In this series of articles, we explore key issues to consider before entering into commercial leases, whether you are a landlord or tenant. In this edition, we look at the permitted use of the premises.
A Cautionary Tale
Imagine: you enter into a three-year lease to operate a gym at the perfect spot in an industrial warehouse where a gym has previously operated. You have spent considerable time and expense to complete the fit out of the premises. On your second day of trading, Council planning officers contact you to advise that there is no development approval to operate a gym in your premises. They issue you a compliance notice for unlawful use, with the possibility of a penalty infringement notice to come. You later discover that the cost of obtaining a development approval for a material change of the use of the premises, to be compliant, will cost between $14,000 and $16,000.
Unfortunately, this is a true story.
What Happens in these circumstances?
In these circumstances, many tenants assume the landlord must have known whether the use was lawful. However, in most cases, the answer is generally no.
Most leases will note a “permitted use” of the premises – for example, “pharmacy” or “gymnasium”. The permitted use under a lease is simply an agreement between the parties for what the premises may actually be used for. This is a form of control implemented by the landlord to ensure that the premises are not being used beyond the scope contemplated by the landlord.
Generally, the agreed permitted use of the premises is not a warranty or representation by the landlord that the permitted use is lawful. Most leases will usually include clauses requiring the tenant to obtain necessary approvals or consents from the relevant authorities to carry on its business in the premises, and failure to do so does not relieve the tenant of its obligations under the lease.
Permitted Use ≠ Lawful Use
Despite the permitted use being agreed to between the landlord and tenant, the agreed permitted use particularised under a lease may not be relied upon by a tenant concerning the lawfulness of the proposed use of the premises. Of course, each lease must be reviewed upon its own provisions.
In determining whether a proposed use of the premises is lawful, regard must be had to the relevant planning scheme in effect. For example, in Brisbane, examination of the Brisbane City Plan must be carried out. This examination will inform you whether the proposed use requires Council approval by lodging a development approval through Council.
Do your Due Diligence
Completing your own due diligence into the use of the premises is essential before you enter into a lease agreement. We recommend:
· Undertaking initial searches of the planning scheme and development approvals on the land;
· Consulting with a town planner; and
· Engaging a leasing solicitor, preferably someone with a planning background.
If you have a leasing issue or have received a compliance notice from Council, contact Daniel Ronan or Caitlin McNamara from the Property and Planning team at Bennett & Philp Lawyers
This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific circumstances. It is intended for information purposes only and should not be regarded as legal advice. Further professional advice should be obtained before taking action on any issue dealt with in this publication.