What Is A Licence Agreement In Victoria?

A licence agreement in the context of residential conveyancing is a contract between the buyer and the seller where either;

1. The seller agrees to allow the buyer access to the property prior to settlement (i.e., before they actually own the property) or
2. The buyer agrees to allow the seller to remain in the property after settlement.

In either case the party granting the licence (the party who owns the property) is known as the licensor, and the party being allowed to access the property is the licensee.

What Is A Licence Agreement Used For?

A licence agreement is made between two parties who have reached an agreement that one party will allow the other to have access to the property even though the person occupying the property does not own it and there is no formal lease in place.

The two parties involved must agree to the licence and its terms including length of occupancy or access, and any licence fee payable.

Licence Agreements in Victoria – Why Would I Need One?

Buying and selling property is often a game of ‘hurry up and wait,’ with contract periods of a month or more being the norm.

However, it is not uncommon for people to find themselves in a tight spot when settlement date is looming, for example where the seller can’t move out of the property in time, or the buyer needs early access to the property before settlement.

It is in one of these situations where a licence agreement may be a suitable solution, providing the parties agree.

Lease or Licence Agreement?

A lease and a licence agreement have distinct meanings in law., and it is important to know the difference so you can decide whether a lease or licence would be more suitable for your circumstances. Remember to seek legal advice to make sure you make the right decision for your situation and your interests are protected.

Lease Agreement

A lease agreement is between a tenant and a landlord. It grants the tenant exclusive possession of the property for a given duration in return for rent. A lease agreement also creates a proprietary interest in the property for the tenant, and a lessee’s occupancy rights are not impinged on if the ownership of the property changes hands.

Licence Agreement

By contrast, in a licence agreement, the licensor grants an occupancy licence to the licensee in exchange for a fee. A license agreement may grant access to the property, but does not guarantee exclusive possession and is typically a short term arrangement. A licence is a personal contractual right and not a proprietary right.

Key Provisions of a Licence Agreement

The licence agreement should clearly state the details of the licence and all relevant details. For example, it should include the names of the parties, the specified period of the licence, details of the premises occupied and any licencing fee the two parties have agreed on.

Who Prepares the Licence Agreement?

Because a licence agreement is a legal contractual arrangement, it is important that it is prepared by a qualified solicitor.

Who Pays For The Licence Agreement?

The party requesting the licence agreement is normally the party who will pay for the licence agreement to be drafted.

Bare in mind though, that the other party’s solicitors will usually review licence agreements, and there may be associated legal fees.

Pros And Cons Of Licence Agreements

Advantages:

• Flexibility: a licence agreement tends to be more flexible arrangement which can be tailed to meet the parties changing circumstances.
• Convenience: These agreements save time and can be a convenient solution when settlement has been delayed
• Income: One party can earn income through agreed-upon license fees.

Disadvantages:

• Additional Cost: Drafting the license agreement incurs an extra cost, borne by one or both parties.
• Outgoings: The party in possession is usually responsible for property expenses from the occupation date, which can be an added cost to them.
• Risk: License agreements can involve risks, for example if settlement occurs later than expected, or the property is damaged. Each of the parties involved should seek legal advice to ensure their interests are protected and risks are mitigated as much as possible.

Key Takeaways

A licence agreement is most commonly used in conveyancing in one of the two following scenarios:

1. Possession by the Vendor after settlement
2. Early possession by the Buyer before settlement

If a licence agreement is drafted well and both parties are aware of their rights and responsibilities, it can be a good solution for Buyers and Sellers who find themselves in one of these situations.

However, there are limitations to what can be achieved with a licence agreement, and it is critical that each party seeks legal advice to ensure it is an appropriate solution for their needs.

Conclusion

The law of property in Victoria is complex. Luckily, the experts are here to help!

If you would like to talk to one of our friendly, experienced conveyancing solicitors about licencing agreements or any other aspects of conveyancing in Victoria, we are waiting to take your call! If you would like an obligation-free quote for conveyancing, head over to our quote form.

The above is not legal advice and is general information only.