License vs. Lease: Legal Concerns of Co-Working Spaces

Co-working space offers the amenities of a large sophisticated office to companies of varying size without the hassle of dealing with buying furniture, securing utility hookups, or buying coffee. The upside to spaces popularized by companies like “WeWork” is that they are turn-key. No hassle, no fuss, just show up and work. This new way of using space may be good for some, but first, we must evaluate the form in which this space is often provided to companies—via a license. How is a license to use a space different from leasing that same space? What legal concerns should a prospective company have before joining this new way of working? We focus on four questions: (1) which rights does a company receive as a Licensee versus as a Lessee; (2) can a Licensee transfer their right to use a space; (3) under what circumstances may a license be revoked; and (4) is your liability as a company different under a license versus a lease?

1.  License Permission vs. Leasehold Interest

Licenses and leases differ most substantially in the rights they give to the Licensee and the Lessee. A license merely grants a privilege to use the land in a specific manner. [1] A license does not create an estate in the land. [2] The Licensor owes no duty to the Licensee beyond providing the space and permitting the Licensee to perform the acts outlined in the license agreement. Leases operate differently. In the State of Maryland, a lease is a contract between the Lessor and the Lessee that gives the Lessee possession of the land or space. [3] A lease transfers the Lessor’s interest in the property to the Lessee for the entire lease term. Therefore, the Lessee has exclusive possession of the property even against the Lessor. [4] Lessors give Lessees their entire interest in the property for the duration of the lease and all rights that come along with that interest.

2.  Transferability

Licenses provide little flexibility. A license, due to its non-interest granting function, is generally non-transferable. A license usually cannot be transferred because it is limited to only the Licensor and Licensee. [5] Without a recognized general right of transferability, a license agreement must grant the right of transferability to the Licensee. In contrast, a Lessor obligates themselves to the principal of alienation when entering into a lease. Unless explicitly restricted, the Lessee may freely transfer their property interest to another by sublease or assignment. [6]

3.  Revocability

A Licensor may revoke a license at their pleasure. [7] While licenses may be revoked at will, a Lessor may not terminate a lease before the end of the term without express language. If there is no such language, both the Lessor and the Lessee are bound to the lease for the duration of its term.

4.  Indemnification

Maryland statute generally invalidates exculpatory clauses designed to exonerate landlords for injuries that arise as result of one’s own negligence. [8] License agreements, however, commonly contain indemnity provisions granting the licensor protections not lawfully granted to landlords.

It is important to keep the client’s needs in mind when choosing between a lease and license agreement. Some desire flexibility while some desire assurance. And, while leases and license agreements for co-working space both provide lower-cost space to young companies, they each provide different protections, risks, and services.

[1] 14 M.L.E. Licenses and Licensed Occupations § 45.
[2] Condry v. Laurie, 184 Md. 317, 320, 41 A.2d 66, 68 (1945).
[3] Progressive Friendship Sav. & Loan Ass'n v. Rose, 235 Md. 169, 174, 201 A.2d 8, 11 (1964) (“A lease is a contract for the possession of land or space on the one side, and a recompense of rental income on the other.”).
[4] See Delauter v. Shafer, 374 Md. 317, 325, 822 A.2d 423, 427 (2003) (citing 1 Tiffany, The Law of Real Property § 79, at 117–118 (3d ed. 1939) (“A tenancy involves an interest in the land passed to the tenant and a possession exclusive even of the landlord except as the lease permits his entry, and saving always the landlord's right to enter to demand rent or to make repairs.”).
[5] Rau v. Collins, 167 Md. App. 176, 192, 891 A.2d 1175, 1184 (2006) (“[A license] cannot be transferred or alienated by the licensee, because it is a personal matter, and is limited to the original parties to it.”).
[6] “[A]bsent some specific restriction in the lease, the lessee has the right to freely alienate the leasehold interest by sublease without obtaining the permission of the lessor.” This concept is supported by traditional property rules that “favor the free and unrestricted right to alienate interests in property.” Julian v. Christopher, 320 Md. 1, 7, 575 A.2d 735, 738 (1990).
[7] Rau v. Collins, 167 Md. App. 176, 192, 891 A.2d 1175, 1184 (2006) (“A license is also revocable at the pleasure of the party making it, and is instantly revoked upon sale of the land by the owner.”).
[8] MD. CODE ANN., REAL PROP. § 8-105 (West 2017).

This blog was written by Benjamin Guthorn at Miles & Stockbridge.

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