Don't Give Licensee Exclusive Right to Use Specific Space for Set Term

February 1, 2003

Don't say in a license agreement that the licensee has the exclusive right to use and occupy a specific space in your building or center for a long, set term, warns New York City attorney Jeffrey A. Moerdler. That's a key lease right. And if it's included in your license agreement and a dispute arises, the licensee may argue—and a court may agree—that the license agreement is really a lease and the licensee has all of the rights of a tenant.

Don't say in a license agreement that the licensee has the exclusive right to use and occupy a specific space in your building or center for a long, set term, warns New York City attorney Jeffrey A. Moerdler. That's a key lease right. And if it's included in your license agreement and a dispute arises, the licensee may argue—and a court may agree—that the license agreement is really a lease and the licensee has all of the rights of a tenant.

Depending on your state's law, you could lose the main benefit that a license agreement has over a lease, says Moerdler. With a license, you're only giving the licensee permission to occupy space in your building or center for a limited time or on a basis that lets you cancel the license at any time, Moerdler explains. You don't have to contend with what could be a long, drawn-out eviction proceeding, as you would with a tenant, he notes. Instead, you can use a faster proceeding, he says. But if a court rules that the license agreement is really a lease—because it has a longer term and specifically defined space—you may lose your quick cancellation right, he warns.

A New York building owner had this experience. It signed a license agreement that allowed the licensee, a telecommunications company, to install antennae on the roof and occupy a room in the building. The owner later claimed that the licensee had violated the license agreement, and started a proceeding to quickly oust it from the roof and building. But the licensee convinced a court to block the proceeding. The owner appealed, arguing that the licensee had only a license, not a lease, and wasn't entitled to the block the proceeding.

A New York appeals court ruled that the license agreement was really a lease and blocked the proceeding. The court said that the license gave the licensee a key lease right: The exclusive right to use and access certain space in the building for a set term. To oust the telecom company, the owner would need to go through an eviction proceeding [Nextel of New York, Inc. v. Time Management Corp.].

CLLI Sources

Jeffrey A. Moerdler, Esq.: Partner, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, PC, 666 Third Ave., New York, NY 10017; (212) 692-6700; jamoerdler@mintz.com.

Thomas F. Stewart, Esq.: Partner, Trainor Robertson, 701 University Ave., Ste. 200, Sacramento, CA 95825; (916) 929-7000.

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