agreed, holding that a right that is

essential or reasonably necessary to the full

beneficial use and enjoyment of the leased

Parties entering into an agreement for

the use of real property should consider

whether they intend to create a lease

or a license because the nature of the

arrangement may signicantly affect the

rights and remedies of the parties.

May 28, 2024

property, may not be revoked or otherwise ter-

minated until the lease expires.

The court relied on cases such as Riccardo’s

Lounge Inc. v. Maggio, 9 Misc.3d 1112(A) (N.Y.

Sup. Ct. 2005), in which a restaurant-tenant’s

use of a basement from the commencement

of the lease term to store plumbing, pipes and

grease traps had created an appurtenance.

The court distinguished cases in which a

tenant’s mere convenience in its use and

enjoyment of the space did not create an

appurtenance, such as Mammy’s Inc. and

Pappy’s Inc. v. All Continent Corp., 106 N.Y.S.2d

635 (N.Y. Sup. Ct. 1951), where a restaurant-

tenant’s use of a parking garage to dispose

of garbage had not created an appurtenance

because the tenant had alternative means of

disposing of the same.

The court in Blenheim found that the restaurant-

tenant needed the vault for its compressors, hot

water heaters and elevator machine equipment,

which were necessary for the full beneficial use

and enjoyment of its business, and so concluded

that the license was actually not revocable.

Determination of Nature of Arrangement

Whether the parties characterize the agree

ment as a lease or a license is not always dis-

positive of how the agreement will be treated

under the law. In determining whether an agree

ment is a license or lease, courts consider more

than simply the name of the agreement. Courts

seek to ascertain the intention of the parties

in entering into the agreement. Courts con

sider whether the granted use is non-exclusive;

whether the property owner retains controls over

the property; and whether the property owner

provides services essential to the other party’s

use of the property.

Courts also take into account the equities of

the situation. In general, courts will conclude

that an agreement is a lease if the document

grants exclusive use for a set period of time, and

a license if the document grants non-exclusive

use and the property owner is expressly entitled

to terminate the agreement at will.

For example, in American Jewish Theatre,

Inc. v. Roundabout Theatre, Inc., 610 N.Y.S.2d

256 (N.Y. App. Div. 1994), the court consid

ered an agreement that was labeled a license

agreement and held that it was, instead, a

lease agreement. The plaintiff theater com

pany in this case brought an action for

injunctive relief in relation to a rental dispute.

Generally, injunctive relief is only afforded to

tenants, not licensees.

The court relied on the fact the agreement

entered into by the parties gave the plaintiff a

six-month fixed right to use the premises, which

was not revocable at will. As such, the court

found that the relationship between the parties

was that of landlord and tenant, despite the styl

ing of the agreement as a “license”.

Similarly, in Nextel of New York, Inc. v. Time

Management Corp., 746 N.Y.S.2d 169 (N.Y. App.

Div. 2002), the court affirmed injunctive relief

where the parties had entered into an agree

ment labeled a license agreement because the

court found that the agreement was really a

lease agreement.

In Nextel, the defendant property owner

appealed an injunction that was granted to the

plaintiff, arguing that because the relationship

between the parties was licensor-licensee, an

injunction could not have been granted. The

court, however, found that the rooftop cellular

agreement entered into was a lease and not a

May 28, 2024

license, as the agreement contained many provi-

sions typical of a lease.

The court emphasized certain factors, includ

ing the following: the agreement was for a term

of five years, with five automatic renewal terms

of five years each; Nextel’s equipment would

not become fixtures; Nextel retained title to

its equipment; Nextel’s employees had unlim

ited access to the premises; and Nextel was

expressly granted the right to quiet enjoyment.

Because these provisions were typical of a lease

agreement, the court concluded, an injunction

was an appropriate remedy.

More recently, in Union Square Park Community

Coalition, Inc. v. New York City Department of

Parks and Recreation, 22 N.Y.3d 648 (2014), the

New York Court of Appeals considered whether

the New York City Department of Parks and

Recreation illegally leased parkland—a pavilion

in Union Square Park—to a private restaurant

company, as parkland could not be leased or

alienated without legislative approval.

The agreement between the Parks Department

and the company was labeled as a “license

agreement” and permitted the company to oper

ate a seasonal restaurant in the pavilion for a

term of fifteen years.

Per the agreement, the restaurant was only

permitted to be open from mid-April to mid-

October from 7 a.m. until midnight each day.

The company was obligated to pay an annual

license fee and spend at least $700,000 on capi

tal improvements.

The court ultimately found that, despite a 15-year

term and payment structure, the agreement was

what it purported to be—a revocable license

agreement. The court relied on the fact that

the agreement contained several provisions that

illustrated the Parks Department’s retention of

extensive control over the daily operations of

the restaurant.

For example, the Parks Department reserved

the right to approve all menus, schedules, ser

vices, merchandise and prices, and required the

company to use specific vendors as suppliers,

offer outdoor seating to the general public and

community programing, host at least ten annual

charity fundraising events, and provide culinary

internships for local students.

The court also emphasized that the agree

ment contained a broad termination clause per-

mitting the Parks Department to terminate the

license at will (so long as the termination was

not “arbitrary or capricious”) upon twenty-five

days’ prior written notice, without any obliga

tion to reimburse the company for the cost of

its capital improvements.

Conclusion

Parties entering into an agreement for the use

of real property should consider whether they

intend to create a lease or a license because

the nature of the arrangement may significantly

affect the rights and remedies of the parties, and

courts may look beyond the parties’ character

ization, and scrutinize the terms, of the arrange-

ment in determining whether it constitutes a

lease or a license. An owner that intends to cre

ate a license (or a user that intends to enter into

a lease) should ensure that the provisions of the

agreement reflect such intent.

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