Subleases vs. License Agreements: Understanding the Key Differences in California

By Connor Inlow, Esq.

When it comes to structuring the use of real estate in California as a property owner, landlord, or tenant, it is essential to understand the differences among a lease, a sublease, and a license agreement. While each allow someone other than the property owner to use the property, they carry different legal rights, obligations, and consequences.

As a Preliminary Matter, What is a Lease?

A lease grants exclusive possession and use of property to the tenant against the world, including the owner of the property, for consideration, usually rent, for a definite term, and with a reversion to the owner at the end of the term. A lease is both a conveyance of an estate in real property and a contract between the landlord and the tenant.

Accordingly, the lease has two sets of rights and obligations—one set growing out of the relation of landlord and tenant based on the “privity of estate,” and the other set growing out of the language of the lease based on “privity of contract.”

What Is a Sublease?

If the lease and/or landlord permits it, a tenant can transfer a portion of its right to exclusive possession and use of the property, but remain obligated under the lease, which is called a sublease. A sublease occurs when a tenant (the sublandlord) transfers a portion of its interest in a leased property to another person (the subtenant), while still retaining some rights and obligations under the original lease (the primary lease) with the original landlord (the primary landlord). Typically, a sublease grants or creates the following rights and responsibilities:

• Exclusive possession: The subtenant has the right to exclude everyone, including the property owner, from the subleased space for the term of the sublease.
• Legal relationship with sublandlord: A sublease creates a new landlord–tenant relationship between the sublandlord and the subtenant and a binding contract between them.
• Legal relationship with primary landlord: While the provisions of a sublease are subordinate to the provisions of the primary lease, generally, the subtenant has no privity of contract or estate with the primary landlord unless the subtenant expressly assumes the contractual obligations of the primary lease. Consequently, generally, and with some important exceptions, the subtenant cannot sue the primary landlord for breaches of the primary lease, nor can the primary landlord sue the subtenant for breaches of the sublease.
• Transferability: Unless prohibited, a sublease can generally be assigned to another party.
• Termination: Ending a sublease generally requires compliance with statutory notice requirements or the termination provisions of the sublease itself.

What Is a License Agreement?

A license is a personal, revocable privilege, granted by the licensor to the licensee, to use the property for a specific purpose without conveying any ownership or possessory interest.

• No exclusive possession: The licensee may occupy or use the property pursuant to the license, but the license conveys no possessory interest.
• Legal relationship: A license does not create a landlord–tenant relationship—it creates a licensor–licensee relationship.
• Nontransferable: A license is generally personal to the licensee and cannot be assigned.
• Termination: Licenses can typically be revoked at any time by the licensor unless the agreement specifies otherwise.

Summary of General Differences Between Sublease and License Agreements:

Agreement Type	Sublease	License Agreement
Possession	Exclusive	Nonpossessory and nonexclusive
Relationship Created	Landlord–tenant	Licensor–licensee
Transferable?	Yes (unless restricted)	No
Termination	Requires statutory notice and compliance with lease terms	Can be revoked at will (unless restricted)

Practical Examples:

• Sublease: A restaurant tenant subleases its back kitchen to a bakery for a term of two years. The bakery has the right to exclude all others, including the landlord, from that kitchen space during the sublease term.
• License: A coffee cart operator is granted permission to operate in the lobby of an office building during weekday mornings. The building owner can revoke this privilege at will, and the coffee cart operator does not have exclusive possession of the lobby or the right to transfer this personal privilege.

Drafting Matters:

Because courts look at the substance and language of the agreement over the labels or titles used, simply calling something a “license” or “sublease” does not make it one. Careful drafting based on the differences described above is critical to ensure the agreement produces the intended legal result and avoids unintended consequences.

Bottom Line:

Whether you are a property owner, landlord, tenant, or business operator, understanding the legal differences between a lease, sublease, and a license can protect your rights and reduce disputes. If you are negotiating or reviewing an agreement for property use, consult with an experienced real estate attorney to ensure it aligns with your goals and complies with California law.

If you have any questions about leases, subleases, or license agreements—or need guidance on structuring your real estate arrangements in California—contact Connor Inlow at cinlow@tldlaw.com for more information and personalized advice.