Understanding Leases v. Licenses for Short-Term Property Use
Netflix is establishing a major East Coast production hub in New Jersey at the former Fort Monmouth military base. Expected to be completed in 2028, it will include 12 soundstages, backlot areas, office buildings, and other production support facilities. But as with most film productions, not all of Netflix’s activities will be confined to their facilities. Location shooting at homes, commercial properties, and elsewhere will undoubtedly be part of the program.
If Netflix knocks on your door asking to film on your property, you are, of course, under no obligation to agree. But if you want the spotlight to shine on your property, you’ll need an agreement that explains the terms and conditions for the production’s short-term use of it. While a well-crafted lease may be the optimal arrangement between an owner and a party that seeks to occupy and use a space or facility for an extended time, it may not be the best option for a relationship like a film production that is intended or expected to be relatively brief.
With the advent of platforms such as Airbnb and VRBO, short-term occupancies are far more common than in the past. These arrangements can be documented in two primary but significantly different ways: a short-term lease or a license to use the property. Understanding the distinctions between the two and how they impact the parties’ respective rights and obligations can help owners, as well as tenants or licensees, make the right choice.
Short-Term Leases
Other than their brief duration, short-term leases are no different in function and effect than their lengthier counterparts. They are contractual agreements in which the owner of real property (the lessor) transfers the right to exclusive possession of the property to another party (the lessee or tenant) for a specified period in exchange for rent or other consideration.
A lease affords the tenant significant rights and puts substantial limitations on landlords, especially for residential properties. Perhaps the most impactful aspect of a lessor-lessee relationship is that a lease cannot be terminated early unless the tenant breaches the lease terms or the lease provides for early termination. Of equal importance is that any efforts by the landlord to end the lease and remove the tenant must strictly follow the laws, rules, and procedures that govern evictions in New Jersey, most notably the state’s Anti-Eviction Act (for residential property) and the Summary Dispossess Act (for commercial properties).
Licenses for Use of Real Property
A license provides the non-owner user of property with far fewer rights than a lessee. It grants the licensee permission to use the property for a specific purpose without transferring any interest in the land. The license is generally revocable, non-exclusive, and non-transferable and does not create a landlord-tenant relationship. While general New Jersey contract law governs the interpretation and enforcement of licenses, these agreements are not subject to the protections of the Anti-Eviction Act or Summary Dispossess Act.
Key Distinctions Between Leases and Licenses
The following are other significant distinctions between leases and licenses for the use of real property in New Jersey.
Exclusive Possession v. Use
As noted, a lease grants a tenant exclusive possession of the premises (except for emergencies, repairs, or similar limited grants of access to the landlord).
A license, on the other hand, merely allows the licensee to use the premises for specified purposes (such as film production) and does not confer exclusive possession. The licensor/property owner retains control over the premises and, unless the license agreement provides otherwise, may enter freely or even allow themselves or others to use it concurrently.
Transferability and Interest in Land
A lease creates an estate in land and is considered a property interest. It can often be assigned or sublet, subject to the lease’s terms. A license is personal to the licensee, does not transfer any estate, and generally cannot be assigned to another party.
For example, a vendor operating a cart in the Freehold Raceway Mall under a license agreement cannot transfer its right to another business without the licensor’s consent, while a retail store in the mall under a lease might have the right to sublet or assign its lease, depending on the contract.
Duration and Termination
Another major difference lies in the stability and duration of the arrangement between the owner and the other party. Leases are typically for a fixed term (e.g., one year, five years), and the lessor cannot terminate early unless the tenant breaches the lease terms or the lease provides for early termination. Licenses can usually be revoked at will by the licensor unless the license agreement states otherwise.
The Parties’ Relationship, Not the Document’s Title, Determines Whether It Is a Lease or a License
In New Jersey, courts have consistently held that even when the parties label an agreement as a “license,” the actual substance of the relationship determines whether it is a lease or license. If a court finds that the occupant has exclusive possession for a set term in exchange for rent, the agreement may be treated as a lease regardless of its title.
Misclassifying a lease as a license—or vice versa—can lead to significant legal and financial consequences. For instance, a landlord who believes they can remove a “licensee” without cause may face a wrongful eviction lawsuit if the occupant is actually a tenant under New Jersey law.
Therefore, the labels used in the contract are not determinative. Courts will examine the entire relationship, including:
- The language of the agreement.
- The conduct of the parties.
- Whether the owner granted the other party exclusive possession.
- The presence or absence of rent.
Whether it be Netflix or any other company that wants to film on your land or in your space, you should discuss any such proposal with an experienced real estate lawyer before opening your door to cameras, props, actors, and production staff. They can work with you to negotiate a license agreement that protects your property and interests and provides you with benefits commensurate with its use. Please contact one of the Commercial Real Estate attorneys at Ansell.Law.