Changing the use of a leased commercial premises

If you are a commercial property tenant and want to change the use of your premises for a different business venture, is this possible and if so, what do you need to know?

The starting point is to look at the terms of the lease. Typically, a landlord will grant the tenant a lease for a specific purpose and will look to limit the tenant’s ability to change the property’s use without first obtaining the landlord’s consent. Without this protection, the landlord may find that an alternative use adopted by the tenant could adversely affect the value of the landlord’s asset and/or possibly cause disruption to other tenants of the landlord.

To alleviate this potential obstacle, the tenant may well want to stipulate a broader range of uses from the outset. The obvious benefits to the tenant in doing so are that the tenant would not then have to seek formal permission to change its principal use should its initial venture prove to be unsuccessful (as long as any alternative use fell within the agreed limits) and also where the tenant wishes to assign the lease, the lease will invariably appeal to a wider audience in terms of potential assignees.

A lease might allow a tenant to change use with the landlord’s consent but remain silent as to whether the landlord must be reasonable when providing consent. In such cases, the landlord’s right to refuse is entirely at the landlord’s discretion, i.e. the landlord does not have to act reasonably. Where the lease provisions dictate that the landlord must act fairly, then any refusal must be reasonable. There might be other clauses which relate to use which still need to be complied with, for example, obligations to comply with planning obligations.

Where the tenant is limited in terms of its permitted use, the landlord may still be interested in engaging in negotiations as to the change of use of a property. The landlord may feel that a change of use will not have a detrimental effect on its asset and might want to try and help the tenant where possible, especially where the property may not be easy to otherwise let. It is also possible that agreeing to a change of use might mean that the property is more desirable for letting purposes and this can result in a better outcome for the landlord on rent review.

Tenants should therefore check closely the terms of their lease before making any plans for, or embarking on any work to, their leased premises.

From the landlord’s perspective, they should consider whether or not they want a tenant to have the ability to change the use of the premises, and if this is something that want control over, landlords should make sure that the relevant clauses covering use within the lease are suitably specific and restrictive.

If you have any questions about a commercial lease, get in touch with our team. Harry Tekchandani is an Associate Solicitor at Gullands Solicitors www.gullands.com