What is a Licence Agreement?

Summary

• A licence agreement is a contract where one party allows another to use property, assets or intellectual property without transferring ownership. 
• It sets out how the asset can be used, including scope, duration, fees and restrictions on use. 
• Unlike a lease, it does not grant exclusive possession, making it more flexible but less secure. 
• This guide explains licence agreements for business owners in Australia, outlining key terms and legal implications, prepared by LegalVision, a commercial law firm that specialises in advising clients on commercial contracts.
• It provides a practical explanation of when to use a licence, how to structure it and the risks of unclear or overly broad terms.

Tips for Businesses

Clearly define what is being licensed and how it can be used. Set limits on duration, territory and transferability. Include payment terms and termination rights. Avoid vague wording, as it can expand rights unintentionally. Use written agreements and review them carefully to protect your business interests.

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On this page

• Lease or Licence Agreement?
• Key Provisions of a Licence Agreement
• When Should I Use a Licence Agreement?
• Key Takeaways
• Frequently Asked Questions

A licence agreement is a contract where one party grants another the right to use property, assets or intellectual property under specific terms without transferring ownership. It provides a flexible way to permit use for a defined purpose or period while retaining control over the asset. This article explains what a licence agreement is and how it works in practice.

Lease or Licence Agreement?

Both a lease and a licence give you the rights to use the property or premises in a way outlined in the agreement. The two key differences between leases and licences are that a lease gives you the following:

• exclusive possession over property; and  
• proprietary interest.

Exclusivity

If you have exclusive possession of the property, you can use and occupy the premises exclusively. For example, someone with exclusive possession controls who enters or exits the property. A lease agreement grants exclusive possession.

Unlike a lease agreement, a license agreement grants only non-exclusive possession.

A common way to determine this is whether the area that is being occupied has physical boundaries (e.g. four walls). If this is the case, you will usually need a lease. On the other hand, if the area has no boundaries (e.g. the middle of a shopping centre), you will usually need a licence.

Proprietary Interest

A lease gives the tenant rights to the property, whereas a licence is only an agreement with the landlord to use the space. This means a tenant under a lease will receive specific rights and greater security than a licensee under a licence.

By comparison, if you licence a property, you secure the rights and privilege to use the property for an agreed purpose.

For example, you may hold weekly yoga classes in a community hall. Without this license, it would be considered trespassing. You cannot assign the property to someone else. If the property is sold to a new landlord, the landlord does not have to honour your license agreement, unlike a lease.

Ultimately, your license is still a contractual arrangement. This means the agreement to use the property under specific conditions is legally binding.

Key Provisions of a Licence Agreement

Although the terms of licence agreements vary, both parties will need to agree on the:

• specific licensed area;
• term; and 
• fee for the licence.

Licensed Area

The licensed area must be distinguished clearly, as licences are usually given for areas that are not clearly defined by a boundary. One benefit of a licence is that, since they are more flexible than leases, the licensed area can be expanded or reduced easily if both parties agree.

Term

It is important to clearly set out the period during which the licensee is permitted to use the licensed area. While leases are usually long-term, a licence is suitable for a short-term arrangement (e.g., less than 6 months).

Licence Fee

Most licences will require the licensee to pay a fee in return for the use of the licensed area.

When Should I Use a Licence Agreement?

Whether a licence agreement might work for you will depend on: 

• the specific deal between the parties; and 
• factors such as the business and the location.

However, a few common circumstances are usually governed by a licence agreement.

Landlord's Cheat Sheet for Leasing Terms

This cheat sheet explains the key clauses you need to be aware of as a landlord in a lease agreement.

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Key Takeaways

A licence agreement can be a convenient way for a landlord to allow another party to occupy its land under a more flexible arrangement. In many circumstances, a licence may be more suitable than entering into a lease.

If you are considering entering into a licence agreement, LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced leasing lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 1300 544 755 or visit our membership page.

Frequently Asked Questions