License Fee in a Sale and Purchase Agreement
In a normal sale and purchase agreement, an agreement will take a minimum of three months to complete, some may take up to half of the year due to conditions precedent. A buyer may wishes to enter into the premise or land for specific purpose ie. construction planning, renovation plan, application of licenses with the authorities and etc. The buyer may propose to have a license fee clause for entry of a property.
License fee is a sum of money given by a Buyer to a Seller for granting a special permission for specific purposes in a sale and purchase agreement. Not all sale and purchase agreements are suitable for having such clause due to certain risks and responsibilities. Hence, it is crucial to spell out such purposes. If a property is free from occupants, any fixture and fitting, no maintenance is required, the seller may consider of giving such special permission. Some of the issues may worth considering:
(a) purpose of entry must be specific and legal;
(b) agreed licensing fee;
(c) restoration fee or security fee;
(d) sharing the maintenance cost;
(e) indemnity clause; and
(f) revocation of license.
From the perspective of a Buyer, planning on the usage of the premise may need physical inspection of the property. In order to save time and money and to ensure that the property is ready in such usage upon completion of the sale and purchase agreement, the Buyer has to get ready for payment of loan instalment, hence this will give the Buyer more time to put the property into the right order to serve for specific purposes ie. commercial purpose, manufacturing purpose.
From the perspective of a Seller, the empty property may not be serving any purpose once a sale and purchase agreement is signed because the Seller has to ensure vacant possession and readiness to hand over. Instead of leaving the empty property without any usage, the Seller may consider to grant the Buyer for a specific purpose while he is able to receive some license fee.
Licence Fee for entry of a property must be always genuine to avoid unnecessary dispute prior to the completion of a sale and purchase agreement.