The Business has Evolved, but has the Lease? The Permitted Use Problem for Industrial Tenants

When negotiating a commercial lease, most occupiers focus on the headline commercial terms: rent, lease length, break rights, rent review provisions and service charge liability. The permitted use clause often receives far less attention. 

That can be a costly oversight. 

Industrial and logistics businesses rarely operate in exactly the same way throughout the life of a lease. 

What begins as straightforward storage and distribution may gradually expand to include assembly, packaging, product customisation, repairs, customer collections, returns processing or e-commerce fulfilment. 

Commercially, those changes may make perfect sense. Operationally, they may be necessary for growth. 

But there is another question every occupier should ask: 

Does the lease actually permit what the business is now doing? 

A business can evolve considerably whilst remaining in the same premises. Its lease, however, does not automatically evolve with it. 

That mismatch can remain unnoticed for years and only become an issue when the tenant seeks landlord's consent, wants to undertake a refinance, completes an assignment of lease, underlets part of the premises or sells the business. 

At that point, the lease is often reviewed in detail and activities that have become part of day-to-day operations may not sit comfortably within the permitted use set out in the lease. 

The Warehouse Has Not Changed. The Business Has. 

Consider a tenant that originally takes a warehouse for storage and distribution purposes. 

Several years later, the property remains perfectly suitable, but the operation looks very different. Products are assembled or customised on site, returns are processed, customers collect orders directly from the premises and specialist machinery has been installed to support increasingly sophisticated fulfilment operations. 

None of those changes necessarily felt significant when they were introduced. Each may simply have been part of the natural development of the business. 

Taken together, however, the operation may look quite different from the use originally contemplated when the lease was granted. 

If the permitted use clause has been drafted narrowly, that can create an unexpected problem.

This is particularly relevant for businesses that signed a long-term industrial lease. A lease granted ten years ago may accurately have reflected the tenant's operations at the outset, but not the reality of how the business now trades. 

For that reason, permitted use should not simply describe today's business. It should be negotiated with a realistic view of how the business may evolve during the lease term.

Planning Permission and Lease Covenants Relating to Use Are Not the Same Thing 

One of the most common misconceptions is that if an activity is permitted from a planning perspective, it must also be permitted under the lease. 

That is not necessarily correct. 

Planning law and the lease regulate different things. 

For example, warehousing and distribution activities commonly fall within Use Class B8. Whether a particular change to operations has planning implications will depend on the nature and extent of the proposed activities and the wider circumstances. 

However, even where an activity is acceptable from a planning perspective, the tenant must still comply with the contractual obligations contained within the lease. 

Those obligations form part of the tenant's wider lease covenants. 

A use may therefore be lawful in planning terms but still place the tenant in breach of lease covenant if the activity falls outside the permitted use authorised by the lease. 

Equally, obtaining the landlord's consent under the lease does not remove the need to obtain any planning permission, building regulations approval or other statutory consent that may be required. 

For occupiers considering changes to their operations, both the planning position and the lease position should be considered at an early stage. 

The Permitted Use Clause Rarely Operates in Isolation

Even where the proposed activity falls within the permitted use, or the landlord is willing to approve a wider use, that may not be the end of the exercise. 

Changes to industrial operations frequently involve physical changes to the premises as well as operational changes to the business. 

Depending on the proposal and the terms of the lease, a tenant may also need to consider: 

• landlord's consent for alterations; 

• installation of plant and machinery; 

• electrical capacity and service upgrades; 

• signage requirements; 

• loading and servicing arrangements; 

• rights over common parts or retained land; 

• planning and building regulations requirements; and 

• superior landlord or third-party consents. 

This is particularly relevant in modern logistics environments where automation, specialist equipment and increased power requirements are becoming more common. 

The practical point is straightforward. Do not look at the permitted use clause in isolation. 

Where a business is undergoing a material operational change, it is sensible to review the lease as a whole to identify any additional restrictions or consent requirements that may apply.

Why Does the Issue Often Emerge So Late? 

The answer is simple: operational change tends to happen gradually. 

A new process is introduced. Additional equipment arrives. Customer collections become commonplace. Returns processing expands. Part of the warehouse is used for packaging, assembly or product testing. 

There is rarely a single moment when someone stops and thinks: we should check the lease. 

The result is that the issue often comes to light only when the property is subjected to detailed legal due diligence. What may have seemed like a minor operational change several years earlier can suddenly become a material issue when reviewed by solicitors, lenders or prospective occupiers. 

