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Commercial lease agreements and actual usage of the property

Commercial lease agreements and usage of the propertyCommercial leases also include a provision that disallows the use of property for any purpose other than intended, but this is very difficult to implement. For instance, when shops are let the landlord may want to prevent the property from being identified with a single type of business. He may want to attract different types of businesses and make the place appealable to the general public. This may sometimes be not preferred for tenants, who cannot shift from an unprofitable shop to a profitable one.

But there are some issues where both parties would agree upon. For instance, both parties would agree that the property shall be let only for office purposes. They shall not be allowed to use the property for any purpose that would adversely affect other tenants.  For instance, if a manufacturing unit is set up on the premises, there would be noise and pollution nuisance to other tenants. The landlord would suffer financially as other tenants may move out and vacant offices would be difficult to re-let.

Both parties also need to agree upon the manner in which the property shall be allowed to be used.  Care should be taken in interpreting the user clause as it is likely to effect the rent- a very restrictive user clause is likely to reduce the rent, and a liberal user clause will tend to increase  the rent,

A user clause can be defined by using the categories mentioned in the Use Clause Order of 1987. In the case of public houses or wine bars, the user could be limited to use the property within Class A4. The landlord can also choose to not use the Use Clause Order and set out his own restrictions with regards to use of property. For instance, if the property is let out to a marketing company, the landlord can set a restriction that the property shall be used only for marketing purposes only.

While this may be convenient for the tenant in his present business, it may restrict his scope of expanding it or may limit the type of people who would be interested in an assignment. In such circumstances, the rent would be low than those used in the wider Use Clause order. To overcome this problem the landlord can set up the property to have a specific use, but allow change to other users in the same use class with the landlord’s consent. Thus, a lease might allow the property to be used as a ware house or such other use as mentioned with Clause B of the Use Clause Order as the landlord shall permit.

Thus, the user covenant can either be absolute or qualified. In the latter it is not possible that the landlord can withheld his consent without proper explanation. But s 19(3) of the Landlord and Tenant Act 1927 also provides that the landlord cannot charge a fine or increase the rent as a condition to give consent when there are no structural changes to be made.

Photo courtesy: Jim Linwood

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