If you are a landlord or tenant, you may be looking to licence a part of your premises. If so, you will need a licence agreement. A licence agreement allows a licensee to use and occupy part of your premises. Licences are commonly used where a third party is occupying only part of the premises. It is also common where the premises is shared between parties, such as in a co-working space. While either a landlord or a tenant may licence part of their premises, tenants will need the landlord’s consent. This article explains six key terms that you will need in your licence agreement if you are looking to licence your premises.

1. The Licensed Area

The licensed area refers to the part of the premises that you are planning to license out to another tenant. It is crucial that you describe this area as accurately and in as much detail as possible. This is especially important if you are not licensing the entire premises. 

This description should also include the square meters of the area and any other parts of the premises that are available for the licensee to use, such as: 

  • shared meeting rooms; and
  • car parking spaces. 

To avoid doubt, it will be beneficial to attach a plan which marks out the licensed area.

For example, the licensed area could state: 

“an area of 34.9sqm, including the use of four desks and a shared meeting room, as outlines out on the attached plan”.

2. Term of the Licence

The term of the licence is the length of time that your licensee may occupy the area. This is generally up to your discretion. But, if you are a tenant, the term of the licence should not be longer than the term of your lease. 

In this case, it is common to have licences which terminate the day before the lease’s expiry date.

3. Licence Fee and Outgoings

A licence fee is a fee which your licensee must pay, usually on a monthly basis, much like rent. Outgoings refer to additional costs and expenses that a landlord bares which are associated with the premises.

If you are a landlord, you may wish for your licensee to pay part of the additional fees or outgoings you are responsible for. If you are a tenant, you may wish the licensee to pay part of the outgoings that you are responsible for and any additional service fees. This will be up for negotiation.

4. Assignment

An assignment is where the licensee transfers their licence to another party. In general, licenses will prohibit the licensee from being able to assign their interests under the licence to another party.

This is something that you will have to negotiate with the licensee.

5. Make Good

Make good is the licensee’s obligation to restore the premises to a clean condition at the end of the licence term and is usually their last obligation to complete at the end of their licence term. 

For example, a make good obligation could include that the licensee:

  • removes any moveable furniture; and
  • cleans the premises.

You should ensure that the licensee’s make good obligations will return the area to the condition it was in at the commencement of the licence. If you are a tenant licensing out part of your premises, you should ensure that the licensee’s make good obligations align with your own make good obligations in your lease. This will ensure that you do not have a lot of extra work to make good the premises at the end of your lease. 

6. Default and Termination

Default is the circumstances where you may choose to terminate the license agreement before the end of the term. You will usually only be able to do this when the licensee breaches the license agreement. 

For example, this could occur if they:

  • did not pay their license fee; or 
  • failed to comply with their obligations.

Your licence agreement must include a strong default clause as this will allow you to terminate the agreement early in case of a breach. If you do not include this clause, you may be locked into the agreement until the end of the term.

Key Takeaways

When looking to licence your premises, there are some important terms for you to consider and include in your licence agreement. However, note that licence agreements will depend on your particular circumstances, and if you are looking to draft a licence agreement, it is best to contact a lawyer. If you have any questions about license agreements, contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.
Lianne Tan

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