Have you purchased a new residential or commercial property but don’t want to wait until settlement to move in? Or have you sold your property but have concerns you won’t be ready to move out by the settlement date?… Keep reading!
A licence agreement is a contractual agreement made by two parties, the licensor and licensee. The licensor provides the licensee with the right to use the property. Both the vendor and the purchaser can be either the licensor or the licensee depending on the circumstances.
A licence agreement allows purchasers to have early access to a property and can allow vendors to remain on a property even after the settlement date has lapsed. Licence agreements allow both parties to ensure their rights are being protected. However, licence agreements do not allow for a free pass to stay or leave as one pleases. Both parties must consent to the agreement and are under no obligation to agree to a licence agreement. Therefore, in some circumstances a licence agreement is simply not an option.
It is recommended that a legal practitioner or qualified person prepares the licence agreement. This ensures that the document is properly completed and both parties are protected. Generally, the party that requests the licence agreement is responsible for paying for it. However, in some circumstances this is not the case. If one parties lawyer prepares the licence agreement, the other parties lawyer will generally review it before it is signed.
EXAMPLE: A purchaser is having trouble getting their finance approved and settlement is slowly emerging. The vendor has also struggled to find a house to rent. Due to the purchaser being in default, they may contribute to or pay for the drafting of the licence agreement. The vendor would remain in the property and the purchaser would have more time to find accommodation.
Our property and conveyancing lawyers have represented both purchasers and vendors in the drafting, reviewing and negotiation of licence agreements. If you would like more information on how we can help you please contact us by phone on 03 8590 8390.
Be careful – a licence agreement and lease are two different things!
A lease involves a landlord and a tenant. The landlord owns the property and the tenant occupies the landlord’s property. A formal contract (the lease agreement) is put in place. The lease agreement generally sets out the obligations of the parties. A lease allows the tenant to have exclusive possession of a property.
A licence agreement involves a licensor and licensee. The licensor provides the licensee with temporary access to the licensor’s property. A contractual agreement (the licence agreement) is used. Licence agreements are usually entered into for shorter periods of time and occur as a result of purchasing or selling a property. Therefore, it involves a vendor and a purchaser.
Early possession: The purchaser buys a commercial property from the vendor in order to start a new business. The purchaser requests early possession of the property through a licence agreement in order to begin preparing for the business to operate.
Possession after settlement: The vendor has sold their family home to the purchaser. The vendor has organised to rent a property that will be ready two months after the settlement date. The vendor requests to remain in the property and pay licence fees until they are able to move into the rental property.
What are the advantages and disadvantages?
One of the major benefits of using a licence agreement is the flexibility. Individuals or businesses are provided with the opportunity to either have access to the property before settlement (purchaser) or remain in the property for a period of time after settlement (vendor). This can often result in reducing stress. These agreements assist parties with both time and convenience. One party also receives the benefit of an income when the agreed licence fees is paid.
The drafting of the licence agreement is an additional cost that needs to be paid for by one party or both parties, depending on the circumstances. The party that has possession of the property is responsible for all outgoings from the date of occupation which is considered an additional cost. Using a licence agreement can involve risk.
A licence agreement should address all of the important details. For example, the names of the licensor and licensee, financial arrangements, time frame, repairs, rates, taxes and the rights and responsibilities of both parties.
There are various factors to consider when determining whether or not to enter into a licence agreement.
Firstly, consider the circumstances. If you have not sold or purchased a property, it is unlikely that a licence agreement will be used. Secondly, determine whether you would be the licensor or the licensee. Consider your position and determine the benefits and risks associated. Thirdly, ensure that the property can be accessed. If the property is occupied, the licensor would be unable to access the property.
Parties must agree on the licence fee that will be paid and the duration of the licence agreement. If both parties agree to enter into a licence agreement, they must agree on who will be responsible for drafting and paying for the agreement.
Before signing off on any licence agreement, ensure that you understand your legal rights and responsibilities. Having an expert legal practitioner or conveyancer that can review or draft the licence agreement for you is crucial. Get in touch with our team today to find out more information on licence agreements.
Last updated: 1 July 2021 Article by: Halil Gokler Edited by: Randa Balbissi