By Zak Muscovitch.

The  “Leasing Domain Names” workshop at Namescon is almost full. I am looking forward to spending 45 minutes taking everyone through a domain name lease agreement, line by line, and explaining the issues and considerations, so that you become familiar with the basics of domain name leasing transactions. After the workshop, I will also be giving attendees an Annotated Domain Name Lease Agreement, which I prepared specifically for Namescon, and which can be used as a template and reference guide for domain name lease transactions.

Domain Name Leasing occurs with more and more frequency as it can allow a lessee to get use of a valuable premium domain name without having to lay out the entire purchase price at the outset. That, combined with an option to purchase, has the potential to make a successful transaction for both parties. Nevertheless, there are potential pitfalls, and also benefits to structuring the transaction in certain ways. Come learn about it, as I love discussing domain name leasing transactions.

The Domain Name Leasing workshop will be held on Sunday, January 11, 2015, at 2:15 pm in “The Mojo Room”, at Namescon 2015, in Las Vegas, at the Tropicana Hotel.


By Zak Muscovitch.

I am seeing a lot of good domain name leasing action these days for premium domain names. When negotiating a domain name leasing agreement, generally the right time to consult a domain name lawyer is before you agree on the basic terms, not afterwards. The reason is that it may be your first time leasing a domain name and you might as well get the benefit of an experienced domain name leasing lawyer before you commit to the terms of a deal. Sure, you may feel that the business terms are up to you, and of course they are, but often the business terms are closely linked with the legal terms, and therefore it is often best to look at both together, not one before the other.

There are many aspects to a good domain name lease agreement, but here are 5 tips that are often initially overlooked:

1. Escrow of the Domain Name. If monthly payments are large enough, and if the deal is important enough, the party leasing the domain name may want to have the domain name held by a neutral third party in order to provide greater comfort that the name will still be there after a lot of money and time has been spent on developing a leased domain name.

2. Trademark Rights. If you are leasing a domain name to someone, you wouldn’t want that person to be accumulating or acquiring trademark rights the whole time they are renting the domain name from you if they don’t end up buying the domain name. If that were to happen, then after you re-take control of the domain name (for example, after the lease is over or terminated), in theory, the party who has been using a domain name could potentially argue that they have acquired trademark rights or goodwill on the brand, thereby hindering your own use and ownership of it.

3. Loss of the Domain Name. Consideration should be given to what happens if the domain name is lost as a result of the misuse of the domain name by the party renting the domain name. Similarly, indemnifications may be required in order to protect the domain name owner against claims for damages by third parties, that arise for example, from trademark infringement claims made by third parties against the party renting the domain name.

4. Early Termination. Some consideration should be given to whether or not the party renting the domain name can terminate the agreement before it comes to an end, for example, if the project doesn’t pan out, or whether the renter is on the hook for all payments throughout the lease period, regardless. Another possibility is to build in an early termination fee or penalty.

5. Buy-Out Incentives. It is often in the best interests of both parties to build in an incentive for the renter to buy the domain name early on, from the domain name owner. Accordingly, various structures are possible to provide a financial incentive to the renter to pull the trigger on a buy-out earlier rather than later. This can, for example, take the form of a gradually escalating purchase or buy out price, or can take the form of a discount if the domain name is purchased within a certain time frame


By Zak Muscovitch.

Try just ordering “a coffee” at Starbucks. You will be met with a litany of questions; Do you want mild, medium, or dark? Brewed or custom made? Fat or non-fat? Wet or dry? Tall or short? Flavor shot or not?

The same goes for domain name lease agreements. There are many possible variations and considerations, and therefore like ordering “a coffee” at Starbucks, ordering up a domain name lease agreement calls for knowing what options are available. Often, this comes from experience.

Some of the basic variations and considerations are as follows:

1. What is the value of the domain name?

This is a key preliminary question for a number of reasons. First of all, the amount of effort you put into a lease agreement will often depend on the value of the domain name. A relatively cheap domain name will not usually call for a lengthy agreement full of complex protections for the domain name owner (the lessor) or the lessee.

Also, a lessee of an inexpensive domain name will often be scared off by a 10 page legal document. Accordingly, the starting point for determining what kind of domain name lease agreement you need, is determining the value and importance of the domain name to both the domain name owner and the lessee.

2. Will this be a “rental” or a “lease to own” arrangement?

Just like there are different kinds of car leases, such as a “walk away lease”, a “balloon payment lease”, and a “lease to own” or “finance” arrangement, so to are there different basic forms of a domain name lease agreement.

The most common kind of domain name lease agreement is where the lessee pays monthly “rent” for the use of a domain name over a period of time, and at the end of this term, either will own the domain name or have a right to “buy it out” with a final payment. The reason that this type of “lease to own” arrangement is the most common, is that leasing a domain name generally allows a lessee to obtain the use of a domain name that it would otherwise be unable to afford.

