Commercial Subleases

When a tenant sublets their interest in the lease, there are certain rights, restrictions and legal implications involved. That is why whether you are a landlord, a tenant or subtenant, you need to seek professional legal help well in advance of signing any documents. Otherwise you could find yourself stuck in an unfavourable contract.

What is a Sublease?

A sublease is when a tenant of a business premises offers their interest in the property to a third party. This means a second lease is created, thereby forming a hierarchical chain between the landlord (the owner), the tenant and the subtenant.

Therefore the original lease (known as the head lease) between the landlord and the original tenant remains the same, meaning each must continue to adhere to the terms and conditions of the lease. What does change, however, is that the tenant becomes a 'mid-landlord', entering into a new contractual relationship with a subtenant. This sublease can include all or part of the property, and can be granted for the duration of the remaining lease. A subtenant must then comply with the terms of the head lease and the new sublease.

Does a Tenant Need Consent?

The majority of commercial leases will include an alienation clause stipulating a landlord must be consulted should a tenant want to assign or sublet. A tenant may take comfort in the fact that alienation clauses often state a landlord cannot withhold consent for no good reason. Nevertheless, in the eyes of the law, it is not difficult for a landlord to find reasonable grounds for refusal. For example, if a prospective tenant is believed to be financially unstable, a landlord can easily reject an application for a sublease. Even if a landlord is open to the idea of a subtenant, it will be likely that they will want to run checks before giving consent.

The Risks of a Sublease.

There are certain risks that surround a sublease, all of which should be carefully considered before a new agreement is drafted. The first thing to remember is that unless the landlord agrees otherwise, the original tenant still has a duty to meet the terms of the lease - including the payment of rent. Therefore if a subtenant gets into arrears, a tenant could be held responsible.

This problem does, however, work the other way round as tenant and subtenant exist in a co-dependent relationship. Indeed, a subtenant is reliant upon the tenant fulfilling the terms of the head lease, including paying rent in full and on time. If there is a failure to do so, the landlord can decide to terminate the lease. This will affect both tenant and subtenant, as the sublease is dependent upon the head lease: if the head lease falls, so does the sublease. In such an event, tenants and subtenants have very little legal protection, something which differs radically to English law.

Not only are there risks in terms of a lack of security, it must also be noted that a sublease will necessitate more paperwork, lease drafting and professional fees. It could, therefore, prove to be more costly in terms of time any money.

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