In commercial property, it’s common to hear the terms “licence” and “lease” used interchangeably. For landlords and tenants alike, the distinction can feel academic; however, it is very important. In Victoria, even if an agreement is titled a “licence”, it might still be treated as a lease under the Retail Leases Act 2003 (Vic) (“the Act”), triggering substantial legal obligations and tenant protections.
This article explains why labels don’t always determine legal effect, how courts decide whether an arrangement is a lease or licence, and how landlords can avoid unwittingly triggering obligations under the Act.
What’s the Difference Between a Licence and a Lease?
A lease grants a tenant the exclusive right to occupy land or premises for a defined period. It is a property right that binds successors in title and is enforceable against the landlord and (in some cases) others.
A licence, on the other hand, merely grants permission to do something on the land that would otherwise be unlawful (e.g., occupy or use it). It does not create an interest in land and typically does not confer exclusive possession.
At common law, the main distinction lies in exclusive possession:
- If a person has exclusive possession (can exclude others, including the landlord), the arrangement is likely a lease.
- If the person merely has shared or conditional access, it may be a license.
When a Licence Becomes a Lease in Substance
Even if a written agreement says it is a “licence”, Victorian courts will look at the substance over the label. If the arrangement gives the occupier exclusive possession for a term and in return for rent, it may well be a lease and if it meets the definition of a retail lease, it could be subject to the Act.
Landlords issuing short-term licences, kiosk agreements, or pop-up space arrangements should therefore consider whether the permitted use and operational reality align with the statutory definition of retail premises. If so, they may have the same obligations as if they had granted a conventional lease. carves out situations where the licence is granted solely for storage, display or advertising—but even that can be blurred if the activity supports a broader business function.
Why Does It Matter?
If an arrangement is deemed a lease under the Act, the landlord may have additional obligations, including:
- Providing a disclosure statement at least 14 days before the lease begins
- Limits on recovering capital costs or unapproved outgoings
- The tenant’s right to minimum five-year term unless validly waived
- Dispute resolution via the Victorian Small Business Commission
- Constraints on the landlord’s ability to terminate, relocate or refurbish without process.
Landlords who mischaracterise an agreement as a licence might find themselves in breach of the Act, exposing themselves to claims, unenforceable clauses, or even penalties.
Key Risk Areas
Pop-Up and Short-Term Arrangements
Retailers operating seasonal, promotional, or pop-up businesses are often granted “licences” to occupy space for a few months. But if these operators:
- control a defined area,
- pay ongoing fees,
- operate autonomously,
then the arrangement may be caught by the Act.
Shared Spaces or Kiosks
Even kiosk or food court occupiers may be deemed lessees if they effectively have exclusive use of a demarcated area for trading purposes.
Coworking Spaces
Coworking providers often issue “licences” to users. If the arrangement permits a business to operate in a fixed space with exclusive access during certain times, a court may still treat the agreement as a lease.
Conclusion
Just calling an agreement a “licence” won’t keep it out of the Retail Leases Act. If the practical effect is that someone has exclusive possession for value and is running a business from the premises, the Act may well apply.
Landlords need to be cautious, especially in the retail sector, as the obligations under the Act are significant and often non-negotiable. The safest approach is to treat any licence that involves commercial occupancy with suspicion, and to obtain legal advice before assuming the Act does not apply.
A carefully drafted agreement, supported by appropriate operational controls, can reduce the risk but in many cases, if it walks like a lease and talks like a lease, the law will treat it as one.
Disclaimer
The information on our website is general and is not legal advice. We put lots of work into making our content insightful but it may not apply to your personal circumstances. We’re more than happy to help with your individual issues – just reach out.