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Written by Peter Carter

February 20, 2010

Every lease has a “permitted use” clause which specifies the nature of the operations that a tenant is entitled to conduct on the premises. Typically, the lease provides that any change of use requires the consent of the landlord. However as the Australia Post decision*illustrates, the latitude a tenant has as regards its occupation depends entirely upon the construction of the permitted use clause itself.

Australia Post had leased a warehouse from Ace Properties in West End since 1998 and exercised a further five-year option of renewal in 2006.

The permitted use was specified in clause 6.1 as follows:

The Lessee must use the Premises only for the purpose of conducting the business of warehousing, storage, equipment testing, research and development of mail sorting equipment or such other use as approved by the Lessor which approval will not be unreasonably withheld.

In late 2001 the landlord consented to the addition of “mailroom solutions operations” as a permitted use. In 2008 the landlord wrote to the tenant stating that it considered there had been a breach of the lease, inter alia the tenant was conducting operations on the premises outside the scope of the “permitted use”.

The landlord offered to consent to the change of use provided the tenant agree that the rent is reviewed to market from the date upon which the above changes occurred. The tenant refused and the landlord issued a Notice to Remedy Breach of Covenant. The tenant sought relief in the Supreme Court.

The tenant acknowledged that since 2007, its use of the premises had included tender and courier services as well as more intricate and contemporary methods of processing mail items but contended that this nevertheless fell within the definition of “mailroom solutions operations” and was therefore permitted under clause 6.1

The court construed the permitted use clause and upheld the tenant’s position ruling that the expression “mailroom solutions operations” although not in common usage, must be determined in the context of the lease and was not limited by what the parties may have contemplated as relevant activities at the time permission for that use was given. The term was, it said, suggestive of service for processing and sorting mail which was exactly the operation being performed by the tenant.

It also ruled that clause 6.1, despite being expressed in positive terms, was not to be construed on the basis that the tenant was obliged to carry on all of the permitted uses. Rather, it allowed the tenant to carry on any of them.

The decision is currently under appeal.

* Australian Postal Corporation v Ace Property Holdings Pty Ltd [2009] QSC 199

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