Should I Sublet my Commercial Property Instead of Assigning the Lease?

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What is a sublease?

A sublease is when a tenant of an existing lease (the “superior lease”) grants another lease below their own.

The term of the sublease cannot be longer than the term of the superior lease. A sublease is the same as an underlease.

To sublet, you must check whether your lease allows them to grant subleases.

Most commercial leases permit the tenant to do this but on the condition that they obtain the landlord’s prior consent.

There are often other conditions to subletting, for example, that the sublease must be excluded from the security of tenure (i.e. the subtenant will not have a statutory right to renew the sublease at the end of the term) and the rent for the sublease must be not less than the open market value.

The landlord’s consent to the sublease is normally formalised in a licence to sublet.

The tenant is usually only permitted to sublet the whole property, but sometimes, they can sublet a permitted part.

Myerson's Commercial Property team explore the advantages and disadvantages of subleasing a property.

For example, if the lease is for two floors in a building, the tenant may be allowed to sublet only one.

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What is an assignment of a lease?

An assignment of a lease is essentially the transfer of the lease to a third party. Rather than creating a new lease, the lease will just be transferred to the new tenant.

As for subletting, you must check that your lease permits assignments. Most leases will permit assignments of the lease provided the landlord’s prior consent is obtained.

It is often the case that a condition of an assignment is for the tenant to provide an ‘authorised guarantee agreement’, which is a guarantee for the new tenant’s obligations in the lease.

If the new tenant breaches the lease, the landlord can look to the previous tenant to remedy the breach; for example, if the new tenant doesn’t pay the rent, the landlord can demand payment from the previous tenant who provided the authorised guarantee agreement.

It is rare for a lease to permit an assignment of part of the lease; in most cases, it must be the whole of the lease that is assigned to a new tenant.

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What is an assignment of a lease

What are the advantages of subletting my property?

One advantage compared to an assignment is that you can grant a sublease for a shorter term than the superior lease if you want to occupy the commercial property again after a certain period of time. This is a good solution if you only want to leave the property temporarily.

It may also be easier to obtain the landlord’s consent to the sublease, as the landlord may have fewer checks on the subtenant. This is because your superior lease will remain in place, so the landlord will not have a direct relationship with the subtenant.

By comparison, when a tenant wants to assign their lease, the lease may state that the landlord can refuse consent if they believe the proposed new tenant is not of sufficient financial standing to meet the obligations in the lease.

The landlord may require copies of the accounts from the proposed new tenant and other information, such as a business plan.

Another possible advantage to subleases is also the flexibility of subletting part only of the property, as mentioned above if the lease allows this.

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Are there any disadvantages to subletting?

The superior lease will remain in place, meaning that the landlord will still collect rent from you, and you will still be responsible for the property.

If the subtenant doesn’t pay their rent in the sublease for any reason, you will still have to pay the rent for the superior lease.

If the subtenant leaves the property in disrepair, you will still ultimately be responsible to the landlord under the terms of the superior lease.

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any disadvantages to subletting

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