Wednesday, December 4, 2024
In almost every commercial property arrangement, the categorization between the Owner and Renter is that of Landlord and Tenant through a Lease Agreement.
However, this categorization can put the property owner—in this case, the Landlord—in a bind.
Attorney Anthony A. Nozzolillo, Esq. explains how the use of a License Agreement puts more power and rights into the hands of Landlords.
A Lease conveys the exclusive possession of specific property for rent, which grants an estate interest in the rental Tenant.
If the Tenant fails to timely and consistently pay rent, the Landlord cannot invoke "self help" — in this case, meaning actions like changing of locks, entering the subject premises, touching or displacing any of Tenant's personal items located inside the premises — prior to initiating a formal eviction proceeding.
Instead, the Landlord would need to obtain a Warrant of Eviction where a Sheriff is appointed by the Court and designated legal authority to gain entry to the premises, change locks, and have the Tenant and all personal items removed.
“This process takes time, money, and effort—especially in Post-COVID New York State,” Nozzolillo explained. “While the Tenant continues to inhabit the premises, essentially rent free, the Landlord, who now cannot Lease out the premises or expect to collect rent while litigation is pending, is highly damaged. The process can even take up to 3 years to be concluded.”
“Even if the Tenant is court-ordered to pay back the outstanding amounts, the likelihood of the Landlord ever actually collecting any past due rent monies, or recovering litigation expenses, is very slim”, he added.
With that said, there is an alternate arrangement that can be entered into between a commercial Landlord and Tenant in New York State—one that helps level the playing field for Landlords who assume the risk of defaulting Tenants who become non-paying squatters.
Although similar to a Lease Agreement, a License Agreement allows "permissible acts to occur on the property" of another, that otherwise not be permissible. This arrangement, unlike a Lease Agreement, does not create a Leasehold interest in the property, nor a formal Landlord/Tenant relationship.
The Licensor, in this case the property owner, can revoke the license at will, typically by giving the Licensee 60-90 days written notice. As the License Agreement creates no estate interest in the Licensee, the Licensor is legally permitted to utilize self help in the event of delinquent or missed monthly service payments from Licensee to Licensor.
This means the Licensor can take immediate action in the form of changing the locks or removing the Licensee's items absent any legal hindrance, as long as the self help is conducted in a peaceful and non-hostile manner.
Unlike with a Lease Agreement, the property owner is not required to have an eviction proceeding or Warrant of Eviction before being able to take these actions.
Essentially, a License Agreement functions dynamically similar to a Lease Agreement. However, if monthly payments (referred to as Monthly Service Fees, not rent as no Landlord/Tenant Relationship is created) ever cease, the Licensor does not need to formally evict the Licensee.
Moreover, if during the set License Agreement a new prospective Licensee comes along and offers more monthly service payments or offers to use the space for a more favorable use to Licensor, the Licensor can terminate the existing agreement by giving the current Licensee the requisite days written notice as reflected in the terms of the Licensing Agreement.
“It must be noted that a License Agreement must be carefully drafted so as to include all the requisite verbiage and provisions that assure the Agreement is not, and cannot be construed or interpreted as a Lease Agreement,” Nozzolillo highlighted.
“Also, a caveat of a License Agreement is that the Licensee does not inhabit or live in the premises at all times, but rather irregularly”, he added.
“This is why a residential property rental scenario would not afford a Landlord the social justice benefit of a License Agreement, as is so afforded in a Commercial Property setting,” Nozzolillo explained. “In summation, although limited in availability, New York State Landlords—at least in a commercial setting—do have options to help mitigate damages and costs they may sustain and incur, should the monthly income they depend on ever become compromised and/or cease.”
Breaking down the real meaning of these 4 contract terms with Attorney Anthony A. Nozzolillo, Esq.
