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If you’re under a Commercial Lease, it’s likely that you’ve come across the term ‘permitted use’. In 2025, understanding this concept is more important than ever as business models evolve and multi-use premises become increasingly popular.
Generally, your Commercial Lease Agreement will set out a number of rules around what you can do during your lease. For example, it may specify whether you can sub-lease the premises to another business, ensuring the space is used in a way that aligns with the landlord’s strategic vision.
It will also cover permitted use, which sets restrictions around how you can utilise the space you’ve leased. Let’s go through this concept in more detail to ensure your business activities remain compliant and flexible in this fast-changing market.
What Is A Commercial Lease?
A Commercial Lease arises when an owner of a property or premises leases that space to a business. In today’s dynamic market, these leases are drafted with clarity and flexibility, often reflecting modern commercial trends.
Essentially, the business pays rent to the property owner so they can operate commercially – whether that be for retail, office, or specialised services.
In this relationship, the business leasing the premises is the tenant, and the property owner is the landlord. Both parties have respective rights and obligations under the lease. In some cases, the lease may even allow the tenant to sublease the premises to a third party, subject to strict conditions that protect the landlord’s interests.
Generally, a Commercial Lease should cover:
- The duration of the lease
- Costs, including scheduled rent reviews in line with current market trends
- Repair and maintenance responsibilities
- Subleasing rights
- Permitted use (we’ll cover this below)
- Termination clauses and exit strategies
What Is Permitted Use In A Commercial Lease?
Now that we’ve covered the basics of a Commercial Lease, what does ‘permitted use’ mean in this context?
The answer is straightforward. ‘Permitted use’ refers to the specific business activities allowed on the leased premises. Essentially, it defines how you can use the property, ensuring that your operations align with the terms set out by the landlord.
For instance, a landlord may specify that the premises are strictly for ‘hairdressing services’. This means that if you rent such a space, you aren’t authorised to operate a grocery store, café, or any other type of business – unless you secure written consent to modify the use. To make sure your lease is robust and meets your business needs, you might want to Have Your Commercial Lease Reviewed.
In 2025, many businesses are exploring more flexible use of leased spaces. This evolution has led to leases that include provisions for multi-purpose usage, such as combining retail with light office functions or accommodating emerging co-working trends. It’s crucial to check that your lease accurately reflects your current operations and future growth plans. For further insights, our Drafting a Commercial Lease article provides valuable guidance.
What Issues Can Arise Around ‘Permitted Use’?
It’s typically in the best interests of the landlord to keep the scope of permitted use fairly narrow – particularly if they plan to lease the space to more than one business. This strategy helps maintain a harmonious mix of tenants and prevents overlapping competition.
A narrow scope reduces the risk of similar businesses competing directly with one another. For example, if the permitted use is broadly defined as ‘retail’, several similar businesses may operate in close proximity, potentially diluting each other’s market share.
This narrow definition can also safeguard any exclusivity agreements the landlord has negotiated with specific tenants. Conversely, tenants often prefer a broader scope of permitted use, as it provides the flexibility to diversify and adapt their services—a vital advantage in 2025’s competitive landscape.
Can I Sublease My Business Premises?
As mentioned earlier, some tenants may have the right to sublease the premises to another party. This can be a smart strategy if your business needs change or if you have excess space.
While the property is leased to you, offering part of the space to a sub-tenant creates a separate contractual relationship – though your obligations under the original lease remain unchanged. It’s a good idea to stay up to date on your rights by utilising our Commercial Lease Review Service.
However, to sublease commercial property, you must confirm that your Head Lease Agreement permits this. Such consent is typically detailed in your Commercial Sublease Agreement, which should be tailored to your business’s needs. It’s always wise to chat to a lawyer before finalising any agreements.
Key Takeaways
‘Permitted use’ in a Commercial Lease essentially outlines what the tenant can and cannot do with the leased premises. These clauses set clear boundaries for your business activities, ensuring that both the landlord’s and tenant’s interests are protected.
If you breach the rules around permitted use, it could provide grounds for terminating your lease, so it’s crucial to understand and negotiate these terms carefully from the outset.
Your Commercial Lease should be meticulously crafted to reflect both your current operations and future business ambitions. Staying informed on leasing trends and ensuring compliance with updated 2025 regulations—such as those discussed in our Commercial Lease Guide—will help you secure the best possible agreement.
If you need help determining whether the rules around permitted use align with your business goals, or if you have any general legal questions, our team is here to assist. Feel free to chat to a lawyer for advice tailored to your situation.
If you would like a consultation on your options going forward, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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