A commercial lease permitted use clause sets out the exact business activity you are allowed to run from the premises. Trading outside it is a breach that can give the landlord the right to terminate the lease.
A narrow clause protects the landlord and boxes you in. A broad clause gives you room to change what you sell and to sell the business later. The wording is often negotiable before you sign.
The permitted use usually sits in a schedule at the front of the lease and often runs to a single line, which is exactly why it gets skimmed.
That one line decides whether you can add a new product, change your trading model, sell your business in three years, or in some states whether retail leasing laws protect you at all.
What Does a Permitted Use Clause Control in Your Lease?
The permitted use clause controls the type of business you can run from the premises, and using them for a different type of business normally needs the landlord’s written consent.
It is a promise you make to the landlord, and it is a binding term of the lease rather than a description of your plans.
The NSW Small Business Commissioner puts it plainly: “You can’t use the shop for any other type of business without the written consent of both the landlord and the council.”
The same page warns that if you do not stick to the permitted use, “you may have breached your lease, which then allows the landlord to terminate it.”
Landlords care about this clause for reasons that have little to do with being difficult.
In a shopping centre, the landlord is managing a tenant mix, and one tenant drifting into another tenant’s category can trigger a claim from that other tenant.
Outside a centre, the landlord is protecting the building’s insurance position, its planning approvals, and the value of the property when it comes time to sell or refinance.
A clause that is tight enough to give the landlord that certainty is usually still tight enough to cause you real problems.
What Happens If You Trade Outside the Permitted Use?
Trading outside the permitted use is a breach of the lease, and in the right circumstances it can support a breach notice and, if the problem is not fixed, termination and re-entry.
How far it actually goes depends on the wording of your lease, how serious the breach is, the notice the landlord has to give, and the leasing legislation in your state.
The more common outcome is less dramatic but still expensive.
The breach becomes a bargaining chip at rent review time, a reason for the landlord to look harder at your paperwork when you try to assign, or a problem you need to clear up before you exercise an option to renew.
None of that follows automatically from the breach, and in a retail lease the grounds for refusing an assignment are set by statute rather than by how the landlord feels about you.
A change in what you do on site can also affect your insurance, because insurers price cover against a described occupancy.
Whether a claim is actually reduced or disputed depends on the policy, what you told the insurer, and how closely the changed activity is connected to the loss.
The risk is rarely that a landlord storms in on day one. The risk is that a technical breach sits quietly in the background for years and then surfaces at the worst possible moment, when you are trying to exit or refinance.
Why Does the Exact Wording Matter So Much?
The exact wording matters because a court reads the clause objectively and in the context of the whole lease, not according to what you assumed it covered when you signed.
“Sale of coffee and pastries” does not obviously cover selling retail bags of beans, running a barista course, or serving alcohol on a Friday evening.
“Office” does not obviously cover a clinic that treats members of the public.
“Warehouse and storage” does not obviously cover a showroom where customers walk in and buy.
The NSW Retail Tenancy Guide gives useful examples of the gaps that open up: “For a hairdresser, consider, does it also include beauty treatments? For a takeaway shop, consider, can meals be served on re-usable plates?”
Write the clause against how you actually trade, not how your industry is described in a directory.
If you sell online as well as in store, say so. If you plan to run classes, events, or a second brand from the same floor space, say so now rather than asking for consent in year two.
Should You Push for a Narrow or Broad Permitted Use Clause?
Tenants should push for the broadest permitted use the landlord will accept, because a wider description rarely limits you while you are trading normally and protects you every time the business changes. Landlords generally push the other way.
The table below sets out how the two approaches differ in practice across the points that actually affect your business.
| Feature | Narrow permitted use | Broad permitted use |
| Example wording | “Sale of coffee and pastries for takeaway” | “Café, and the retail sale of food and beverages” |
| Control over your trading | Landlord decides what you can add | You can change your offering without asking |
| Adding a new product or service | Usually needs written consent | Usually already covered |
| Selling or assigning the lease | Shrinks the pool of possible buyers | Widens the pool of possible buyers |
| Risk of an accidental breach | High | Low |
| Getting exclusivity in a centre | Easier to define and enforce | Harder, because the category is wide |
| Who it usually favours | Landlord | Tenant |
The trade-off is not one-sided, which is why the negotiation is worth having properly.
A broad clause gives you freedom, but it also makes it harder to argue that a neighbouring tenant has strayed into your territory, because your own category is wide and so is theirs.
A narrow clause restricts you, but it draws a clean line that an exclusivity provision can be built on.
