You will often hear the phrases of subletting out a property and maybe a subtenant cropping up somewhere. Or perhaps more an underletting that comes to light.
In terms of what such subletting means and a basic definition – it’s allowing another tenant in a property ‘underneath’ the current and primary tenant.
So, the existing lease stays in existence – not like an assignment where it is transferred to another tenant.
You place a new lease below this, hence the phrase ‘sub’ or ‘under’ lease.
The existing tenant is then right in the middle of the landlord and new subtenant. So they act as a direct landlord to the subtenant, but then a tenant back to the leading landlord.
How subletting can help
These are underutilised, particularly with ever more complex and uncertain times.
Where a tenant is struggling, they can let the space back out to someone else and receive rent.
Although there are many details to get right, including a fair sub rent and detailed legal documentation, but it can be a win-win situation for everyone.
In most cases, a ‘whole’ sublet is only allowed for the whole tenancy and demised property. However, ‘part’ sublets should come back into fashion so ‘permitted parts’ can be sublet out.
So maybe the back storage rooms or upper floors with a commercial shop.
Regarding what type of property interest you tend to see subletting, it’s mainly with commercial properties. With residential, the shorter AST leases tend not to allow any type of alienation of the lease.
However, longer residential leasehold interests may allow this, particularly with, say, allowing buy-to-let investors to have regular tenants or even shorter-term Airbnb occupiers.
The subletting process to go through.
Whatever position you’re in with the sublet – whether the tenant wishes to arrange or subtenant taking on, or the landlord having to grant permission – then it’s essential to know what the basic process is.
Firstly, check the lease. There should be a specific lease clause saying if it’s even allowed and, if so, its conditions.
Secondly, understand any more comprehensive legislation that kicks in – or good practice with parties. An example is how the landlord must act reasonably in giving consent to the underletting and needs some professional legal and property advice.
Thirdly, see whether the deals make sense. So, can the new subtenant pay rent and outgoings okay, and are there any practical changes needed to the property.
Fourthly, request formal consent from parties where needed. This may be the head landlord or other parties like funders and insurers.
And fifthly, make sure it’s correctly documented. Solicitors will probably need to do a Licence to Sublet and any ancillary documentation such as a rent deposit deed or licence of alterations if new fit-out works are involved.
Not letting underleases get on top of you.
We have a Frequently asked questions section below to help drill down into any more detail on things.
And contact us here if you need any steer on things as well.
In short, make sure you take a step back and see what you’re trying to achieve and who needs to be involved with this.
It is an area of property management that will need experts to ensure done correctly, as lease liabilities and costs are all at stake here.
Frequently Asked Questions
Here are some FAQS we often see asked:
What is subletting commercial property?
This allows another tenant to take occupation and lease, but ‘underneath’ the current head lease one. Therefore, the current tenant is an immediate landlord to this new subtenant.
Is a sublet and underlet the same?
In a practical sense, they’re both the same, with an underletting a less popular one.
Technically this underlet means occupation at a lower value.
Can I sublet my commercial lease?
It depends on what the lease says, as there is no overarching legislation that says yes or no, only how the landlord must agree to this.
Usually, whole subletting is allowed with the landlord’s consent, but not always just part of the premises.
Is there a template to use for subletting?
Yes, there will be, but be very careful when using them as they need to reflect the actual circumstances to stop problems and liabilities.
Get a solicitor or property advisor involved to at least check over any draft template, licence agreement, or side letter.
Can a commercial subtenant be evicted?
Yes, often through methods like forfeiture, and mainly with commercial leases – and actioned by the immediate ‘head’ tenant.
The leading overall landlord can also have rights, depending on the situation.
Can you sublet a business?
Technically, you can’t sublet a business, only a business’ lease.
Yes, in most cases, subject to conditions, which the individual lease will detail.
Is it illegal to sublet a rented property?
It is illegal if the procedures have not been adhered to according to the lease – after requiring landlord’s consent.
What happens with unauthorised subletting?
This gets complicated, as the sublease may still be a valued legal entity.
So, it’s more a case of seeing what damages and consequences are for the tenant who allowed this.
Licence to Underlet?
This is the legal document often used to agree on the subletting, with all relevant parties consenting to the conditions of this.