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Licence Agreements Explained: Types, Uses and Pitfalls | LegalDocuments.co.uk

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Written by Brad Askew Solicitor (non-practising)
Brad is on the roll of solicitors of England & Wales but does not hold a practising certificate and does not provide legal advice.
Updated June 2026 · England & Wales
A licence agreement is one of the most flexible tools in commercial law. It lets the owner of something valuable, usually intellectual property, but sometimes software, a brand, a process or physical premises, give someone else permission to use it, without handing over ownership. That distinction matters. Sell an asset and it's gone. Licence it and you keep the underlying rights while earning revenue, controlling quality, or opening new markets. I've seen businesses build entire commercial models on licensing, and I've seen others lose control of their most valuable assets because the licence was drafted loosely. This guide walks through the main types of licence agreement used in England and Wales, how they typically work, where they go wrong, and the questions you should ask before signing anything. It's written for founders, in-house teams and anyone who needs a working understanding before they negotiate.

What this document is

A licence agreement is a contract in which one party (the licensor) gives another party (the licensee) permission to use something the licensor owns or controls, on defined terms, for a defined period, usually in exchange for payment. Ownership does not transfer.

The licensee gets a bundle of permissions, for example, to reproduce software, manufacture a product under a patent, sell branded goods, or occupy a property, within the limits the agreement sets out. Licences can cover almost any asset: copyright works, trade marks, patents, registered and unregistered designs, confidential know-how, databases, software, and even land or equipment.

The scope of what's licensed, where it can be used, how long the rights last, what the licensee can and cannot do, and what happens if either side breaches the terms are all matters for the agreement itself. Because the default position in English law is that the owner keeps all rights not expressly granted, drafting matters enormously.

A licence that says too little leaves the licensee exposed; one that says too much can tie the licensor's hands for years.

How to use this document

  1. Identify exactly what is being licensed. Before you think about royalties or territory, pin down the asset itself. Is it a specific patent, a piece of source code, a trade mark registration, a manuscript, a database? Describe it precisely in the agreement, ideally with registration numbers, version numbers, or a schedule listing each item. Vague descriptions are the single most common cause of licensing disputes.
  2. Decide on the scope of rights granted. Work out whether the licence is exclusive, sole or non-exclusive; which territories it covers; which fields of use are permitted; and whether sub-licensing is allowed. Each of these is a commercial lever. The broader the grant, the more the licensee pays, or should. Narrow the grant where you can, because anything not granted stays with the licensor.
  3. Agree financial terms and reporting obligations. Royalties, lump sums, minimum guarantees, advance payments, milestone fees, there are many ways to structure the money. Whatever you choose, build in clear reporting obligations, audit rights, and deadlines. A royalty without a proper reporting mechanism is almost impossible to enforce, and licensors routinely lose significant sums this way.
  4. Address quality control, warranties and indemnities. Particularly for trade mark and brand licences, the licensor needs the right to control quality, otherwise the mark's value can be eroded. Consider what warranties each side can honestly give about ownership, non-infringement and fitness for purpose, and how indemnities will work if a third party brings a claim relating to the licensed asset.
  5. Plan termination, consequences and what happens next. How long does the licence run? Can either party terminate for convenience, or only for breach? What happens to stock in hand, customer relationships, sub-licensees and confidential information when the agreement ends? Exit provisions are often neglected in negotiation and then become critical in practice.
If you're dealing with this kind of situation, speak to an experienced legal adviser who can walk you through it — from £149.

Common questions

Q What is the difference between an exclusive, sole and non-exclusive licence?
An exclusive licence means only the licensee can use the rights in the defined scope, even the licensor is shut out. A sole licence lets both the licensor and the licensee use the rights, but no one else. A non-exclusive licence allows the licensor to grant the same rights to multiple licensees at once. The choice significantly affects price, control and how the asset can be commercialised.
Q Is a licence the same as an assignment?
No, and the distinction is important. An assignment transfers ownership of the underlying right outright, once assigned, it belongs to the new owner. A licence only grants permission to use the right, with ownership staying with the licensor. Assignments of certain intellectual property rights, such as copyright or registered trade marks, generally need to be in writing and signed, whereas licences can sometimes be less formal, although a written agreement is always sensible.
Q Can a licence be granted without a written agreement?
In some circumstances, yes, English law recognises implied licences and oral arrangements in certain situations. However, relying on an unwritten licence is risky. Scope, duration, payment and termination all become matters of memory and inference. For anything commercially meaningful, put the licence in writing, signed by both parties, with the key terms clearly recorded.
Q What is a sub-licence and when should I allow it?
A sub-licence is where the licensee grants some or all of its rights to a third party. Sub-licensing can extend distribution, reach specialist markets or enable multi-tier supply chains. From the licensor's perspective, it also means losing a degree of direct control over who uses the asset. If you allow sub-licensing, consider requiring prior written consent, flowing down key obligations, and making the licensee responsible for sub-licensee breaches.
Q How are royalties usually calculated in a licence agreement?
There's no single formula. Common structures include a percentage of net sales, a fixed fee per unit, a lump sum, tiered rates linked to volume, or combinations of these with minimum annual payments. Define terms like 'net sales' carefully, specify reporting frequency, set payment deadlines, and include an audit right. Vague royalty clauses are one of the most litigated parts of licensing.
Q What happens to the licence if the licensor is sold or becomes insolvent?
This depends on what the agreement says. A well-drafted licence will address change of control, assignment and insolvency explicitly. Without clear provisions, a licensee can find its rights destabilised by events entirely outside its control, and a licensor can find its asset tied up in a counterparty's insolvency process. It is worth thinking through these scenarios before signing.
Q Do licence agreements need to be registered anywhere?
Some do. Licences of registered trade marks and patents can and often should be recorded at the UK Intellectual Property Office, which can affect the licensee's ability to claim damages or enforce rights against third parties. Copyright and unregistered rights have no register. If registration is available for the asset being licensed, check whether recording the licence is advisable in your specific circumstances.
If you're dealing with this kind of situation, speak to an experienced legal adviser who can walk you through it — from £149.

Sources

This guide is based on primary UK law and official guidance.

Brad Askew, Solicitor (non-practising)

Written & reviewed by

Brad Askew Solicitor (non-practising)

Brad is on the roll of solicitors of England & Wales but does not hold a practising certificate and does not provide legal advice. LegalDocuments.co.uk is not a law firm and does not provide regulated legal advice.

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Legal disclaimer
This article is for general information only. It is a tool to help you find your way — not legal advice, and not a substitute for speaking to a qualified adviser about your situation.