Pay Attention to License Drafting Requirements

When you sign a lease with a tenant it creates a landlord-tenant relationship that can work in your favor, but also comes with some potential problems. For example, when a tenant defaults on its lease owners usually don’t have the option of terminating the lease immediately. The owner might have to wait a certain period of time for the tenant to “cure”—that is, fix—a violation. If a tenant is no longer useful to the center’s synergy, the owner must wait, sometimes for several years, until the end of the lease term to get rid of it.

On the other hand, a license agreement—which merely makes the operations of a tenant, the “licensee,” permissible at the property—permits the owner to eliminate that relationship—and therefore, the headaches that come with it—almost immediately.

Although licenses require less commitment than leases, owners still must take them as seriously. You’ll have to ensure that the license agreement with the prospective user of the premises meets all the criteria necessary to make it a license and not a lease. Watch out: Simply calling the agreement a “license” won’t make it one. Whether an agreement is a license and not a lease will depend on whether it has three essential clauses:

•             A clause allowing you as the licensor to revoke the agreement “at will”;

•             A clause stating that you retain absolute control over the premises; and

•             A clause specifying that it’s your responsibility to supply the licensee with all of the essential services required for its permitted use of your                            premises.

You should work closely with your attorney to carefully draft a license agreement so that you can take advantage of the benefits it offers.

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