Assigning vs Subletting Your Commercial Lease in the UK

If you are leasing commercial business premises in England and Wales, you may consider ending your lease early. This could be due to various reasons, such as difficulty paying rent, in the context of a business sale, or because you have outgrown the space. In such cases, there are a few options available. One option is to check whether your lease permits you to assign it to a new tenant or to sublet it. There are often restrictions or conditions that must be fulfilled for this to be allowed. This article will explain how lease assignments and subletting work, the difference between assigning and subletting, and how to determine which option is most appropriate for your business.

UK Lease Assignment Template

If you are moving out of your leased space and assigning the lease to another party, you are required to notify your landlord and obtain their consent. Use this free proforma template for this purpose.

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Assigning Your Lease

A lease assignment is where you find a new tenant to take over your lease and lease commitments. Your interest in the lease passes to another company or individual, and you cease to be the tenant. 

You will generally need to obtain your landlord’s consent to take advantage of this option. The requirements for this will be detailed in your lease. The most common restriction is that you need their express consent. This is in the form of a written deed. Often, this will also include specific conditions that must be met. For instance, the assignee might need to have a particular financial standing. Therefore, your landlord will typically need to consent to both the assignment and the chosen assignee (the person taking over the lease). To ensure that you can quickly secure your landlord’s consent for the new tenant, find a tenant who can adhere to all the conditions of your original lease. 

It is also likely that the landlord will want the current tenant to enter into an Authorised Guarantee Agreement. Most leases will include this as a condition a landlord can impose for their consent to an assignment. An authorised guarantee agreement is a document in which the tenant (which may be a company) assures the landlord that the tenant will be liable for any breach of the lease by the new tenant. Unfortunately, this means that most assignments won’t provide a full release for the tenant. However, it does mean that the tenant is not directly liable as the tenant after the assignment, only as a guarantor. 

Subletting Your Lease

A sublet (an underlease) is different from a lease assignment. Here, your lease agreement with your landlord remains in place. Therefore, legally, you are still the tenant of the property. Likewise, you are still responsible for all commitments contained in your lease. With this option, you find a subtenant to lease the commercial premises (or part of the commercial space you are renting) and enter into a sublease with them. You essentially establish a landlord-tenant relationship with this new tenant, and you will both have obligations to each other. 

You likely need your landlord’s permission to sublet your lease. While the landlord usually does not need to approve the subtenant since they are not involved, ensure the subtenant can fulfil all lease terms, especially financial obligations, as this impacts you. Your lease may require landlord consent for the sublease, allowing them to review and potentially refuse based on disagreement, which can delay the process.

With a sublease, you remain responsible for fulfilling your obligations in the lease with your landlord. Additionally, you must ensure that your subtenant meets all responsibilities under the sublease.  This is crucial because you are still liable to your landlord. If your subtenant fails to pay the rent owed, your landlord can seek payment from you, and you, in turn, can pursue the subtenant. Moreover, since sublease arrangements often require consent, there may be a contract in place among all parties. This is known as a licence to underlet. This could grant the landlord the right to pursue the subtenant for any breaches or to enforce indemnity directly.

Which is Most Appropriate for Your Business?

Your commercial lease agreement may have specific provisions regarding the assignment or subletting of your lease. Therefore, reading your lease and checking what it states about these two options is essential. If your lease does not grant permission for these options, you may feel you have limited choices. However, discussing your reasons for wanting to assign or sublet your lease with your landlord is always worthwhile.

Depending on the lease, you may only be permitted to underlet or assign the entirety of your premises or just a portion. If you are not utilising the entire space, it could be financially beneficial for you to share the cost. In this case, an underlease might be the best choice, as it is more time-limited and under your control. 

Alternatively, you may consider moving to new premises permanently or feel you no longer require business premises. A lease assignment is likely more suitable in this scenario since it is permanent. If you are selling your business entirely, it is common for the buyer to assume your lease through a lease assignment.

Other Options

Commercial tenants potentially have other options for ending their commercial leases early. For example, your lease may have a ‘break’ clause in it. A break clause provides a mechanism for you to end your lease early, often after a particular amount of time or within a specific period.  

Another option is to ask your landlord for permission to terminate your lease early. If you are facing financial difficulties, your landlord may be open to considering this option. Furthermore, it might be more advantageous for them to let you leave the tenancy early rather than potentially having to collect unpaid rent or incur the costs of eviction proceedings.

Key Takeaways

Assigning or subletting your commercial lease are two options for ending your lease early. With an assignment of your lease, you will find a new tenant to take over your lease. With a sublet, you remain the tenant of your lease but enter into a new contract with the subtenant you find. Similarly, your landlord may require the tenant to enter into an Authorised Guarantee Agreement when assigning a lease, which makes the tenant liable as a guarantor if the new tenant breaches the lease terms. Whichever option you choose, ensure you do your homework on prospective new tenants or subtenants.

If you need help assigning your commercial lease, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

Frequently Asked Questions

I am planning to sublet my lease. Do I need my landlord’s permission?

You need your landlord’s permission to sublet your lease, but they typically do not need to agree to a specific subtenant. However, you must ensure that the subtenant you select is suitable, as you will be responsible for any breaches of your commercial lease.

My subtenant has not paid me the rent due. Do I need to pay rent to my landlord?

Yes, you remain legally responsible for ensuring that the rent is paid in full and on time. Otherwise, you will violate your commercial lease, and your landlord may take action against you for this.