What’s the difference between a rent and a licence agreement?

For any business looking for the perfect premises to use as their workspace, there are many things to consider. If you are a startup with a limited budget, chances are you're looking for a low-cost solution. Entering a traditional rental agreement is the normal pathway, but did you know there is the alternative of opting for a licence agreement?

Looking for a work space with a limited budget? Ever considered a licence agreement? There is a big difference with a rental agreement, but it might be the solution you’re looking for. Both have their advantages and disadvantages. Here is a rundown of the differences between the two options.

What is a rental agreement?

When you rent a space, you enter a contract that grants you exclusive usage of the premises in question for a predetermined amount of time. It means you enter into a legal relationship as a tenant to your landlord, who is required to provide you with exclusive possession of the property. There must be a fixed term for the rental, and a set periodic rent (which will almost always be at market rate).

Advantages

The primary advantage of renting is the exclusive use of the property. This means the landlord will not be able to interfere with your business throughout the fixed term of the rental agreement. It also means you are secure in your occupancy of that space for the predetermined amount of time, so you don’t have to worry about potentially having to change location unexpectedly.

Disadvantages

You may want a short-term or more flexible arrangement in case your business grows, and a fixed lease may be inhibiting in this instance. Rental agreements often require you to maintain the property, and the rent payments can be quite high, particularly for a fledgeling startup.

"Thanks to the low costs of my licence agreement, I now have two employees who help expand my business"

What is a licence agreement?

A licence agreement involves no legal relationship between the licensor and licensee, so your occupancy is temporary and does not afford you exclusive possession of the premises. At Young Startup, we call these agreements Property Guardianship, and it means your business occupies the premises whilst they are vacant by entering a temporary licence agreement with us. You will pay an affordable rate for the time you are there, and the licence can be terminated with 28 days’ notice.

Advantages

A licence agreement offers the licensee a short-term, flexible arrangement that is ideal for scaling a business up or down. The costs for the licensee are low, meaning you get the workspace you need without the hard-hitting costs of renting at market rate. For property owners, you get occupants in your premises who keep everything secure and monitored throughout the day, and we perform regular inspections and maintenance as required.

Disadvantages

A licence agreement doesn’t offer the same long-term security as renting, so you may be forced to vacate the premises at an inconvenient time. We attempt to mitigate this by finding a new space for you to move to during the 28-day transition period. Our aim is to work with both property owners and licensees to ensure the best experience possible all-round.

The bottom line

The question of whether a rental or licence agreement is your best option comes down to two things:

  • The proposed usage of the premises
  • The needs of the parties involved

Guardianship through a licence agreement can be an excellent way for a startup to get the workspace it desperately needs without committing to a costly rental agreement. If you would like to know more, please feel free to contact us and we’ll answer any questions you may have.

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