Reading time: 6 minutes

When entering into a commercial or retail lease, it is important to understand how you are and are not allowed to use the lease premises. These parameters are set out in the ‘permitted use’ clause, which can be found in every commercial or retail lease. It is a clause that describes how you, as the tenant, can use the premises. You can usually negotiate this before you enter into the lease. This article will explain the importance of the permitted use clause and the key issues to consider when describing permitted use in your lease.

Overview

It is important that the clause accurately describes how you intend to use the premises throughout the lease. It should describe what you will be doing on the premises now and in the future, and any products or services you will sell or provide on the premises.

When describing permitted use in your lease, there are a few main issues to consider. These include:

  • the exclusivity of the permitted use;
  • whether you have development approval for your intended use;
  • the transferability of the permitted use; and
  • the law which the lease falls under.

Exclusivity

It is a good idea to request that the permitted use in your lease is exclusive to you. This means that no other business in the shopping centre or building can operate under the same permitted use. This benefits you by minimising your competition and increasing your sales.

For example, if you intend to operate a bakery, having the permitted use exclusive to you will mean that another bakery cannot open in the same building.

However, for the exclusivity to be effective, you must draft the permitted use clause clearly and accurately to have the best chance of stopping a competing business from operating in the same building as you.

Development Approval

Before signing on with a lease, it is typically the prospective tenant’s responsibility to research and enquire about whether the premises are suitable for their intended use. They also need to determine whether their intended use is permitted on the premises.

To conduct this research, the tenant should contact the council and find out what approval is currently in place for the premises and if a change of use application is required. 

If the council has not yet approved your intended use of the premises, you will need to obtain the council’s development approval or certificate to proceed. You should make enquiries with the relevant council to determine how you should go about obtaining this approval. In most cases, to submit an application, you will need to provide documents detailing: 

  • site plans; 
  • car parking spaces; 
  • loading facilities; 
  • trading hours; 
  • number of staff; and 
  • goods and services that will be provided on the premises. 

It is therefore important, as the tenant, to make the lease conditional on the granting of development consent. Doing so will allow you the right to terminate the lease early if the council does not grant you permission for your requested use within a specified timeframe. 

Transferability of the Lease

It is also important to consider making the permitted use description broad. If the description of the permitted use is too narrow, it may restrict business expansion and the transferability of the lease

For example, suppose at some point in a lease, a lessee decides to expand from a dine-in restaurant to include a takeaway service. In that case, the permitted use description in the lease should be broad enough to encompass both service offerings. 

Further, if a lessee decides to sell their business, it is a common request from landlords that permitted use of the premises not be changed with the new tenant. Therefore, a broad permitted use description in the lease that includes uses that you are currently not using the premises for would make it easier to find a purchaser of the business. 

A similar concept applies if the lessee is looking to assign the lease to someone else or sublet the premises. It may also be beneficial to include in the lease that the landlord cannot withhold their consent if an incoming tenant will be operating a business that is similar to the permitted use described in the lease.

Permitted Use Laws

It is important to be aware of whether your lease is a retail or commercial lease because this will determine which laws govern the lease and its permitted use. Retail leases are governed by state-specific legislation. On the other hand, commercial leases are regulated by state-specific property and conveyancing Acts. Additionally, unlike a retail lease, a landlord and tenant can contract out of the property and conveyancing Act of their state, without interference from the law. 

Below is a table of the retail leasing legislation that applies to each state or territory in Australia:

Australian Capital Territory (ACT)

Leases (Commercial and Retail) Act 2001

New South Wales (NSW)

Retail Leases Act 1994

Northern Territory (NT)

Business Tenancies (Fair Dealings) Act 2003

Queensland (QLD)

Retail Shop Leases Act 1994

South Australia (SA)

Retail & Commercial Leases Act 1995

Tasmania (TAS)

Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998

Victoria (VIC)

Retail Leases Act 2003

Western Australia (WA)

Commercial Tenancy (Retail Shops) Agreements Act 1985

Key Takeaways

The permitted use clause of a lease sets out how the tenant is allowed to use the premises. It is important to ensure that the permitted use you intend for the premises has the council’s consent. Additionally, this clause should be made as broad as possible, as to not restrict a future transfer of the lease. For more information regarding permitted use clauses or for assistance drafting or reviewing a lease, contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page. 

Frequently Asked Questions 

Can I have the permitted use changed if I sell the business to a purchaser who wants to use the premises for a different purpose?

It is possible to have the lease amended to include the new use of the premises. However, landlords typically do not wish to change the agreed permitted use under the original lease. It is therefore important to have the permitted use of the premises encompass a broad range of activities. 

Does the permitted use need to be approved by the council?

Yes, if the council does not approve of your proposed use of the premises, even if it is agreed in the lease, you will not be able to use the premises in that way. It is therefore important to make the lease conditional on development consent being granted by the council for the proposed use or on confirming the intended use is permitted.

How do I stop another competing store from opening in the same building as me?

You can negotiate to have the permitted use in the lease exclusive to you. Depending on how effectively this is drafted, this will mean that no other premises in the building can use their space in the same way as you.

Webinars

Everything You Need to Know about SaaS Agreements

Thursday 7 April | 11:00 - 11:45am

Online
Understand which contracts will protect your SaaS contract from risk, and how. Register for free today.
Register Now

What to Consider When Buying a Tech or Online Business

Wednesday 13 April | 11:00 - 11:45am

Online
Learn how to get the best deal when buying a tech or online business. Register for our free webinar today.
Register Now

Corporate Governance 101: Responsibilities for New Directors

Wednesday 27 April | 11:00 - 11:45am

Online
If you are a new company director, join our free webinar to understand your legal compliance obligations. Register today.
Register Now

Rogue Directors and Business Divorces: How to Remove a Director

Thursday 28 April | 11:00 - 11:45am

Online
Removing a board director is not simple. Join our free webinar to learn how to handle rogue directors. Register today.
Register Now

Employment Essentials for Tech Businesses

Thursday 5 May | 11:00 - 11:45am

Online
Protect your tech business and your employees by understanding your employment legal obligations. Register for our free webinar today.
Register Now

How to Protect and Enforce Your Trade Mark

Wednesday 11 May | 11:00 - 11:45am

Online
Protect your business’ brand from copycats and competitors. Register for this free webinar to learn how.
Register Now

How Franchisors Can Avoid Misleading and Deceptive Conduct

Wednesday 18 May | 11:00 - 11:45am

Online
Ensure your franchise is not accused of misleading and deceptive conduct. Register for our free webinar today.
Register Now

New Kid on the Blockchain: Understanding the Proposed Laws for Crypto, NFT and Blockchain Projects

Wednesday 25 May | 10:00 - 10:45am

Online
If you operate in the crypto space, ensure you understand the Federal Government’s proposed licensing and regulation changes. Register today for our free webinar.
Register Now

How to Expand Your Business Into a Franchise

Thursday 26 May | 11:00 - 11:45am

Online
Drive rapid growth in your business by turning it into a franchise. To learn how, join our free webinar. Register today.
Register Now

Startup Financing: Venture Debt 101

Thursday 23 June | 11:00 - 11:45am

Online
Learn how venture debt can help take your startup to the next level. Register for our free webinar today.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year - Australasian Law Awards
  • 2019 Most Innovative Firm - Australasian Lawyer