A common landing point is a clause that describes your core business broadly, then adds a phrase such as “and any ancillary use reasonably connected with that business, subject to the landlord’s consent not to be unreasonably withheld.”
When Does a Narrow Clause Actually Help You?
A narrow permitted use helps you when you want to stop competitors setting up next door, because a tightly defined category is much easier to police.
If your lease says you are the only tenant permitted to sell prescription medicines in the centre, everyone knows what that means.
If it says you are the only tenant permitted to sell “health products”, you will spend the next five years arguing about vitamins in the supermarket aisle.
Narrow drafting also helps when your fit-out, licensing, or insurance is tied to one specific activity and you have no intention of changing it.
A single-site franchisee operating under a strict franchise agreement may have little practical use for flexibility, because the franchisor controls the offering anyway. In that situation, trading precision for exclusivity is a sensible deal.
How Does the Permitted Use Affect Selling Your Business Later?
The permitted use directly affects who can buy your business, because a buyer can usually only step into your lease on the existing terms if they intend to keep using the premises in a way the lease already allows.
Anything else needs the landlord to agree to vary the permitted use, or to grant the buyer a new lease instead.
Under section 39(1)(a) of the Retail Leases Act 1994 (NSW), a landlord is entitled to withhold consent to an assignment “if the proposed assignee proposes to change the use to which the shop is put.”
That section cuts both ways, because it also says the lessor “is not entitled to withhold that consent in any other circumstances”, so the listed grounds are the only ones available in a NSW retail lease.
Victoria takes the same approach, and the Victorian Small Business Commission gives the example of a landlord refusing consent where the incoming tenant wants to run a restaurant in premises leased as a sports store.
That single restriction can wipe out most of your buyer market.
If your clause reads “sale of Japanese food”, your buyer is realistically another Japanese restaurant, unless your landlord agrees to a change before settlement. If it reads “restaurant and food and beverage retailing”, any hospitality operator can step in.
Business ownership in Australia turns over constantly, which is why this catches out more tenants than they expect.
The Australian Bureau of Statistics recorded 370,500 business exits in 2024-25, an exit rate of 13.9%, against 2,729,648 actively trading businesses at 30 June 2025.
Those exits cover closures, sales and restructures, so the number is not a failure rate, but it does show how often the business behind a lease changes hands or changes shape.
A lease that runs five or ten years will very often outlast the plans you had when you signed it.
Can the Permitted Use Clause Decide Whether Retail Leasing Laws Apply?
The permitted use clause can influence whether retail leasing laws apply, but it cannot decide the question on its own, because courts look at what actually happens at the premises rather than at the label in the lease.
The coverage test itself differs between states, and can turn on the type of premises, the nature of the business, the rent, the length of the lease, or who the tenant is.
This is one of the most misunderstood points in commercial leasing, and Victorian courts returned to it again in 2026.
Retail leasing legislation gives tenants protections that commercial leases do not, including limits on recovering land tax, disclosure obligations, and access to low-cost dispute resolution.
Some landlords have tried to draft their way out of those obligations by writing a restrictive permitted use into the lease and adding a statement that the Act does not apply.
In Karam Investments Pty Ltd v Close the Loop [2026] VSC 270, decided on 8 May 2026, Croft J considered a lease with a permitted use of warehousing and manufacturing and a clause stating that the Retail Leases Act 2003 (Vic) did not apply.
His Honour held that the Act still applied, and that evidence of actual use, or the permitted use provisions themselves, may provide a basis for finding that such restrictions are a void attempt to contract out of the legislation under section 94.
That is not an automatic rule, and the judgment stresses that treating a clause as void needs careful consideration, partly because it can strip the landlord of remedies as well.
That reasoning follows the leading Victorian authority, IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178, where the Court of Appeal confirmed the “ultimate consumer” test and held that cold storage services supplied to business customers could still be a retail provision of services.
The practical lesson runs both ways. A tenant cannot assume they are outside retail legislation just because the lease says so, and a landlord cannot rely on a narrow permitted use as a shield.
Rent matters as well as use in some states, so the analysis does not stop at what the premises are used for.
In South Australia, the Retail and Commercial Leases Act 1995 applies to retail shop leases, but section 4 excludes a lease while the rent exceeds the prescribed threshold, currently set at “$420 000 per annum exclusive of GST” by the Retail and Commercial Leases Regulations 2025.
Other exclusions in that section turn on the length of the lease and on who the tenant is, including listed public companies and their subsidiaries, so rent on its own does not settle the question.
How Do Exclusivity Clauses Work Alongside Permitted Use?
An exclusivity clause is a separate promise from the landlord that no other tenant in the building or centre will be permitted to run the same business as you, and it only works if it is tied to a clearly defined use.
