Leases and underleases - Use and planning permissions

Learning Outcomes

This article examines leases and underleases in relation to user covenants, planning permissions, and change of use, including:

• The distinction between leases and underleases
• Legal requirements for user covenants and planning permissions
• Rules on change of use and alterations in leasehold property
• Interaction between lease covenants and statutory planning controls
• Practical steps for ensuring compliance in property transactions
• Permitted development rights and their scope
• The effect of Article 4 directions
• Planning enforcement notices and time limits
• Landlords’ consent duties and statutory modifications to qualified covenants under the Landlord and Tenant Acts 1927 and 1988

SQE1 Syllabus

For SQE1, you are required to understand leases and underleases and their interaction with user covenants, planning permissions, and change of use, with a focus on the following syllabus points:

• The distinction between leases and underleases, and their legal requirements
• User covenants and restrictions on use in leases and underleases
• The relationship between lease covenants and statutory planning controls
• The rules on change of use and the need for planning permission
• The consequences of breach of user covenants or planning law
• Advising clients on compliance with lease and planning requirements
• Use Classes and changes within or between classes, including sui generis uses
• Permitted development under the GPDO and the effect of Article 4 directions
• Planning enforcement notices and core time limits
• Landlord’s consent for alterations and user changes, and statutory duties to respond

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What is the main legal distinction between a lease and an underlease?
2. When does a change of use in leasehold property require planning permission?
3. What is the effect of a user covenant in a lease if the tenant wishes to change the use of the premises?
4. True or false? A tenant can always rely on planning permission to override a restrictive user covenant in their lease.

Introduction

Leases and underleases are central to property transactions in England and Wales. They regulate the occupation and use of land, and are subject to both contractual covenants and statutory planning controls. Understanding how user covenants and planning permissions interact is essential for advising clients and ensuring compliance in practice. Planning permission authorises development for planning purposes only; it does not remove private law restrictions in title or lease covenants. Conversely, a landlord’s consent or a deed of variation cannot disapply statutory planning control. Building regulations apply alongside planning law and must also be considered where works are proposed.

Leases and Underleases: Structure and Legal Requirements

A lease is a legal estate in land granting exclusive possession for a fixed or periodic term, usually in exchange for rent. An underlease (or sublease) is a lease granted by a tenant out of their own leasehold interest, for a term shorter than their own.

Key Term: lease
A legal estate in land granting exclusive possession for a fixed or periodic term, usually in exchange for rent.

Key Term: underlease
A lease granted by a tenant out of their own leasehold interest, for a term less than the tenant's own lease.

To be valid, both leases and underleases must comply with statutory formalities. A lease for more than three years must be made by deed. Where the term exceeds seven years, the lease is substantively registrable and must be completed by registration. Legal leases of seven years or less do not require substantive registration but can bind as overriding interests. An underlease must always be for a shorter term than the headlease; otherwise, the purported underlease operates as an assignment of the tenant’s lease.

Underletting often requires head landlord consent under a qualified or fully qualified covenant. The tenant typically serves formal notice of the underlease on the head landlord (where required by the lease or licence to underlet), and ensures the underlease mirrors headlease covenants to avoid exposure. A subtenant should not be permitted to adopt a use that would breach the headlease user covenant; the head tenant remains liable to the head landlord for any breach.

User Covenants in Leases and Underleases

Most leases and underleases contain a user covenant restricting the use of the premises to a particular purpose or class of use.

Key Term: user covenant
A clause in a lease or underlease restricting or regulating the use of the premises by the tenant.

A user covenant may be absolute (prohibiting any change), qualified (requiring landlord's consent), or fully qualified (requiring consent not to be unreasonably withheld). The covenant should be drafted precisely: a narrow user may limit marketability while an overly broad user may affect rent review assumptions. Breach of a user covenant can lead to forfeiture or damages.

Statutory modifications are relevant:

• For alienation covenants, consent cannot be unreasonably withheld and should be given within a reasonable time (Landlord and Tenant Act 1927, s19(1); Landlord and Tenant Act 1988).
• For alteration covenants, s19(2) LTA 1927 treats certain qualified covenants against improvements as fully qualified, and prohibits fines/premiums as a condition of consent (though legal and other reasonable costs may be recoverable).
• For change of use covenants, s19(3) LTA 1927 prohibits fines/premiums where consent to change of user is sought (unless structural alterations are involved) but allows recovery of reasonable expenses and compensation for diminution in value or damage.

Typical reasonable grounds for refusing consent include inadequate covenant strength of the proposed assignee/subtenant, incompatibility with estate management/tenant mix policies, or a proposed use that would breach planning control or title restrictions. A landlord’s decision and any conditions should relate to the landlord and tenant relationship.

Planning Permissions and Change of Use

The use of land and buildings is also regulated by statutory planning controls. Under the Town and Country Planning Act 1990, planning permission is required for "development," which includes a material change of use.

Key Term: planning permission
Formal approval from the local planning authority to carry out development or a material change of use of land or buildings.

