Does “Lease Language” Create a Lease?

By: Michael Polentz
With less traditional arrangements, such as co-working office spaces becoming increasingly prevalent, the line between leases and contractual arrangements that do not create a possessory interest in real property, such as licenses, can sometimes be difficult to determine. Parties may even attempt to capitalize on the lack of a clear dividing line between leases and licenses by drafting agreements that attempt to secure a combination of some of the benefits of tenancy and some of the benefits of a license.
In deciding how to characterize an agreement, courts consider the language used by the parties in the applicable agreement including: referring to the parties as “landlord/lessor” and “tenant/lessee,” characterizing payment as “rent,” and expressly indicating that the agreement is a “lease.” However, it is not sufficient for an agreement to merely employ the terminology of a lease. Courts will also look to whether the parties displayed the intention of creating a landlord-tenant relationship; however, the structure of the agreement alone is not necessarily dispositive. When determining whether parties intended to create a landlord-tenant relationship, courts focus heavily on “exclusivity of possession” (a formulation describing the level of exclusivity required for a tenancy, in which a tenant holds exclusive possession of the premises “against all the world,” including the owner of the premises). If the owner of the premises retains the ability to enter the premises or a part of the premises at will, the would-be tenant may not have exclusive possession.

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