Leases versus Licences: Understanding Which Structure You Need

The concept of a lease and licence may sound similar, but at law they are very different.

Leases and licences both allow an occupier to access and occupy land. Because they often look and feel similar in practice, the terms are frequently used interchangeably.

However, a lease and a licence are legally very different. The classification matters. It affects risk, control, enforceability, statutory protections, and what happens if the land is sold or the arrangement breaks down.

Understanding how each structure operates is the first step in determining which is right for your circumstances.

What Is a Lease?

A commercial lease is an agreement under which a lessor grants a lessee the right to occupy commercial, industrial, or retail premises on agreed terms, usually in return for rent.

It gives the lessee exclusive possession (i.e. the ability to exclude everyone) of the premises, is granted for a defined term (with or without options to renew), and may be registered on the Certificate of Title of the land. Once registered, the lease “runs with the land”, which provides a lessee with certainty and security of tenure.

Commercial leases are typically used where long term occupation and control are required, such as for restaurants, medical centres, and retail shops.

Where the use of the premises constitutes a retail shop lease under the Retail and Commercial Leases Act 1995 (SA) (the Act), the Act applies to the lease and provides statutory safeguards, protections and obligations for both the lessor and the lessee, including mandatory disclosure obligations on the lessor. If you are unsure whether your arrangement falls within the Act, we can review your circumstances and advise.

What Is a Licence?

A licence allows a person to use or occupy land for a specific purpose without granting exclusive possession or an interest in land.

A licence is a personal, contractual right only. It cannot be registered on title, does not run with the land, and will not automatically bind a new owner if the property is sold. The landowner retains control and may permit others to use the same area.

Licences are typically used for shared, ancillary, or flexible arrangements, such as car parking, storage, sports fields, outdoor dining areas, or shared workspaces.

How to Decide Which Structure Works Best for You

The appropriate structure depends on how the land will be used in practice.

Where occupation involves a defined area on an ongoing basis, particularly where the premises are central to a business or involve investment in fitout or equipment, a lease will usually be more appropriate. A lease provides certainty of tenure for the occupier and allows the owner to plan with confidence.

Where the use is shared, short term, seasonal, or likely to change, a licence may be a better fit, offering greater flexibility and control for the landowner.

Key considerations include:

• whether exclusive possession is required
• the intended duration of occupation
• whether the land will be shared
• how easily the arrangement may need to change

Why the Label Does Not Decide the Outcome

Calling an arrangement a licence does not guarantee it will be treated as one. Likewise, an agreement described as a lease may not operate as a lease in practice.

If an arrangement is challenged, a court will look beyond the label and examine how the occupation actually operates. A key question, amongst other factors, is whether the occupier has been granted exclusive possession. If exclusive possession exists, the arrangement is likely to be characterised as a lease, regardless of how it is described, as recognised in the case of Radaich v Smith.

If an arrangement is found to be a lease and the premises constitutes a retail shop, the Retail and Commercial Leases Act 1995 (SA) will apply automatically. This can trigger statutory requirements such as minimum lease terms and mandatory disclosure obligations, even where the parties intended to use a licence structure.

Come to us for a chat!

Choosing between a lease and a licence can have significant legal and commercial consequences. If you are considering granting or taking occupation of land, speak to us before putting anything in place. We can review your circumstances, explain your options, and help ensure the arrangement is structured correctly from the outset.

For more specific information on any of the material contained in this article please contact Katelyn Day on +61 8 8217 1307 or kday@normans.com.au