Key Term: material change of use
A significant change in the purpose for which land or buildings are used, requiring planning permission unless permitted development rights apply.

Development comprises operational development (building, engineering, mining or other operations, including demolition, structural alterations or additions) and material change of use. Internal works that do not materially affect external appearance are not development. Some matters that constitute development do not require express permission because permission is deemed by the General Permitted Development Order.

Key Term: Use Classes Order
The Town and Country Planning (Use Classes) Order 1987 (as amended) groups uses into classes; changes within the same class generally do not require planning permission.

The Town and Country Planning (Use Classes) Order 1987 (as amended) groups uses into classes. Common current classes include:

• Class E (commercial, business and service): shops, offices, medical services, gyms and other town centre uses
• Class F.1 (learning and non-residential institutions): schools, museums, libraries, places of worship, law courts
• Class F.2 (local community): small essential goods shops (subject to size and location limits), community halls, and some sports/recreation areas
• Residential classes (C1 hotels, C3 dwelling houses, C4 HMOs) Some uses are sui generis (unique to themselves), such as pubs/drinking establishments, hot food takeaways, cinemas, concert/dance/bingo halls and nightclubs; changes to or from these typically need express permission.

Key Term: sui generis
Uses outside any use class—for example pubs, hot food takeaways, nightclubs—which usually require express permission on change.

Key Term: permitted development
Development granted planning permission by the General Permitted Development Order, so that an express planning application is not required (subject to limitations/conditions).

Certain changes of use and minor works are permitted development under the General Permitted Development Order (GPDO). For example, some changes within Class E, small domestic extensions, porches, and specified minor operations can be PD subject to limitations and conditions. PD rights are subject to removal where special controls apply.

Key Term: Article 4 direction
A direction removing permitted development rights in specified areas or for specified types of development, requiring express permission.

Local planning authorities can make Article 4 directions (often in conservation areas) removing PD rights, meaning express permission will be required. Where there is doubt, an applicant may seek a certificate of lawfulness.

Key Term: certificate of lawfulness
A certificate under s191/192 TCPA confirming an existing or proposed use/operation is lawful (e.g., because it is not development or benefits from permitted development).

Interaction Between Lease Covenants and Planning Law

It is important to distinguish between contractual restrictions in the lease (user covenants) and statutory planning controls. Obtaining planning permission does not override a restrictive user covenant, and vice versa. A tenant must comply with both. Similarly, compliance with PD rights does not authorise a use or works if a lease or title covenant prohibits them. Planning permissions and conditions generally run with the land and bind successors in title and occupation; a buyer/tenant must check past permissions and conditions and ensure compliance.

Exam Warning Do not assume that planning permission allows a tenant to ignore lease restrictions, or that landlord's consent to a change of use removes the need for planning permission.

Landlord's Consent and Alterations

Many leases require the tenant to obtain the landlord's consent before changing the use of the premises or making alterations. The Landlord and Tenant Act 1988 requires a landlord to respond to written applications for consent to assignment, underletting, charging or parting with possession within a reasonable time and to give written reasons if refusing consent where the covenant is qualified or fully qualified. For alterations, s19(2) LTA 1927 may upgrade certain qualified alteration covenants to fully qualified for improvements, and prohibits fines/premiums as conditions of consent. For change of use, s19(3) LTA 1927 prohibits fines/premiums save where structural alterations are involved, though legitimate costs and compensation can be sought.

Key Term: landlord's consent
Permission from the landlord required under a lease for certain actions, such as changing use or making alterations.

In practice, consent is often recorded in a formal licence which:

• identifies the permitted use or works precisely (with plans/specifications where relevant)
• requires compliance with planning and building regulations, and the procurement of all statutory consents
• may require reinstatement at lease end
• may include reasonable conditions to protect the reversion, neighbouring premises, and the landlord’s management policy

Planning Enforcement and Lease Breaches

If a tenant changes the use of premises without planning permission, the local authority may take enforcement action. If the tenant breaches a user covenant, the landlord may seek to forfeit the lease or claim damages. Key planning enforcement tools include:

Key Term: planning contravention notice
A notice requesting information about operations or use and possible breaches; failure to respond is a criminal offence.

Key Term: enforcement notice
A notice specifying the breach and steps required to remedy it; it must be served on owners/occupiers/interested parties and becomes effective at least 28 days after service (subject to appeal).

Key Term: stop notice
A notice (following an enforcement notice) requiring activities to cease pending the enforcement notice taking effect or being appealed; temporary stop notices can take immediate effect for up to 28 days.

Key Term: breach of condition notice
A notice requiring compliance with conditions attached to a planning permission; contravention is a criminal offence and there is no right of appeal (judicial review is possible).

Key Term: completion notice
A notice requiring completion of development within a specified time or the permission lapses if not completed by then.

Enforcement time limits under s171B TCPA 1990 are broadly:

• 4 years for operational development and for material change to use as a single dwelling house
• 10 years for other changes of use and breaches of conditions Where a breach is deliberately concealed, there may be no effective time bar until regularised. Listed building control is separate; works affecting the character of a listed building require listed building consent, and there is no time limit for enforcement.

