The most obvious starting point in terms of understanding the lawful use of property will often be the Lease itself. Commercial Leases will almost always specify a permitted use for the property and the Tenant will only be allowed to use the property for these purposes.
Some Leases may allow the Tenant to change use, but usually only if the tenant acquires the landlord’s consent first, see here.
However, some Leases will be much more specific than others: for instance, a Lease might specify ‘retail use’, in which case changes between different types of retail use might be permitted, or the Lease might specify ‘use as a book shop’, in which case changes to other retail use may not be permitted.
There are several complicated issues here for both Landlords and Tenants to fully consider.
Maintaining control and flexibility – being specific but not prescriptive
Landlords will want to retain control of the premises and may also wish to operate ‘tenant mix’ policies, so as to promote a mix of different businesses within a building/parade. However, Landlords should be aware of the risk that if they try to be too specific then this might discourage possible tenants from moving in.
For Tenants, flexibility is usually important – even if a Tenant does not intend to change use themselves the additional flexibility may be valuable if the Tenant ever looks to assign or sub-let the property.
However, in some rent review situations it might be the case that if a property can lawfully be put to a wider range of potential uses, then this might be seen as increasing the rental value, meaning Tenants risk paying higher rents as a result of potential uses they never actually intend to adopt. As a result, Tenants should aim to strike a balance by securing enough flexibility, but not too much.
Always check that the permitted use is also lawful
Tenants may well think that they need look no further than the permitted use as specified in a Lease. However, this can be highly risky for a number of reasons.
Commercial Leases will almost always contain a provision stating that just because the Landlord has allowed a particular use this does not necessarily guarantee that the particular use is lawful.
To make matters worse for unwary Tenants, previous use of premises for a particular business is not necessarily any indication that a given use is lawful – the last occupier may even have ceased trading from the property specifically because of lawful use issues.
Check all sources, before committing to a commercial lease
Tenants should be cautious about committing themselves to a Lease unless they have satisfied themselves that the permitted use specified in the Lease is also a lawful one.
Their commercial lawyer will know to look into a number of other sources outside of the Lease itself before allowing the tenant to sign any paperwork.
Some of these sources will include:
Planning Permission – Planning permission is not just about building projects; separate permissions exist which specify lawful uses for commercial premises. Different types of commercial use are arranged into Use Classes, for instance Class A1 means Retail Use, A3 means Restaurants and Cafes. Both Landlords and Tenants should be checking that the permitted use in the Lease falls within the permitted use class under planning law.
Restrictive Covenants – The deeds to the property might contain reference to restrictions governing the use of the property. Some of the more common restrictions include: use in relation to sale of alcohol, gambling, repair of motor vehicles and other noisy industrial uses. Again, any issues in this respect would not be apparent on looking through the Lease, but could have a substantial impact going forwards.
Licensing – Most people will be familiar with the need for premises licences in order to sell alcohol, but a wide range of other business use can also require specific licences, for instance: gambling, some food businesses, beauty treatments, piercing and tattoos and caravan sites. Tenants should ascertain whether a licence is required and, if so, need to ensure that a licence is in place, or will be in place, before commencing trading, and that any conditions attached to the licence do not prevent them from using the property as intended.
One further point to note is that, even if a use meets all of the criteria above, any use which causes a nuisance to owners or occupiers of neighbouring land, might give rise to a claim against the tenant.
Spend now to save later – always consult a commercial lawyer
As a commercial lawyer, a key part of advising clients in Commercial Lease matters, is to check that the various different sources on the question of lawful use all correspond with the permitted use specified in the Lease.
Although some tenants may be tempted to try to save costs by reviewing the Lease themselves and going ahead without checking the other issues, this could prove more costly in the long-run if an issue comes to light which means their intended use of the property is unlawful.
Tallents’ commercial property department has experience in advising both Landlords and Tenants regarding all aspects of commercial lease negotiations and the Landlord and Tenant relationship. In the event of a dispute then our specialist litigation solicitors can help guide clients through the process.