COMMERCIAL PROPERTY – EXAM NOTES
USE CLAUSES
WHAT IS A USE CLAUSE?
Obligation/ covenant on the part of the Tenant that they will only use the ALTERATIONS AND
premises in a specified way and not for any other purpose. CHANGES OF USE
Almost always will be negative e.g. “not to use the premises for any purpose other
than as for….”
May also be positive covenants on the part of the Tenant e.g. that the Tenant Landlord’s control over
will ensure the premises is open and able to trade during certain retail hours alterations and change of use
e.g. 9-5 Monday – Friday. Otherwise known as stay open covenants. should not be more restrictive
than is necessary to protect
WHAT IS ITS MAIN PURPOSE?
the value, at the time of the
Gives the Landlord the desired level of control over the Tenant’s operations application, of the premises
carried out at the premises and any adjoining or
neighbouring premises of the
LANDLORD’S MAIN CONSIDERATIONS landlord.
Maintain the value of the Landlord’s interest in the premises Internal non-structural
Maintain the rental value (rent review) of the premises alterations should be notified
Avoid damaging the reputation of the premises by immoral or undesirable to landlords but should not
users need landlords’ consent unless
Avoid the tenant competing with other tenants of the Landlord they could affect the services
Maintain a different mix of tenants e.g. range of retail outlets in a shopping or systems in the building.
precinct (thus maintaining its reversionary value and value on rent review)
Narrow covenant would have negative affect on rent review but more control Landlords should not require
Wide covenant would have less control but positive effect on rent review tenants to remove permitted
alterations and make good at
TENANT’S MAIN CONSIDERATIONS the end of the leases, unless
reasonable to do so. Landlords
Narrow covenant should be avoided, although would work favourably on rent
should notify tenants of their
review, ability to dispose of the premises in the future will be hampered as will
requirements at least 6 months
only be able to assign / sublet to someone who does not require any greater
before the termination .date.
flexibility.
Drafted widely would have a negative affect on rent review
TYPES OF USE CLAUSE
ABSOLUTE COVENANT - “Not to use the premises for any use other than….”
Landlord: has complete discretion as to whether or not to agree to an application for change of use by the Tenant, can also
charge a premium forgiving consent and can impose additional requirements/ covenants as part of the negotiating process
Tenant: cannot use the premises for any use falling outside specified use
QUALIFIED USE COVENANT – “Not without the Landlord’s prior consent in writing to use the premises for
any other use than…”
Landlord: can withhold consent, whether he is acting reasonably or not. Tenant is still at mercy of Landlord as to whether a
change of use can occur. Has complete discretion as to whether to agree to an application for change of use by the Tenant. No
statutory duty not to unreasonably withhold consent for change of use. Provided change of use does not involve structural
USE CLAUSES
WHAT IS A USE CLAUSE?
Obligation/ covenant on the part of the Tenant that they will only use the ALTERATIONS AND
premises in a specified way and not for any other purpose. CHANGES OF USE
Almost always will be negative e.g. “not to use the premises for any purpose other
than as for….”
May also be positive covenants on the part of the Tenant e.g. that the Tenant Landlord’s control over
will ensure the premises is open and able to trade during certain retail hours alterations and change of use
e.g. 9-5 Monday – Friday. Otherwise known as stay open covenants. should not be more restrictive
than is necessary to protect
WHAT IS ITS MAIN PURPOSE?
the value, at the time of the
Gives the Landlord the desired level of control over the Tenant’s operations application, of the premises
carried out at the premises and any adjoining or
neighbouring premises of the
LANDLORD’S MAIN CONSIDERATIONS landlord.
Maintain the value of the Landlord’s interest in the premises Internal non-structural
Maintain the rental value (rent review) of the premises alterations should be notified
Avoid damaging the reputation of the premises by immoral or undesirable to landlords but should not
users need landlords’ consent unless
Avoid the tenant competing with other tenants of the Landlord they could affect the services
Maintain a different mix of tenants e.g. range of retail outlets in a shopping or systems in the building.
precinct (thus maintaining its reversionary value and value on rent review)
Narrow covenant would have negative affect on rent review but more control Landlords should not require
Wide covenant would have less control but positive effect on rent review tenants to remove permitted
alterations and make good at
TENANT’S MAIN CONSIDERATIONS the end of the leases, unless
reasonable to do so. Landlords
Narrow covenant should be avoided, although would work favourably on rent
should notify tenants of their
review, ability to dispose of the premises in the future will be hampered as will
requirements at least 6 months
only be able to assign / sublet to someone who does not require any greater
before the termination .date.
flexibility.
Drafted widely would have a negative affect on rent review
TYPES OF USE CLAUSE
ABSOLUTE COVENANT - “Not to use the premises for any use other than….”
Landlord: has complete discretion as to whether or not to agree to an application for change of use by the Tenant, can also
charge a premium forgiving consent and can impose additional requirements/ covenants as part of the negotiating process
Tenant: cannot use the premises for any use falling outside specified use
QUALIFIED USE COVENANT – “Not without the Landlord’s prior consent in writing to use the premises for
any other use than…”
Landlord: can withhold consent, whether he is acting reasonably or not. Tenant is still at mercy of Landlord as to whether a
change of use can occur. Has complete discretion as to whether to agree to an application for change of use by the Tenant. No
statutory duty not to unreasonably withhold consent for change of use. Provided change of use does not involve structural
