Licence to Occupy Agreements NZ

If you’re a small business owner looking for premises, a long-term commercial lease isn’t always the right fit.

Maybe you’re starting out and you want something flexible. Maybe you only need a small area inside someone else’s space (like a kiosk, a beauty room, or a storage corner). Or maybe you’re testing a new location before committing.

This is where a licence to occupy agreement often comes up. It can be a practical way to secure a space to operate from, without the complexity (and long commitment) that usually comes with a lease.

But “simpler” doesn’t mean “risk-free”. A licence to occupy agreement still needs to be clear about what you’re getting, what you’re paying, and what happens if things change.

What Is A Licence To Occupy Agreement (And Why Do Small Businesses Use Them)?

A licence to occupy agreement is a written contract where an “occupier” (you) gets permission from an “owner” or “head tenant” (the licensor) to use a space for a specific purpose.

In plain terms: you’re being allowed to use the space, but you generally don’t get the same property rights that a tenant gets under a lease.

Small businesses often use a licence to occupy agreement because it can offer:

Flexibility (shorter terms, simpler arrangements, and sometimes rolling monthly set-ups)
Lower upfront cost (compared to a full commercial lease fit-out and deposit)
Access to premium locations (inside established businesses, malls, hospitality venues, clinics, gyms, etc.)
A “test and learn” option (for pop-ups or first locations)

Common examples include:

a barista cart inside a lobby
a massage therapist renting a room within a wellness clinic
a nail tech operating inside a hair salon
a kiosk or small stand inside a retail store
storage space in a warehouse
short-term use of a commercial kitchen

Even if the arrangement feels informal (“just use the room and pay weekly”), it’s still smart to document it properly. If there’s a dispute later, your rights will usually come back to what the agreement says (and what it doesn’t say).

In many cases, a purpose-built Property Licence Agreement is a good starting point because it’s designed specifically for licence-style occupation rather than a full tenancy.

Licence To Occupy Agreement Vs Commercial Lease: What’s The Difference?

This is one of the most important points to get right early, because the legal label (“licence” or “lease”) doesn’t automatically decide what the arrangement really is.

In New Zealand, whether something is a lease or a licence can depend on the substance of the arrangement (what’s actually happening), not just the title of the document. Courts will look at factors like exclusive possession and the level of control retained by the owner/head tenant, but the analysis is fact-specific.

Commercial Lease (Generally)

A lease usually gives you:

Exclusive possession of the premises (you can control access, within reason)
a defined term and stronger property-like rights
more formal rules around assignment, renewals, and ending the arrangement

If you’re entering a standard tenancy arrangement, you’re usually looking at a Commercial Lease Agreement (often with detailed terms about rent reviews, outgoings, repairs, and default).

Licence To Occupy Agreement (Generally)

A licence to occupy agreement often means:

you have permission to use a space, but not exclusive possession
the licensor may retain control (for example, they can set access rules, share the space, and in some cases relocate you depending on the agreement)
it may be more straightforward to end than a lease, but termination rights still depend on the wording and how the arrangement operates in practice

For example, if you’re operating inside someone else’s premises during certain hours, using shared amenities, and the host business retains overall control, that often looks more like a licence.

Why This Distinction Matters

If a “licence” is drafted (or operates) more like a lease, you can end up with:

unexpected obligations that feel like lease obligations (repairs, make-good, long notice periods)
disputes about whether you were entitled to stay
confusion about what happens if the head tenant’s lease ends (if you’re licensing from a tenant, not the owner)

If you’re not sure whether your arrangement is really a licence or a lease, it’s worth getting advice before you sign. It’s usually much cheaper to clarify the structure upfront than to untangle a dispute later.

When Does A Licence To Occupy Agreement Make Sense For Your Business?

A licence to occupy agreement can be a strong option when your business needs space, but not the full “exclusive premises + long term + heavy fit-out” package that a lease usually involves.