Your permitted use clause tells you what you can do. Your exclusivity clause tells you what everyone else cannot do. Tenants often assume the first gives them the second, and it does not.
Exclusivity is negotiated separately, usually written into a special conditions schedule, and it needs to define the protected category, the area it covers, and how long it lasts.
It should also say what happens if the landlord breaches it, because a right without a remedy is not worth much.
Common remedies include a rent abatement, a right to terminate, or an agreed amount of compensation.
Without one of those, you are left arguing about general contract remedies, and damages for lost trade are notoriously hard to prove.
What Are the Limits on Exclusivity?
Exclusivity clauses are limited by competition law, and restrictive lease provisions have already drawn regulator attention in Australia.
In February 2010 the Australian Competition and Consumer Commission announced that ALDI, Franklins, SPAR, Australian United Retailers (Foodworks) and Metcash had given undertakings not to enter into new leases containing restrictive provisions, and not to enforce existing ones beyond five years after trading began.
That followed similar agreements with Coles and Woolworths in 2009, aimed at provisions “that prevent or hinder the entry of competing supermarkets.”
Exclusivity is not unlawful in itself, and most exclusivity clauses between an ordinary landlord and an ordinary tenant raise no competition issue at all.
The risk rises where a restrictive provision has the purpose or the likely effect of substantially lessening competition, particularly where it blocks a new operator from entering a local market.
There are practical limits too.
A landlord can only promise exclusivity over premises they control, so exclusivity in a strip shop rarely stops a competitor opening across the road.
Existing tenants with broad permitted use clauses cannot be cut back retrospectively, which means your exclusivity may only bite on new leases granted after yours.
How Do You Change the Permitted Use During the Lease?
You change the permitted use by asking the landlord for written consent, and depending on the new activity you may also need planning, building or health approval before the change is lawful.
Landlord consent and regulatory approval are separate questions, and having one without the other can leave you exposed.
Start by reading the clause itself, because some leases say consent must not be unreasonably withheld and others give the landlord an absolute discretion.
The difference is significant. Where consent must not be unreasonably withheld, a landlord who refuses for no good commercial reason can be challenged.
Where the lease is silent or gives absolute discretion, you are negotiating rather than enforcing a right, and the landlord may well ask for something in return, such as a higher rent, a longer term, or a fresh personal guarantee.
Put the request in writing, describe the proposed use precisely, and include supporting material such as your planning approval, a fit-out plan, and details of your insurance.
A landlord who receives a complete, well-documented request is far more likely to say yes, and far less able to claim they lacked information.
Do You Need Council Approval as Well as the Landlord’s?
You often need council approval as well, because planning laws control what activities can happen at a site regardless of what your landlord agrees to.
Whether a fresh approval is actually required depends on the existing lawful use of the premises, the activity you want to add, and the planning scheme that applies to that site.
Business Victoria advises that businesses usually need a planning or building permit to “set up a store, food premises or other business”, to change a shopfront, or to update an internal fit-out, and recommends a “preliminary discussion with a council’s planning officer” before committing to a site.
Every state runs a similar system under its own planning legislation, and requirements differ from council to council.
The order matters. Make the lease conditional on obtaining the approval you need, or you can end up paying rent on premises you are not lawfully allowed to trade from.
A change of use application can take months and can be refused, and there is no automatic right to a rent-free period while you wait.
What Can a Landlord Take Into Account?
A landlord assessing a change of use request will usually consider tenant mix, the physical suitability of the premises, the effect on other tenants’ exclusivity rights, insurance and safety, and your covenant strength.
Most of those are ordinary commercial considerations, and framing your request around them improves your chances, although whether a particular refusal is reasonable depends on the wording of the consent clause and the facts.
If the landlord has granted exclusivity to a neighbouring tenant over the category you want to move into, saying yes to you could put them in breach of that tenant’s rights, so they may refuse even where they would otherwise agree.
If your proposed use brings heavier foot traffic, longer hours, cooking equipment, or hazardous materials, expect questions about services capacity, fire compliance, and make good. Address those points in your request rather than waiting to be asked.
Where a landlord refuses, and you believe the refusal is unreasonable, mediation is usually a faster and cheaper first step than court.
New South Wales, Victoria, Queensland, South Australia and Western Australia each have a small business commissioner offering advice and low-cost or subsidised mediation, and the remaining jurisdictions have their own tribunals and dispute schemes with different eligibility rules and costs.
What Else Should You Check Before You Sign?
Before signing, check that the permitted use lines up with your council approval, your insurance, your fit-out plans, and every other clause in the lease that refers to your business activity.
