CASUAL LEGAL: Is it a Lease or a Licence, and does it even matter

Is it a Lease or a Licence, and does it even matter?

By Jeffrey Daniels

Reynolds Mirth Richards Farmer LLP

AMSC Casual Legal Service Provider

A lease of real property and a licence to use it are not the same, and the distinction can be significant.

A lease is a grant of exclusive possession, creates an interest in the property itself, and conveys more legal rights than a licence. A licence, on the other hand, is a contractual right to use the property, but does not create an interest in the property itself. For example, as a general matter, a licence holder does not have standing to sue in trespass, and the licence would not be binding on a subsequent purchaser of the property. Whether an agreement creates a lease or a licence is a question of substance and not form; it is not enough to merely label an arrangement as a licence or a lease, it must actually convey the intended legal rights.

In Condominium Corporation No 042 5177 v Kuzio, the Alberta Court of Queen’s Bench was tasked with determining whether short term rental arrangements through web-based platforms like Airbnb constitute leases or licences.

Upon discovering several owners were listing units on short term accommodation websites, the condominium board instructed its property manager to send a letter to the owners advising that the rentals violated the corporation’s bylaws. The bylaw in question mandated that units be occupied by an Owner, an Owner’s Tenant, or their family and friends, and prohibited occupation by a “Roomer” or “Boarder”, which were defined as a person to whom a room (or room and board) was supplied for consideration.

The condominium corporation sought a permanent injunction enjoining the owners from renting their units on short-term rentals where no lease was entered into. The condominium corporation argued the short term rentals created a licence, essentially equivalent to arrangements for hotel rentals, and were a violation of the bylaw.

The aggrieved owners argued the short-term rentals were a lease, and therefore the condominium corporation was precluded from restricting the rentals under the Condominium Property Act. Section 32(5) of the Condominium Property Act provides, in part, that no condominium bylaw operates to restrict any lease of a unit.

The Court considered the Airbnb terms of service and concluded the rental arrangement was the functional equivalent of a hotel rental and did not create an interest in real property. The Airbnb rentals created a licence, not a lease, and the condominium corporation bylaws were permitted to prohibit such rentals where no lease is entered into.