That may happen because the tenant wishes to: 

• assign the lease; 

• underlet the premises; 

• refinance its borrowing; 

• sell the business; 

• carry out a significant transaction; or 

• obtain a further landlord's consent. 

At that stage, the tenant may discover that its existing operations do not sit squarely within the permitted use clause. 

The remedy may involve seeking retrospective consent or negotiating a variation to the lease. Neither is an ideal discussion to have against the backdrop of a live transaction timetable.

Striking the Right Balance Between Flexibility and Control

Permitted use restrictions are not simply obstacles to tenant growth. 

Landlords often have legitimate reasons for controlling the activities carried out within their estates. Those considerations may include estate management, traffic generation, neighbouring occupiers, insurance requirements, title restrictions and the long-term marketability of the estate.

Granting a completely unrestricted use will not always be commercially appropriate. 

The objective should instead be to strike the right balance between flexibility and control. 

For tenants, that means considering not only what the business intends to do on day one, but how the operation may realistically develop over five, ten or even fifteen years of occupation. For landlords, it means maintaining reasonable protections without unnecessarily restricting future occupational requirements. 

Before entering into a new lease, occupiers should consider whether the business may expand into: 

• assembly or light processing; 

• packaging and product customisation; 

• testing and repairs; 

• e-commerce fulfilment; 

• returns processing; 

• customer collection facilities; 

• trade counter operations; or 

• related ancillary activities. 

That does not mean every conceivable future activity should be incorporated into the lease.

However, there is a significant difference between seeking an unrestricted use and sensibly future-proofing the lease around the foreseeable development of the business. 

Final Thoughts 

The premises may still work perfectly for the business, but that does not necessarily mean the lease does. 

The right time to think about the permitted use clause is before the lease is signed, not after the business has evolved. A use clause drafted solely around a tenant's immediate requirements can quickly become restrictive as operations expand and adapt. 

When negotiating a lease, tenants should consider how the business may realistically develop during the term and discuss those plans with their lawyers at an early stage. Careful drafting at the outset can often provide valuable flexibility and reduce the risk of future restrictions. 

Equally, before introducing a new process, service or operational change, tenants should review what the lease actually permits. Identifying any restrictions, consent requirements or wider lease implications before changes are implemented is generally far easier than dealing with the issue later during an assignment of lease, underletting, refinancing or business sale. 

A little foresight before the lease is signed, and before operations change, can avoid significant cost, delay and negotiation later on.

Permitted use clauses in commercial leases: frequently asked questions 

What is a permitted use clause in a commercial lease? 

A permitted use clause (sometimes called a user clause) sets out the activities that the tenant is contractually entitled to carry out from the premises during the lease term. The clause may be drafted broadly or narrowly, and the wording can have a significant impact on the tenant's operational flexibility. 

What is the difference between planning use and the permitted use in a lease? 

Planning law and the lease regulate different matters. A particular activity may be lawful from a planning perspective, including where it falls within a relevant use class such as Use Class B8, but still fall outside the permitted use authorised by the lease. Both positions need to be considered separately. 

What happens if a tenant breaches the user clause? 

The consequences will depend on the circumstances and the terms of the lease. The landlord may require the tenant to cease the unauthorised activity, seek formal consent, remedy the breach or take other enforcement action available under the lease. The issue may also arise during a refinancing, assignment, underletting or business sale.  Taking advice early is sensible if a potential breach has been identified. 

Can a landlord refuse to change the permitted use? 

Potentially. The answer depends on the wording of the lease and the nature of the proposed use. Some leases contain absolute restrictions, whilst others permit changes subject to the landlord's consent. Whether consent can be withheld will depend on the specific circumstances and the applicable legal framework. 

Does the permitted use affect assignment or underletting? 

Yes, it can. During due diligence for an assignment of lease, underletting or refinancing, parties will often review whether the existing use complies with the lease. Any discrepancy between the tenant's actual operations and the permitted use clause may raise legal and commercial issues and can create delays if identified late in the transaction process. 

Next reads

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Commercial Property law advice

Our Commercial Property team advises investors, landlords and occupiers on industrial and logistics property transactions, including acquisitions, disposals, lettings, due diligence and risk allocation, across London and the south-east. To discuss your circumstances, call 020 8858 6971 or email commercialpropertyenquiries@grantsaw.co.uk 

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Disclaimer

This article is for general information only and is not legal advice. Laws and guidance change and outcomes depend on facts. If you need advice on your situation, please contact us. Grant Saw Solicitors LLP is authorised and regulated by the Solicitors Regulation Authority. 

Last updated 26 October 2026