Permitted use clause: how it restricts your retail business

A permitted use clause is the part of your lease that says what you can and can’t sell in your shop. It sounds simple, but it’s one of the most powerful controls a landlord has over your business. If the clause is too tight, you can’t change your product mix, add new services, or pivot when customer demand shifts—unless the landlord agrees. That approval isn’t guaranteed, and it can cost you time, money, and sales.

What a permitted use clause actually does

A permitted use clause sets the legal boundaries of your business activity. It’s not just about what you sell today; it’s about what you might want to sell tomorrow. Landlords use these clauses to:

• Protect the mix of tenants in a centre or strip
• Prevent direct competition between stores
• Maintain a certain image or customer experience
• Control the types of businesses that can operate in their property

For example, if your lease says you can only sell “women’s fashion apparel”, you can’t start stocking shoes, accessories, or men’s clothing without breaching the lease. Even if your customers are asking for those products, and even if your competitors are already selling them, you’re locked in.

How a narrow permitted use clause hurts your business

You can’t respond to customer demand

Retail moves fast. What’s popular today might not be next year. If your lease restricts you to a specific product category, you can’t adapt without landlord approval. That approval process can take weeks or months, and there’s no guarantee you’ll get it. Meanwhile, your competitors can pivot quickly, leaving you behind.

You can’t test new revenue streams

Many retailers add services or products to boost sales—think coffee in a bookstore, or gift wrapping in a boutique. If your permitted use clause is too narrow, you might not be allowed to offer these extras. Even if the landlord doesn’t object, you’ll need to negotiate a lease variation, which can involve legal fees and rent increases.

You might breach your lease without realising

Some permitted use clauses are vague. Words like “primarily” or “predominantly” can create grey areas. If you start selling a new product line that the landlord considers outside your permitted use, you could be in breach. That can lead to notices, fines, or even eviction. If you’re unsure whether a new product or service fits your clause, get advice from your solicitor before you start selling it.

What a good permitted use clause looks like

A well-drafted permitted use clause gives you flexibility while still protecting the landlord’s interests. Here’s what to aim for:

• Broad but clear language: Instead of “women’s fashion apparel”, ask for “women’s fashion, accessories, and footwear”. This gives you room to expand without needing a lease variation.
• Inclusion of online sales: If you sell online, make sure the clause covers “retail sales, including online and click-and-collect”. Some landlords try to exclude online sales from the permitted use, which can limit your growth.
• Flexibility for services: If you want to offer services like alterations, personal styling, or workshops, include them in the clause. For example, “retail sale of women’s fashion and related services”.
• No unnecessary restrictions: Avoid clauses that limit your trading hours, require you to stock certain brands, or prevent you from selling certain products unless there’s a good reason.

How to negotiate a better permitted use clause

Start early

Permitted use is one of the first things a landlord will look at when assessing your lease application. If you wait until the lease is drafted, it’s harder to change. Raise it during your initial negotiations, before heads of agreement are signed. If the landlord pushes back, ask why. Sometimes they’re protecting another tenant, but often they’re just using a standard clause. Push for something more flexible.

Give the landlord a reason to say yes

Landlords want stable, profitable tenants. If you can show that a broader permitted use clause will help your business grow—and therefore pay more rent—they’re more likely to agree. For example, if you’re a café, explain that adding retail products like coffee beans or mugs will increase your turnover and make your business more resilient. If you’re a fashion retailer, show how adding accessories will drive more foot traffic to the centre.

Use the Retail Leases Act to your advantage

In Victoria, the Retail Leases Act 2003 sets some rules around permitted use. For example, a landlord can’t unreasonably withhold consent to a change of use if you’re not breaching any other part of the lease. But the Act doesn’t define what “unreasonable” means—that’s up to VCAT to decide if it goes to dispute. If you’re negotiating a lease, don’t rely on the Act to protect you. Get the clause right from the start.

Get it in writing

If the landlord agrees to a broader permitted use clause, make sure it’s reflected in the lease. Verbal agreements don’t count. If the lease says one thing and the landlord promised another, you have no recourse. Always get any changes in writing, and make sure they’re included in the final lease document.

What to do if your permitted use clause is too restrictive

If you’re already in a lease with a narrow permitted use clause, you’re not stuck. Here’s what you can do:

• Ask for a lease variation: Approach the landlord and ask for a change. Be prepared to negotiate—landlords often want something in return, like a rent increase or a longer lease term.
• Check the Retail Leases Act: In Victoria, the Act says landlords must act reasonably when considering a change of use. If you think the landlord is being unreasonable, you can take the matter to VCAT. But this is a last resort—it’s time-consuming and expensive, and there’s no guarantee you’ll win.
• Get advice: If you’re unsure whether your proposed change fits within your permitted use clause, talk to your solicitor. They can review the clause and advise you on your options. Elite Retail Leasing can also help you negotiate with the landlord to find a commercial solution.

Permitted use clauses in shopping centres vs. strip retail

Shopping centres and strip retail leases often handle permitted use differently. In a shopping centre, the landlord is usually more controlling. They’ll want to maintain a specific tenant mix, so they’re less likely to agree to broad permitted use clauses. They might also include clauses that prevent you from selling products that compete with other tenants in the centre.

In strip retail, landlords are often more flexible. They might not have the same level of control over the tenant mix, so they’re more open to broader permitted use clauses. But strip retail leases can also be more varied—some landlords use standard shopping centre clauses, while others are more relaxed. Always read the clause carefully, no matter where your shop is located.

Common mistakes to avoid

• Assuming the landlord will be flexible later: Landlords are often more open to negotiation before the lease is signed. Once it’s signed, they have less incentive to agree to changes.
• Not reading the clause carefully: A single word can change the meaning of a permitted use clause. For example, “women’s fashion” is much narrower than “women’s fashion and accessories”.
• Ignoring the fine print: Some leases include additional restrictions, like requirements to stock certain brands or meet minimum sales targets. These can limit your flexibility just as much as the permitted use clause.
• Not planning for the future: Think about where your business might be in 3-5 years. If you want to expand your product range or add services, make sure the permitted use clause allows for it.

Frequently asked questions

Talk to a Melbourne retail leasing consultant

Elite Retail Leasing acts for retail tenants across Australia on new sites, renewals, lease negotiations, surrenders and expansion planning. If any of the above applies to your business, get in touch.

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