3. Will the domain name be held by the domain name owner, or be held in escrow by a third party?

When a lessee is considering making substantial monthly lease payments for the use and potentially the ownership of a domain name, the lessee will often want some security that the domain name will not be rented, sold, or even lost, to someone else, while he or she is making the lease payments to the domain name owner.

The lessee may therefore request that once the lease agreement is signed, and the first payment is made, that the domain name be transferred to an escrow agent for the duration of the payment term, so that once all payments are complete, the domain name may be transferred to the lessee, who by then has become the owner of the domain name. Alternatively, the lessee might be concerned that through negligence or malfeasance, the domain name owner might terminate the lessee’s use of the domain name while it is being paid for by the lessee, and the lessee therefore wants the security of knowing that it is in the hands of a neutral third party.

From the domain name owner’s perspective, it is always preferable of course to maintain the ownership and control of the domain name while a lease agreement is pending. Accordingly, this important aspect is often a key part of the domain name lease negotiation, and will often depend on the value and the importance of the domain name to both parties.

4. Are there any restrictions on the lessee’s use of the domain name?

Once you sell a domain name, you won’t really care what the new owner does with it. But just like when you are renting an apartment to someone, you will care what they use it for while they are renting it from you. For example, you won’t want the tenant to damage the property, try to sell it from under you, have the police called to late night parties or for illegal activities, or use it as a store when it is supposed to be a residential unit.

The same kind of considerations apply when leasing out a domain name. If you are the domain name owner, you will want to have provisions included in your domain name lease agreement that restrict the kinds of things that the lessee is permitted to use the domain name for. Examples of these kind of restrictions might include not using the domain name for any kind of unlawful purpose, such as spamming or child pornography. Furthermore, a domain name owner may sometimes insist that the lessee disclose exactly what kind of good or service will be provided in association with the domain name, and have the lessee agree to not stray from that agreed use at all.

5. Are there any potential trademark issues?

When negotiating and entering into a domain name lease agreement, is is important to determine whether the domain name is being leased “free of any potential trademark issues”, or whether it is up to the lessee to satisfy himself that the domain name can be lawfully used without attracting allegations of infringement which can greatly affect the domain name owner as well as the lessee.

Generally, a domain name owner will make it so that it is up to the lessee to be responsible for ensuring that his use of the domain name during the lease term, will not infringe any third party’s trademark rights. Nevertheless, the domain name owner will want to keep an eye on this as well, since as long as the domain name is owned by the domain name owner, the domain name owner will need to ensure for itself, that its valuable property is not being risked through trademark infringing activity. Furthermore, if any claim arises, the domain name owner, and the lessee for that matter, will both have an important interest in being notified so as to deal with any such claim. Accordingly, notice provisions and indemnification provisions are key components of any domain name lease agreement.

6. What happens if there is a breach?

When negotiating a domain name lease agreement, it is crucial to include provisions that deal with unintended situations, such as when the lessee stops paying the rent, or if the lessee misuses the domain name. Normally there will be a “curative period”, where the breaching party is able to cure its default, but sometimes the breach may be so serious, such as when a domain name is being used for illegal activities which threaten the domain name owner’s ownership of the domain name, that there will not be an opportunity to provide a curative period before the domain name owner has to change the DNS settings so as to “lock out” the lessee.

Nevertheless, often it is possible to negotiate and arrange a way for the lessee to buy out the domain name in such circumstances, even when there is a serious breach, since the lessee may want to just take over the domain name, and the domain name owner will be just as happy to sell it for an agreed price at that point.

7. Where do disputes get resolved?

When there is a dispute over a term or condition of a domain name lease agreement, a good domain name lease agreement will include a “governing law” and “jurisdiction” clause. This kind of provision will ensure that it is clear that the parties have agreed to have any dispute decided by either a judge or an arbitrator, but will also often specify where the dispute is supposed to be resolved, e.g. where either the domain name owner or the lessee is located, and also deal with what language and what state or country’s law will apply.

The degree of attention and concern that gets paid to this particular aspect will generally depend on the value of the domain name and the importance of the domain name to the parties. If it is a very valuable domain name, then it will be very important for both the domain name owner and the lessee to have the dispute decided close to home. But since that is often impossible since the parties are located far apart, then a middle ground can often be negotiated. On the other hand, sometimes a domain name owner will choose to accommodate the lessee’s choice for jurisdiction, particularly if the domain name is being held throughout the term of the lease by the domain name owner, and not in escrow.

Conclusions

As you can see, there is no “one size fits all” domain name lease agreement, just like there is no “simple coffee” at Starbucks. An experienced domain name lawyer will be able to guide you through the considerations and options for a domain name lease agreement. Also, after negotiating and completing a few domain name lease agreements, you will have some experience in knowing which variables and options should be considered for your particular situation.

And by the way, I usually order a doppio, long, espresso, machiatto, non-fat, dry, one Splenda.