THE DOMAIN LEASE
IVAN HOFFMAN, B.A., J.D.
There is a phenomenon on the Internet called leasing or renting a domain. This situation would arise if a party wanted a particular domain and found that the domain was previously registered by another party and that other party was not interested in selling the domain outright but instead, leasing or renting it for a sum and for a term.
The domain being sought should not involve the potentiality of a claim of trademark rights in some third party, whether those rights are under the trademark laws or the Uniform Domain Name Resolution Policy (UDRP) or otherwise. However, as you will see below, dealing with such a contingency is one of the most important provisions in the lease agreement. Instead, the domains that are the subject of a lease are usually more generic, even fanciful ones but ones that are not trademarks. Trademarks are not the proper subject of domain leases for many legal reasons that are not the subject of this article.
What then, are some of the issues involved in the transaction to lease that domain? And how should those issues be addressed in a thorough, written and signed lease agreement? Any party, whether lessor or lessee, that does not utilize such a thorough, written and signed agreement or who copies one from another party without having it reviewed by an attorney experienced in such matters can expect many expensive legal surprises and disputes. The transaction is much more complex than it would appear.
Some of the issues relate to similar situations in other leasing arrangements, whether of real or personal property. There are of course many differences and because there is no significant body of well-established law governing these domain lease transactions, the terms of the written contract are all important. There is no place, no such laws, to which the parties can turn to “fill in the gaps” of a poorly drafted agreement. Read “Private Laws.”
Some of the Provisions
It is worth keeping in mind that the lessor, the domain registrant, wants to keep its options open so as to create maximum flexibility on its part. The lessee obviously has interests that have to be addressed within the scope of that flexibility.
The lease should of course include provisions listing the actual domain including the TLD suffix and should include the term of months or years that the lease period will cover. And of course, the lease should include the amount of money the lessee will pay and when such payments are to be made. But what if the lessee “holds over,” i.e. decides it wants to continue leasing the domain after the stated term? The lease should provide for this contingency, either providing that no such option exists or, if it does, what provisions apply to such extended period including what additional lease payments are to be made, how such option is to be exercised and related provisions.
A lessee may wish to negotiate the right to purchase the domain and if so, the terms of that option must be carefully spelled out. When can it be exercised? What shall be the purchase price? This issue is in itself quite complex since it has to cover issues related to what happens to the lessee’s rights in the event the lessor elects to sell the domain to another party during the term of the lessor’s rights. In such an instance, if the purchaser wants to use the domain to create a web site, such purpose will likely conflict with the rights of the lessee during the term of the lease. On the other hand, it may be that a purchaser of a domain is buying just to hold the rights to the domain until the termination of the lease. Is there a right of first refusal on the part of the lessee to purchase the domain and if so, on what terms?
There should be appropriate restrictions on the right of the lessee to assign or transfer its rights in the agreement. Clearly, the lessor wants to deal only with this particular lessee. It also adds leverage to the lessor’s position in the event a buyer for lessee’s business wants to continue the lease of the domain.
What are the rights of the lessor in the event of default in the payment of the lease amounts? Unlike real estate, there is no “unlawful detainer” proceedings available to the lessor.
Is the lessor also to be the host of a web site using the domain? If so, this should be the subject of a separate, written and signed agreement covering the many issues involved in hosting. If not, how is the issue of site hosting to be covered in the lease agreement?
There should be express provisions dealing with the rights in and to the domain claimed by the lessor and an acknowledgment of the same on the part of the lessee. There should be representations and warranties about the use of the domain on the part of the lessee and appropriate indemnities in that regard. Since domain leases are almost always drafted on behalf of the lessor, it is unlikely that the lessor will be making any representations and warranties about the domain and thus it is up to the lessee to seek to negotiate the same. However, these exclusions from warranties must be expressly included in an appropriate manner in the lease agreement.
Among the most important provisions to be contained in the lease are issues related to which party has the “standing” to file or defend claims related to the domain. “Standing” is a legal term that refers to the right of a party to either sue or be sued with regard to a matter, in this instance, the domain. Claims in regard to domains may arise under the UDRP, the AntiCybersquatting Consumer Protection Act (ACPA), the Lanham Act or any other law, either state or federal. It may be that the lessor will be the only party to have such “standing.” This presents further legal difficulties since if the lessor has such standing, does the lessor have any sort of duty to the lessee to defend the domain from legal attack or to bring a claim in regard to the same? Suppose a challenge to the domain is raised by another party, for example? Is the lessor obligated to defend the domain in such an event and if not, what happens to the rights of the lessee if the domain is lost to that other party? Suppose that another party is using its own domain or web site in such a manner as to raise issues about possible infringement on the rights of the lessee domain user? Is the lessor obligated to pursue these claims and if not, can the lessee do so? These are issues that must be addressed in the agreement otherwise the parties may find themselves in litigation.
Clearly there are other issues that should be addressed in a thorough agreement. What is important here is that both sides recognize that this is a transaction that is somewhat novel and without any significant support in terms of laws specific to the situation. Accordingly, it is up to each side, acting in their own self-interest and with personal responsibility, to negotiate an appropriate agreement. There is no one to blame except themselves if they fail to do so.
© 2002 Ivan Hoffman. All Rights Reserved.