What is a Permitted Use in a Commercial Lease?
A commercial lease will typically contain a provision setting forth how the space will be used. It is typically drafted such that the space is limited to a particular permitted use and any other use of the space is prohibited.
As a tenant, it is important to consider that if the permitted use set forth in the lease is too narrow, you could be at risk of being held in default of the lease if you decide after a few years that your business needs to pivot and change focus from your original intent for the space. If you need to assign the lease or sublease the space, your options will also be limited by your permitted use (or by the landlord’s willingness to amend the lease to accommodate a potential assignee or subtenant.
Likewise, landlords should push back on allowing an excessively broad permitted use provision. A narrow permitted use provision prevents a situation where a tenant operates in the space in a way that is unexpected by landlord and/or in a way that results in a decrease in the perceived value of the property. In addition, you may not want your tenants to open businesses that are directly competing with each other. If each businesses cannibalizes the other, then both may fail leaving you with two vacant spaces. Permitted use provisions are particularly important in a mall where the landlord typically focuses on creating the right tenant mix to maximize appeal to customers.[Back to Commercial Leasing]