Common Scenarios

Co-locating inside another business (salons, clinics, gyms, retail stores)
Short-term or pop-up operations (seasonal kiosks, holiday trading)
Shared spaces where exclusive possession doesn’t make sense (events, markets, shared commercial kitchens)
First-time premises when you want flexibility while revenue stabilises
Limited use (specific days/hours, or access to a room only when booked)

When You Should Pause And Get Advice

A licence to occupy agreement may not be the right tool if:

you’re investing heavily in a fit-out and need longer-term certainty
your business relies on being able to control access (exclusive possession)
you need strong protections to sell the business later
the “licence” is actually functioning like a lease (exclusive area, fixed term, minimal control retained by the owner)

In those situations, you may be better off negotiating a lease (and having it reviewed) rather than trying to make a licence do a lease’s job. A quick Commercial Lease Review can also help you understand what you’re really signing up for.

What Should Be In A Licence To Occupy Agreement?

A good licence to occupy agreement is clear, practical, and tailored to how you’ll actually use the space day-to-day.

Below are clauses we commonly recommend small businesses think about. Not every licence needs every clause, but these are the usual “pressure points” where disputes happen.

1. The Licensed Area (Be Specific)

Your agreement should clearly describe:

the exact area you can use (ideally with a marked plan)
whether the licensor can relocate you (and under what conditions)
what common areas you can access (toilets, waiting rooms, kitchens, storage, parking)

If it’s vague, you can end up paying for “access” without certainty over what you’re actually allowed to occupy.

2. Permitted Use (What You’re Allowed To Do There)

The agreement should spell out your permitted use - for example “beauty services”, “coffee cart”, “office administration”, “storage of non-hazardous stock”, and so on.

This matters because permitted use often links to compliance and risk. If you start doing something outside the scope (like selling food from a space licensed only for retail), the licensor may treat it as a breach and end the agreement.

It’s also worth ensuring the permitted use matches the practical realities of the building and any head lease restrictions. (This comes up a lot when the licensor is a tenant, not the landlord.)

3. Term, Renewal, And Termination (How It Ends)

One of the main reasons businesses choose a licence to occupy agreement is flexibility - but flexibility only exists if the termination clause supports it.

Make sure you understand:

the start date and end date (if any)
whether it auto-renews or becomes month-to-month
how much notice is required to end it (for both sides)
what happens if there’s a serious breach (immediate termination rights)

From a small business perspective, the key question is: if this location stops working for you, how cleanly can you exit?

4. Fees, Payment Terms, And Outgoings

Licence arrangements might involve:

a fixed weekly/monthly licence fee
a percentage of revenue (less common, but it happens)
contributions to power, internet, cleaning, security, and waste
service charges or building operating costs (depending on the site)

The agreement should be clear on:

when payments are due
how invoices will be issued
what happens if you pay late (interest, admin fees, default)
whether fees can increase, and how (CPI, annual review, fixed increase)

If your operations depend on reduced fees during major disruptions (for example, if the premises can’t be accessed or used as agreed), it may be worth discussing an agreed approach upfront so both sides know what happens in that scenario.

5. Fit-Out, Signage, And Make-Good

Even small spaces can involve real spend - shelving, cabinetry, sinks, branding, or a reception desk.

Your licence to occupy agreement should cover:

whether you can do any fit-out works (and who pays)
whether you need written approval first
who owns fixtures installed during the licence
signage rights (and restrictions)
“make-good” obligations when you leave (do you need to remove everything and restore the area?)

Make-good clauses are a common surprise cost. It’s worth clarifying this before you install anything permanent.

6. Insurance And Liability

A practical licence to occupy agreement will allocate risk clearly, including:

what insurance you must hold (for example, public liability)
what insurance the licensor holds
who is responsible if a customer is injured in or near your space
whether either party is responsible for lost profits if the space becomes unusable

These clauses should be drafted carefully. A poorly drafted liability clause can leave you exposed, especially if you’re sharing a space where customers move between your business and the host business.

