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When you are party to a commercial lease, there are many rules to understand. The commercial lease agreement is a legally binding contract and will contain most of the commercial lease rules. One area the lease agreement may detail is about subletting the commercial property. It is essential that landlords explain the rules about this and that commercial tenants know what the lease permits. This will help the tenant to abide by the lease terms. This article will explain subletting in a commercial lease.
What is a Commercial Lease?
If a commercial landlord allows a business owner sole occupation of their commercial property, they will likely create a commercial lease. This means the retail tenant has exclusive use of the property as their commercial premises for an agreed period, which is the lease term.
However, the commercial tenant may engage in subletting if the lease agreement permits. This is where they let another business occupy part or all of the commercial property – you may hear people refer to this as underletting.
What is Subletting?
Subletting is a form of alienation of the commercial lease, as is, for example, lease assignment, and it is a lease below the main lease. For example, subletting may occur when a commercial tenant has a lease covering five separate offices and they wish to sublease one.
Let us explore some key points to note about subletting in a commercial lease.
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1. Sub-lease
If a tenant sublets their business premises, they must create a sublease, or you can refer to this as an underlease. The sublease is a new lease agreement for the commercial space. It will have a lease term which cannot extend beyond the lease term of the existing lease. Therefore, if the lease term end date is 31 December 2024, the sub-lease end term date can be any time before or on this date.
As the commercial tenant creates a sublease or underlease, they become the landlord of the sub-tenant, to whom they lease part of or all of their commercial premises. However, the tenant remains the commercial tenant for the property, and the landlord remains their commercial landlord.
2. Restrictions
There is no statutory law specifically restricting subleasing. Instead, any restriction regarding whether a commercial tenant can sublease will be in the lease agreement. If there are none (which is unlikely), the sublease can occur, and the sub-tenant could also sublease. The sublease they create would be a sub-underlease.
Furthermore, If a commercial lease is silent on subletting, the commercial tenant will not even need their landlord’s consent.
Equally, a landlord must comply with the lease agreement. Therefore, where it says they must give or refuse consent for the sublease, they must not delay giving this. When a commercial landlord consents, they provide the tenant a licence to sublease.
3. Covenants
If a commercial tenant sublets their business premises with their landlord’s consent, the latter may request that the sublease have specific provisions. These are obligations on the subtenant by the landlord, so they are directly enforceable by the latter on the subtenant. Therefore, the tenant does not need to enforce these.
This cheat sheet outlines what you should be aware of in your lease agreement.
There are other provisions the sub-lease may contain, such as:
- a specific level of rent the landlord wishes;
- if the sub-lease will have rent reviews and how often; and
- any security of tenure for the sublease.
Key Takeaways
In a commercial lease, there will be rules about subletting in the lease agreement. Subletting or underleasing is where a commercial tenant lets another business lease part or all of their commercial premises. A lease agreement will say if they can do this and any rules around it.
There are three key points to note about subletting in a UK commercial lease. First, when a tenant decides to sublet, they create a sublease. Second, a commercial lease agreement will likely contain restrictions on subletting, which could prohibit it completely or create rules for it. Finally, when a tenant makes a sublease or underlease, the landlord may require specific provisions to enforce directly against the sub-tenant.
If you need help understanding plans about subleasing in a commercial lease, LegalVision’s 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.
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