What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?
There are two main types of arrangements allowing a person, company or other organization to occupy real estate for a limited period of time without buying it outright.
The first is a lease, which grants the right of exclusive possession of the property for an agreed period of time. A lease confers on the tenant contractual rights and a proprietary interest in the real estate, which can be transferred to a third party subject to specific restrictions set out in the lease. Most commercial leases broadly fall into one of two categories: ‘gross leases’ where the tenant’s financial responsibility is primarily limited to the payment of rent and the landlord is fixed with the operating costs of the property; and ‘net leases’ where the tenant is also responsible for some or all of the cost of operating, insuring and paying taxes on the real property. Leases may be for a building or portion of a building, for land alone (commonly referred to as a ‘ground lease’) or a combination of land and building.
The second is a license which grants permission to occupy or use the property in common with the owner or others authorized by the owner. Unlike a lease, a license is merely a personal contractual arrangement between the original parties and confers no transferrable interest in the real estate to the licensee, and is not binding upon future owners of the land.
In granting a license, property owners need to ensure that they are not inadvertently granting a lease. The courts will not consider whether the document is called a lease or a license but will instead look at the substance of the agreement to determine whether it constitutes a lease or a license.