7. Compliance With Key NZ Laws (Don’t Miss This)

Even though a licence to occupy agreement is about premises, it often intersects with broader compliance. For example:

Health and safety: If you operate from a workplace, the Health and Safety at Work Act 2015 can apply, and multiple parties may have duties (especially in shared spaces).
Advertising and customer representations: If you’re promoting services from the premises, the Fair Trading Act 1986 applies to misleading conduct.
Customer guarantees: If you sell products/services to consumers, the Consumer Guarantees Act 1993 may apply.
Privacy: If you collect customer details on-site (bookings, CCTV, Wi-Fi capture, mailing lists), you need to think about the Privacy Act 2020 and having a fit-for-purpose Privacy Policy.

It’s not about making things complicated - it’s about ensuring your legal foundations match how you actually operate.

Common Risks With Licence To Occupy Agreements (And How To Avoid Them)

A licence to occupy agreement can be great, but the trade-off is often less certainty than a lease. Here are the big risks we see for small businesses, and what you can do about them.

Risk 1: You Can Be Moved (Or “Managed Out”) Of The Space

Many licences allow the licensor to relocate you within the premises, but the scope of this right depends on the drafting. That might be fine if you’re operating a back-office function, but it can be disastrous if your foot traffic depends on a specific spot.

What to do: Negotiate clearer limits on relocation, or require your consent (or require relocation only to an equivalent location with similar visibility/access).

Risk 2: The Licensor Doesn’t Actually Have The Right To Grant The Licence

If the licensor is a tenant (not the property owner), they might need the landlord’s consent under the head lease before letting someone else occupy any part of the premises. If they don’t get it, your arrangement can become unstable quickly.

What to do: Confirm the licensor’s authority and whether landlord consent is required (and if so, make sure it’s obtained in writing). If you’re occupying part of a leased space, issues around assignment and permissions can also arise (similar to what comes up when Assigning A Lease).

Risk 3: Hidden Costs (Outgoings, Utilities, Cleaning, Security)

“$400/week plus expenses” can be a red flag if “expenses” aren’t defined. Small weekly add-ons can turn into a meaningful monthly cost.

What to do: List out exactly what you pay for, how it’s calculated, and when it can change. If possible, cap variable charges or require evidence (like invoices).

Risk 4: No Clear Exit Path

Some licence to occupy agreements are drafted with termination clauses that heavily favour the licensor. If your business needs to pivot quickly, that can trap you in payments you can’t afford.

What to do: Negotiate a reasonable notice period, a clear handover process, and a fair approach to refunds/prepaid amounts.

Risk 5: You Don’t Have The Right Operational Documents In Place

Your premises agreement is only one part of being legally protected from day one. If you’re bringing staff on-site, selling services, or collaborating with the host business, you’ll likely need supporting documents too.

For example:

If you’re hiring, your Employment Contract should match how the role actually works (hours, location, health and safety expectations, confidentiality).
If you’re providing services to customers on-site, consistent Business Terms can help set payment terms, cancellations, and liability boundaries.

These documents work together. When they don’t align, disputes get messy fast.

Key Takeaways

A licence to occupy agreement can be a flexible and cost-effective way for a small business to use commercial space without committing to a full lease.
The difference between a licence and a lease matters - and it’s not just about what the document is called, but how the arrangement works in practice.
A good licence to occupy agreement should clearly cover the licensed area, permitted use, fees and outgoings, fit-out and make-good, insurance, and termination rights.
Common risks include being relocated, unclear authority to grant the licence, hidden costs, and weak exit terms - all of which can usually be managed with careful drafting and negotiation.
Your premises arrangement often connects to other legal obligations (health and safety, consumer law, privacy), so it’s worth checking your wider legal foundations too.

If you’d like help drafting or reviewing a licence to occupy agreement (or working out whether you should be signing a licence or a lease), reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.

Licence to Occupy Agreements for New Zealand Businesses