A permitted use clause that contradicts the rest of the document is a dispute waiting to happen.
Does the Clause Match What the Council Has Approved?
Check the existing planning approval for the premises before you sign, because a landlord describing a site as suitable for your business is not the same as a council having approved that use.
Ask for the current development consent or planning permit and read what it actually authorises. If the approval covers “retail premises” but your business is a food premises, you may need a fresh application, a change to the fit-out, or additional health approvals.
Where the approval does not yet exist, make the lease conditional on you obtaining it within a set period, with a right to walk away and recover your deposit if it is refused.
How Much Negotiating Room Do You Actually Have?
Your negotiating room depends on the market you are in, and in parts of the office market vacancy is currently high enough to give tenants real leverage.
The Property Council of Australia reported national office vacancy of 15.9% at January 2026, up from 15.2% six months earlier, with CBD vacancy at 14.8% and non-CBD vacancy at 18.5%.
Conditions vary sharply by city and by building grade, and retail and industrial markets move differently again, so check what is happening in your own segment before assuming you hold the cards.
Landlords carrying vacant space are often more willing to widen a permitted use than to lose a tenant over it, because widening the wording costs them less than an empty tenancy.
Ask for the change early, before heads of agreement are signed, because clauses are far harder to shift once the lease is with the landlord’s solicitors.
Come with a specific alternative wording rather than a general complaint, since a landlord can approve a sentence far more easily than they can respond to a concern.
Does the Clause Line Up With the Rest of the Lease?
Cross-check the permitted use against the assignment clause, the exclusivity provisions, the trading hours, the fit-out obligations, and the make good clause, because all of them refer back to what you are allowed to do in the premises.
A lease that permits a café but restricts trading hours to weekdays is not fit for a weekend brunch business.
A lease that permits a gym but requires the premises to be handed back as a bare shell will hit you with a large make good bill for the plumbing and reinforcement you installed.
Where the lease is a retail lease, the permitted use must also appear correctly in the landlord’s disclosure statement, and an inaccurate statement can give rise to statutory rights or remedies, although what is available differs between states.
Read the schedule and the special conditions together, since special conditions can modify or override the standard wording without saying so clearly.
Need Help With a Permitted Use Clause in Your Commercial Lease?
A commercial lease permitted use clause is one line that controls what you can sell, who can buy your business, and whether you are in breach of your lease, so it is worth getting right before you sign rather than arguing about it later.
As commercial lease lawyers in Australia, my law firm can review your permitted use clause, negotiate broader wording, handle exclusivity provisions, and manage a change of use request with your landlord, all at a transparent fixed fee.
Contact my law firm today by calling 1300-529-888.
Frequently Asked Questions
Can a landlord refuse to change the permitted use in my lease?
Yes, unless your lease says consent must not be unreasonably withheld. Many leases give the landlord absolute discretion, which makes a change a negotiation rather than a right. Even where consent cannot be unreasonably withheld, a landlord can refuse for genuine commercial reasons such as tenant mix, safety, or another tenant’s existing exclusivity rights over that category.
What happens if I trade outside my permitted use?
You are in breach of the lease. The landlord can serve a breach notice and, if the problem is not fixed, may be able to terminate and re-enter, depending on the lease wording and your state’s leasing legislation. A breach can also affect your insurance and weaken your position when you next need the landlord’s cooperation.
Does a permitted use clause stop competitors opening nearby?
No. A permitted use clause only limits what you can do, not what other tenants can do. Stopping a competitor requires a separate exclusivity clause in which the landlord promises not to lease other premises in the building or centre to a business in your category. Exclusivity must be negotiated specifically and written into the lease.
Do I need council approval to change my business use?
Often, yes. Planning laws control what activities can occur at a site independently of what your landlord agrees to, so landlord consent alone may not be enough. Whether a fresh approval is needed depends on the existing lawful use, the new activity and the planning scheme. Speak to the council’s planning officer before you commit.
Can a narrow permitted use keep my lease outside retail leasing laws?
Not reliably. Coverage tests differ between states, and courts look at what actually happens at the premises rather than the label in the lease. In Karam Investments Pty Ltd v Close the Loop [2026] VSC 270, the Supreme Court of Victoria held the Retail Leases Act 2003 applied despite a clause saying it did not.
Should a permitted use clause be broad or narrow?
Broad wording suits most tenants, because it lets you change your offering and sell the business without needing consent each time. Narrow wording suits tenants who want enforceable exclusivity, since a tightly defined category is easier to police. The common compromise describes your core business broadly and adds ancillary uses subject to reasonable landlord consent.