January 13, 2012

Perhaps the better question is not whether the relationship at issue is one between a landlord and tenant or between a licensor and license, but whether it matters legally or practically? The short answer is that it does matter both legally and practically. But first, what is the distinction between a lease and a license?

The Court of Appeals, long ago, described a license as “a personal, revocable and non-assignable privilege, conferred either by writing or parol, to do one or more acts upon land without possessing any interest therein.” Licenses are commonly used for kiosks found in shopping malls or for cellular towers on roofs of buildings. Under a lease, the landlord surrenders “absolute possession and control of property to another for an agreed-upon rental.” Thus, the primary factor is whether the occupant has the exclusive right to use the premises. If the use is exclusive, the relationship is most likely a landlord/tenant relationship. If not, a licensor/licensee relationship likely exists.3 As will be discussed below, there may be reasons a landowner may want a licensor/licensee relationship, but it is important to note that courts will analyze the relationship to determine whether it is a licensor/licensee or landlord/tenant relationship and will not simply acquiesce in the characterization of the relationship used by the parties.

In addition to obtaining the exclusive use of premises that is the hallmark of a lease, what are the other factors to consider when deciding whether to enter a license or lease? The most obvious consideration relates to termination of the relationship and resulting eviction. Initially, as set forth above, the license may be revoked at any time. Thus, absent an agreement, the revocation, and thus termination of the license can generally come with no notice whatsoever. Any resulting eviction requires service of a 10 day notice to quit before commencement of a summary proceeding. Notably, the 10 day notice to quit is also required if the license term expires.

Another significant factor involves the ability of a licensor to exempt himself from liability for damages resulting from his own negligence. New York General Obligations Law §5-321 generally provides that a lease clause attempting to exempt a landlord from damages resulting from his own negligence is void as against public policy and is thus not enforceable. There is no analogous statutory provision applicable to a licensor. Thus, it is possible for a licensor to exempt himself from damages caused by his own negligence.

Yet another consideration is whether a licensee is able to obtain a Yellowstone injunction. As discussed in a prior article, to obtain a Yellowstone injunction to toll the running of a cure period, one of the requisite elements to be shown by the party seeking the injunction is the existence of a commercial lease. If no lease exists, it follows that a Yellowstone injunction is not available. Also, because a license is revocable at will, there will not likely be a cure period to be tolled by a Yellowstone injunction.

Thus, a licensee may not enjoy all the rights enjoyed by tenants, but is protected by some procedural safeguards. In evaluating whether to enter into a license or lease, both the owner and potential tenant/licensee need first to evaluate whether the exclusive right to possess the subject premises is important and, if not, whether the protections available to tenants but not licensees is significant given the particular circumstances at hand. Whether a license or lease is ultimately chosen, the most important factor is that both parties understand the nature of the relationship from the beginning, so that there are few surprises if the relationship turns sour.