Sublease agreement for commercial property

About this 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 sublessor's default in court. When someone wants to litigate, nothing can be certain. But the sublessor cannot sign to this sublease then later deny the head landlord's rights.

Your sublease can follow or deviate from the original terms 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

• 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 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 the landlord's favour 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

• new guarantor and variation of the original guarantor's obligations

• provision for premature termination: break clause

• rent review options

• opt-out of Sections 24-28 of the LTA 1954 (to exclude security of tenure)

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.

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 landlord's interest landlord, we have tried to comply with the codes but nevertheless, have favoured protecting 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 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 this alternative commercial property underlease agreement.

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

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 original 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 original guarantor under the original lease
• new 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

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. We include instructions on how to add these to your sublease.

Scottish version of this sublease

The law governing commercial leases is substantially different in Scotland as compared with England, Wales and Northern Ireland. There is little legislation or case law relating to leases in Scotland. So the version we have drawn for our Scottish user is common law based.

On registration of leases in Scotland, only commercial leases for longer than 20 years must be registered in the Land Register of Scotland. However, the lease is often registered in the Books of Council and Session in Edinburgh.

For the Scottish version of this sublease please select "Scotland" from the list in top box.