Before occupying a property, you may have been asked to enter into a licence arrangement instead of a lease. A licence agreement is a typical arrangement for medical consulting rooms and co-working arrangements in some commercial buildings. Before you enter into the licence agreement, it is vital that you make some legal and commercial considerations. For example, you should consider:
- whether you are getting your money’s worth;
- what services are included; and
- how you can get out of the licence if necessary.
This article sets out what a licence is and provides nine questions to ask the licensor when entering into a licence agreement for a commercial property. Asking these questions will help you understand your legal and commercial rights and obligations under the licence agreement.
A licence agreement is a contract that allows you to enter, use and occupy a premises in exchange for a licence fee. It is important to note that a licence agreement is different from a lease. The main difference is that a licence does not provide you with exclusive possession of the premises. Not having exclusive possession means that:
- the premises are not enclosed; and
- you cannot lock the door to exclude other people.
For example, you could enter into a licence agreement for a desk in a coworking space. Here, you would have your own space at allocated times, but the building would not be exclusively yours to use.
Questions to Ask a Licensor
1. What Does My Licence Fee Include?
It is essential to determine what your licence fee will cover. Ultimately, this will:
- help you decide whether or not you are getting your money’s worth; and
- ensure that you are not surprised with unexpected costs later down the track.
For example, in a co-working space, a licence fee can include access to your desk and common areas, such as bathrooms and kitchen. Your licence fee would also likely include:
- a key to access the property;
- access to wireless internet; and
- use of the furniture, such as desk and chair.
2. What Building Facilities Can I Use?
The types of facilities you will need will depend on the nature of your business. If there are some facilities that you require use of, it is critical to ensure that the licensor can provide them before you sign the licence. It is also vital to clarify whether they are:
- included in the licence fee; or
- an additional cost.
For example, in a co-working space, your building facilities could include use of the copy machine, printing, meeting rooms and boardrooms. However, it is common for licensors to charge extra for these facilities.
3. What Services Will You Provide?
It is important to consider what services the licensor provides for the building. For example, services like:
- heating and air-conditioning;
- regular maintenance;
- daily cleaning;
- electricity; and
- use of the kitchen and supplies.
If your business needs something in particular, you should ask the licensor if they will provide it.
4. What Other Companies Are Sharing the Space?
If you are going to be sharing a space with other people and businesses, it is useful to ask about them and what they do. Often, the people sharing the space with will mould the culture and asking about them could provide a great indication of the office atmosphere.
5. Is a Security Deposit Required?
It is common for licensors to ask for a security deposit from a licensee. This is used to pay for any damage you cause. The security deposit can also be used to cover any money that is overdue under the licence.
Your licence agreement should say what circumstances the licensor can use the money from the security deposit. The amount that you will pay often depends on the length of the licence. For example, if you are licensing a space on a monthly basis, you will probably be asked for one month’s’ licence fee.
As long as you do not cause any damage to the property, the security deposit will be returned to you at the end of the licence.
6. What is a ‘Set-up Fee’?
You may be asked to pay a set-up fee when you enter into the licence. The set-up fee is a one-off fee that you pay at the beginning of the licence that covers your set-up and administration costs.
For example, a set-up fee of $200 may pay for things like:
- security passes;
- keys; and
- anything else required for you to access the property.
7. Can I Use the Address as My Registered Business Address?
Once you are settled into your new space, you may want to use the address as your registered business address. Your licence agreement should include a clause that allows you to do this.
If it is not included in your licence and you want it to be, ask the licensor to include it in the agreement before you sign.
8. How Much Notice Do I Need to Give to Terminate?
It is important to know how much notice you need to provide when terminating the licence. You may need to end the licence if:
- the business is expanding;
- you have outgrown the space; or
- the business needs to close.
The length of notice required should be included in the licence agreement and will depend on the length of your licence. For example, if your licence agreement is a monthly subscription, your termination period should be one month.
9. Are There Any Rules or Policies for the Building?
You should ask the licensor for all of the policies that apply to the building. It is important to read the policies and ensure you can comply before you sign the licence agreement.
There may be building policies about:
- use of technology;
- personal and professional conduct; or
- building rules.
When you are thinking about entering into a licence agreement for a commercial property, you should ask the licensor some questions to help you understand the commitment. These include:
- what your licence fee will cover;
- what services and facilities are provided; and
- whether you have to pay a security deposit and set-up fee.
If you have any questions about licence agreements, contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.
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