Building regulations are also separate from planning permission. Many building works and installations (e.g., replacement windows, boilers, significant internal structural alterations, electrical works) require building regulations approval via full plans, building notice or self-certification schemes. Under the Building Act 1984, prosecutions can typically be brought within two years, and enforcement notices requiring alteration or removal of non-compliant works can be served within 12 months of completion; injunctions may be sought beyond those limits. Evidence of completion certificates or self-certification notifications should be obtained.

If documentation is missing after enforcement periods have expired, parties sometimes consider indemnity insurance to cover the risk of enforcement or adverse action; avoid contacting the local authority first, as notification may render such insurance unavailable.

Worked Example 1.1

A tenant holds a lease of a shop with a user covenant restricting use to retail sales. The tenant wishes to convert the shop to a café. What steps must the tenant take?

Answer:
The tenant must check if the proposed use is within the same use class as retail sales. If not, planning permission for change of use may be required. The tenant must also obtain the landlord's consent if the lease restricts use or requires consent for change of use. Both planning and lease requirements must be satisfied.

Worked Example 1.2

A tenant grants an underlease of part of their premises to a subtenant, who intends to use the space as an office. The headlease restricts use to "light industrial." What are the implications?

Answer:
The underlease must not permit a use that would breach the headlease user covenant. The tenant remains liable to the head landlord for any breach. The subtenant may also need planning permission if the change from industrial to office use is a material change of use.

Worked Example 1.3

A tenant of a Class E retail unit wants to operate a hot food takeaway. The lease user covenant permits “Class E uses.” Does the tenant need planning permission or landlord consent?

Answer:
A hot food takeaway is usually sui generis and sits outside Class E. A material change of use to a takeaway will normally require express planning permission. The lease user covenant permitting Class E would not authorise a sui generis takeaway; landlord consent and a deed of variation may be required (if the covenant is absolute), or consent under a qualified covenant (if permitted). Both planning and lease approvals are needed.

Worked Example 1.4

An occupier of a dwelling installs replacement windows and builds a small rear extension. The property is in a conservation area with an Article 4 direction. What consents are required?

Answer:
Although small rear extensions and window replacements can be permitted development under the GPDO, Article 4 removes PD rights. Express planning permission will be required for the extension, and planning control may apply to replacement windows. Building regulations approval will also be required for windows and the extension. If the property were a listed building, listed building consent would also be needed.

Worked Example 1.5

A warehouse was extended without planning permission five years ago. A condition on a 6-year-old permission elsewhere on the site has not been complied with. What enforcement risks exist?

Answer:
Operational development is generally immune from enforcement after four years, so action against the 5-year-old extension is time-barred unless there was concealment. Breach of a condition is subject to a ten-year limit; the 6-year-old breach can be enforced by a breach of condition notice or enforcement notice. The occupier/owner must remedy or risk prosecution/fines.

Revision Tip

Always check both the lease covenants and planning law before advising on a proposed change of use or alterations. Compliance with one does not guarantee compliance with the other. For recent or proposed works, obtain evidence of planning permission, discharge of conditions and building regulation completion certificates (or self-certification notices). Where PD rights are relied on, confirm that no Article 4 direction or other special control applies.

Summary

Leases and underleases regulate occupation and use of land through contractual covenants and are also subject to statutory planning controls. User covenants restrict the tenant's use, while planning law governs material changes of use and development. Both must be complied with independently. Breach of either can result in enforcement action by the landlord or local authority. Use Classes and permitted development define when express planning permission is needed; Article 4 directions may remove PD rights. Landlords’ consent regimes are shaped by the lease and statutory duties under the Landlord and Tenant Acts. Planning enforcement tools and time limits determine exposure to action for unauthorised works or use. Building regulations control applies alongside planning permission for many works.

Key Point Checklist

This article has covered the following key knowledge points:

• The distinction between leases and underleases, and their legal requirements
• Registration and overriding interest rules for leases and underleases by term length
• The function and types of user covenants in leases and underleases
• Statutory modifications to qualified covenants (LTA 1927 ss19(1)–(3) and LTA 1988)
• The Use Classes framework, sui generis uses, and when planning permission is required
• Permitted development under the GPDO and the effect of Article 4 directions
• Certificates of lawfulness for proposed or existing development/use
• Planning enforcement notices (contravention, enforcement, stop, breach of condition, completion) and principal time limits
• Building regulations approval requirements and enforcement routes
• The relationship between lease covenants and planning law and the need to satisfy both sets of requirements
• The need for both landlord's consent and planning permission for changes of use or alterations
• The consequences of breach of user covenants or planning law

Key Terms and Concepts

• lease
• underlease
• user covenant
• planning permission
• material change of use
• landlord's consent
• Use Classes Order
• sui generis
• permitted development
• Article 4 direction
• certificate of lawfulness
• planning contravention notice
• enforcement notice
• stop notice
• breach of condition notice
• completion notice