Sublease agreement for commercial property: landlord involvement

About this sublease agreement

Sometimes a landlord may allow subletting, but require further restrictions or obligations on the subtenant. The most useful of these is the ability to "bypass" the sublessor and deal directly with the subtenant if necessary. By setting these terms, the head landlord can proceed without the necessity of establishing the default of the sublessor in court. When someone wants to litigate, nothing can be certain. But the sublessor cannot sign to this sublease then later deny these rights of the head landlord.

Your sublease can follow or deviate from the terms of the original lease as much as you like. You could carve out the sublease from the head lease with the same terms, or alternatively, specify different terms and impose further obligations on the new tenant.

Typically, this document would be used by the head landlord (perhaps in conjunction with the original tenant) to sublet:

• the whole of a property to a single new tenant so that the original tenant is effectively replaced by the new subtenant
• part of the property to a subtenant, while the original tenant continues to occupy the rest of the property
• the whole property, split into separate units, to multiple tenants (perhaps at relatively higher individual rents so that the original tenant profits).

This agreement is suitable for any commercial property including office buildings, shops and retail units, industrial units such as workshops, warehouses and factories, and even land. Because subleases deal with legal issues in the round, the form of sublease required for a shop on the high street is not different from the form required to sublet a scrap yard.

If you are subletting only part of the property you will need to look afresh at how responsibilities such as service provision, access, insurance and so on are split between the head landlord, you the sublessor and your subtenants. We provide for many different possible options. This is a very flexible document.

The sublessor should first check the original lease. Subletting may be allowed and if so, the permission is likely to be subject to specific conditions. If not allowed, it may be possible, with the landlord's consent, incorporate terms in favour of the head landlord in return for allowing subletting.

Key features

Plain English is used throughout except where it is necessary to use legal terms common in land law.

The key features of this template can be summarised as:

• suitable for terms between 1 and 30 years, that is, any usual commercial term (short-term by default)
• for subleases that require registration, prescribed lease clauses (PLCs) can be added easily
• sub guarantor and variation of the obligations of the original guarantor
• provision for premature termination: break clause
• rent review options
• opt-out of Sections 24-28 of the Landlord and Tenant Act 1954 (to exclude security of tenure)
• template for a Security Deposit Agreement

This sublease is one of a collection of commercial lease templates designed for use by property professionals: experienced landlords, solicitors and surveyors. Accordingly, the provisions are very thorough.

The document includes the (optional) provision to release the old guarantor from his obligations as the new guarantor takes over.

We have also included the forms required to exclude security of tenure. These include the prescribed notices to be given to the subtenant 14 days before the sublease is created, a declaration of a new lease, and the statutory declaration if less than 14 days notice is given.

The law in this sublease

Commercial lease law is regulated primarily by the Landlord and Tenant Act 1954, amended many times. Account has also been taken of:

• the Landlord and Tenant (Covenants) Act 1995;
• the Regulatory Reform (Business Tenancies) (England) Order 2003;
• the Joint Committee's Code for Leasing Business Premises;

In balancing the codes with the law and the interest of the Landlord, we have tried to comply with the codes but nevertheless, have preferred the interest of the Landlord where there may be a difference.

Alternatives to this document

We offer two subleases. This version has been drawn for circumstances where the head landlord requires deeper and more detailed involvement in the relationship between himself and the new subtenant. If you don't need these provisions, you may be interested to look at: Underlease agreement for commercial property.

Note that this document is not suitable for subletting residential tenancy agreements. In those situations, we recommend cancelling the original and using a new tenancy agreement to let the property to the new tenants.

Sublease agreement contents

The template is comprehensive at 27 pages excluding guidance notes. Contents include:

• the sublease
• relationship of head landlord to subtenant
• rent: amount, other payments, interest on overdue rent, periodic review
• subtenant's obligations: follows the original tenant's obligations in the head lease
• optional additional obligations not set in the head lease: condition and repair; subtenant's positive obligations; restrictions on the subtenant
• assignment of the sublease
• indemnities by the subtenant to the sublessor
• security deposit
• insurance
• access for sublessor
• release of the guarantor under the head lease
• sub guarantor(s)
• termination: default notice by sublessor, provision for premature termination
• forfeiture
• obligations at the end of the sublease
• security of tenure excluded
• other matters
• Schedule 1: Rights expressly reserved
• Schedule 2: (Draft) security deposit agreement
• Prescribed notices to be sent to tenant to exclude security of tenure

If (and only if) the term of your sublease is for more than seven years, it must be registered with the Land Registry. We provide prescribed lease clauses (PLCs) for long term leases free of charge for download here: prescribed lease clauses. We include instructions on how to add these to your sublease.