Understanding the legal difference between a lease and a license is essential for parties to protect their property rights, comply with legal obligations, and effectively manage property agreements. Things like the ability to terminate the agreement, as well as the duration of the agreement, can vary greatly between the two. Additionally, there are distinct differences between leases and licenses that affect liability and available legal remedies in case of disputes. Below is a thorough discussion of what constitutes a lease or a license, as well as insight into how Connecticut courts have ruled on both that should guide your use of these terms in the purchase, sale, or other property agreements.

In its simplest form, a lease is a contract that conveys an exclusive possessory leasehold interest in property to a tenant or lessee; whereas, a license is a mere privilege granted to the licensee to act on another’s property but does not confer or produce a possessory leasehold interest in the property. The ultimate distinguishing characteristic of a lease is that the landlord or lessor surrenders exclusive possession of the premises to the tenant or lessee for a specific term or period, whereas in the case of a license, it is revocable at any time by the licensor, hence the term “revocable license” is sometimes used.

By its definition, a license does not “run with the land” and therefore will not bind a subsequent purchaser. It is intended to be exercised only in the specific manner for which consent was given. Thus, a license cannot be assigned because as a matter of law, the privilege does not extend beyond the initial licensee. As a result, a property owner who acquires a property – through an assignment of lease in connection with a sale – is not bound to recognize or assume a license agreement that may have existed prior to its ownership. Indeed, a new owner or landlord has the exclusive right to terminate or cancel an existing license to which it was not a party.

A few caveats: a license agreement that smells, feels, or tastes like a lease will be construed as a lease. Conversely, a document titled “lease agreement” which nonetheless contains all the characteristics and attributes of a license agreement will be construed as a license under Connecticut law. Courts have consistently held that just because the agreement is captioned as a “lease” or a “license” will not necessarily make it so. Thus, Connecticut courts will focus on the character of the agreement itself and the intent of the parties, rather than the phraseology or nomenclature contained in the document to determine whether a possessory interest (to the exclusion of the owner) was intended to be conveyed when the parties entered into the agreement in the first instance, or whether no possessory interest was intended to be transferred.

The following scenarios should provide some practical guidelines on how Connecticut courts have weighed in on this issue: a parking privilege was construed as a license and not a lease; an agreement to erect and service signage on the roof of a building was determined to be a license and not a lease; a space in the rear for a store was considered a lease rather than a license; a kiosk in a mall was construed as a license and not a lease – within the context of an eviction proceeding; a contract to install, operate, and maintain communication antennae on towers was determined to be a license; and an agreement to install video game vending machines contained attributes of both a lease and a license when that issue was presented to the court for summary judgment purposes.

Because branding a document with the title “License” does not necessarily make it one, here are a few practical pointers that might ensure that your document will be considered a “License” rather than a “Lease”:

• Use the title “Revocable License” whenever possible.
• If a License contains a term, in no event should the maximum term of a License exceed one year.
• Never (ever) include the term “option to extend” or “option to renew” in a License.
• Use the term “License Fee” rather than “Rent”.
• Do not include any charges in the License other than a “License Fee.” Common Area Maintenance (CAM) charges are more characteristic of Leases and should not be included in a License.
• Just for good measure, include the following provision: “This License is not assignable and any assignment by the Licensee shall be deemed void, invalid or otherwise ineffective automatically.”

It is clear from the examples and insights shared that there is not always a bright-line test applied by courts. Ultimately, the character of the agreement and the intent of the parties will be the key determinant. In situations where the owner is contemplating whether to terminate a revocable license and remove a licensee from the premises without judicial process, caution must be exercised before opting for that approach, lest an owner be confronted with an unlawful detainer or a lockout complaint by the licensee. When trying to determine whether your agreement calls for a lease or license, always consult with experienced real estate counsel to evaluate your options and make the choice that will best protect your interests.