For practice managers of busy private practices with underutilised therapy or consulting rooms, renting out individual rooms to tenant practitioners or allied health professionals can be a smart way to optimise resources. However, the legal framework for room hire—whether through a lease or licence agreement—can be confusing. Choosing the wrong structure can create unnecessary complications, costs, and risks.

This guide explains the key differences between lease agreements and licence agreements, helping you determine the best arrangement for your practice.

Sublease v Licence: What’s the Difference?

Many private practices use the term “lease” broadly, but not all room hire agreements are the same. The critical distinction lies in whether the tenant is granted exclusive possession of the space.

1. Lease (or Sublease) Agreement

A sublease grants the tenant exclusive control over the room, similar to renting a house or apartment. Key features include:

• Exclusive possession – The tenant can exclude others, including the practice, from the space.
• Longer-term commitment – Typically involves fixed terms (e.g., 12+ months).
• Exclusive of outgoings – ‘Outgoings’ (electricity, water, internet) will generally be calculated separately.
• Additional responsibilities – The tenant may be liable for cleaning, maintenance, and the requirement to ‘make good’ after the lease ends.
• Landlord approval required – If your practice itself leases the premises, the head lessor will usually be required to consent to a lease. If indeed the practice occupies the space under its own lease, then any further lease of parts of the building will be termed a ‘Sublease’

Example: If a practitioner leases a room full-time, they have sole use of that space, and the practice cannot rent it to others during the lease term.

2. Licence Agreement

A licence grants permission to use the room without exclusive possession. Key features include:

• No exclusive control – The practice retains authority over the space and can rent it to others when not in use. This can be helpful if the Room or licensed area is only being used by a practitioner part-time.
• Flexible terms – Can be short-term (e.g., weekly or monthly) and easily adjusted.
• Simpler administration – No need for extensive landlord approvals (though check your head lease).
• Lower cost – A licence typically avoids additional expenses like utilities or maintenance obligations. Outgoings will generally be included in the overall licence cost.

Example: A licencee practitioner may book a room three days a week under a licence, while another professional uses it on the remaining days.

Lease or Licence: Which Option Is Best for Your Practice?

When deciding between a lease and a licence, consider:

Why Licence Agreements Are Often Preferred

Most private practices benefit from licences because:

• Maximises room usage – Multiple practitioners can share the same space.
• Reduces risk – Easier to terminate or modify if needs change.
• Simplifies terms – A single flat fee and clear usage terms means that the parties can quickly agree and minimise administrative costs.
• Avoids landlord hurdles – No lengthy approval processes.

However, if a practitioner requires permanent, exclusive use, a lease may be necessary. Ultimately a licence will not provide long term security in the premises which can be particularly relevant if a practitioner is seeking to build their brand around a particular location.

Legal Considerations: Avoiding Misclassification

A critical legal distinction is whether an agreement is truly a licence or functions as a lease in disguise. Courts examine the substance of the arrangement, not just the label.

Case Example: Radich v Smith [1959] HCA 45

• A milk bar operator was granted a “licence” to use a shop.
• Despite the terminology, the High Court ruled it was a lease because the operator had exclusive possession (e.g., could exclude others).

Key Takeaway: If a tenant has de facto or actual control over the space, the agreement may be deemed a lease, regardless of the way it is termed.

To ensure compliance:

• Clearly define access rights – Specify permitted usage times.
• Avoid exclusive possession clauses – The practice should retain control.
• Review head lease terms – Some landlords prohibit subleasing or licensing without consent.

What If Additional Services Are Provided?

If your practice offers reception, billing, or administrative support alongside room hire, a separate services agreement is required. A licence agreement alone does not cover these extras.

Example: A tenant practitioner may start with a room licence but later require front-desk support, necessitating an additional contract.

Key Takeaways & Next Steps

1. Licences are ideal for part-time or rotating practitioners – They offer flexibility and retain practice control.
2. Subleases suit full-time, long-term tenants – But require more formalities and landlord involvement.
3. Avoid accidental leases – Ensure licence agreements do not grant exclusive possession.
4. Include services agreements if needed – Separate contracts are required for non-room-related support.

Action Steps for Your Practice Before Hiring a Room:

• Assess your needs – Do you need full-time occupancy or flexible sharing?
• Review your head lease – Check if landlord consent is required.
• Consider the Term – How long are you seeking to hire the room?
• Simplicity or Detail – Will the agreement require detail on utilities or costs or are all associated costs capable of being included in a flat fee?
• Propose to the Practitioner Licensee/Tenant – Early negotiation is necessary to ensure that the ultimate agreement reached is fit for purpose.

Therapas provides a template Room Hire Licence Agreement that will accelerate your process of utilising your space and minimise the time and cost of negotiating with a prospective practitioner.

_{Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to you or your organisation.}