Could the permitted use of your commercial property disrupt your future plans?

When landlords let a commercial property, their focus often falls on how much rent they will charge and how long they want to lease it for.

Of course, these are important factors to think about, but they are not the only ones that deserve attention. 

In initial meetings with landlord clients, one of the first questions I raise is how they want the property to be used, and just as importantly, how they do not.

The permitted use should sit comfortably with the building itself and with the landlord’s wider commercial interests.

Thinking about the use of your commercial property

A proposed tenant may offer an attractive rent and strong covenant, but that does not automatically mean the use aligns with the landlord’s objectives.

Late trading hours, customer footfall, deliveries, extraction systems or specialist equipment can all have an unfavourable impact, especially in mixed-use buildings.

For instance, a retail unit beneath residential flats may operate perfectly well as a barbers or an office. However, the same unit used as a hot food takeaway may generate complaints about noise and odour.

A higher rent does not always compensate for friction with other occupiers and the wider community.

Protecting relationships within the building

Where a landlord retains other units in the same building, permitted use becomes a management issue as much as a legal one.

Commercial tenants may expect not to be undermined by a competing business introduced by their own landlord.

If you own several properties in the same parade or street, letting one unit to a business that directly competes with an existing tenant may damage your relationship with that tenant.

That can affect future renewals and stability of income, which is why you need to carefully consider the type of business you lease to.

There may also be reputational considerations, as the mix of uses in a parade can influence how the area is perceived and, in turn, rental values.

Think about planning constraints

Before agreeing to lease your property, you should make sure that you know what the property can lawfully be used for.

Planning permission may restrict use to a particular category or require consent for a change of use.

If a tenant uses a property for a use that is not permitted under planning legislation, the landlord may face enforcement action and costs. It can also affect the property’s value and the stability of the tenancy.

Clarity at the outset avoids the risk of granting rights that cannot properly be exercised. This is particularly important for listed buildings or properties in conservation areas.

Machinery, hours and operational impact

Issues do not arise solely from customers coming and going or from potential conflicts of interest.

Some tenants run businesses that bring machinery, refrigeration units, extraction systems and other equipment that can create noise and vibration.

Extended opening hours can change the character of a building and the surrounding area.

Landlords should consider whether the lease needs to address hours of operation, alterations or installation of plant and equipment.

If this is not sufficiently addressed in the lease, then the landlord will limit its ability to manage these issues later.

Think about your long-term strategy

Permitted use should align with your long-term intentions for the property and can impact any rent review under a lease. Allowing a wider permitted use (or allowing a restricted permitted use) can impact on the open market rent calculation and the level of rent increase under a rent review.

If redevelopment, change of use or alterations are contemplated in the future, the use, fitting out and alterations allowed under a lease may impact how easily those plans can be implemented when the time comes.

A lease that allows a broad range of uses may enhance marketability in the short term, but it may also make control more difficult if circumstances change.

Need advice on permitted use and lease terms?

If you are considering letting commercial premises and want to ensure the permitted use reflects your wider strategy, our commercial property team can advise on structuring lease terms that protect your position while keeping the property marketable. Our planning team can advise you on planning matters and change of use. Get in touch with our solicitors.