Underletting differs from assignment in that the outgoing tenant still remains involved with the lease. An underletting is where the current tenant sub-lets the property to a 3rd party (again, with the landlord’s consent). The old tenant will then become the landlord of a new sub-lease created between the old tenant (now a landlord) and the sub-tenant.
There are usually conditions and requirements set out in the original lease that govern any potential sub-letting. For example, sub-letting is usually not permitted if you are in rent arrears or have failed to comply with any of your obligations under the lease.
Further, the head landlord can impose requirements on the terms of the sub-lease, for example, as to the amount of rent, the term of the sub-lease, or may be permitted to vet the sub-tenant or require the sub-tenant to directly agree with the landlord compliance with the original lease.
An important point to note regarding the sub-lease is that it cannot be for a term longer than the original lease – the sub-lease must expire prior to the expiration of the term of the original lease.
The sub-lease will usually be drafted by a solicitor on similar terms to the original lease. Once completed, again, the original landlord must be informed. The sub-tenant must then pay the sub-lease rent to the new landlord under the sub-lease and comply with all obligations as set out in the sub-lease. The original lease remains in existence, and the old tenant retains all its obligations under this lease, too.