Underlease agreement for commercial property

About this underlease agreement

This document allows you to carve out a sub lease from a head lease with the same terms, or alternatively, to specify different terms and impose further obligations on the new tenant.

Using this template, your agreement can follow or deviate from the original as much as you like.

Typically, this document would be used by the tenant under the original head lease, in order to sublet:

• 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)

• the whole of a property to a single new tenant so that the original tenant is effectively replaced by the new subtenant

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 underleases deal with legal issues in the round, the form of underlease 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 underlessor 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, you will have to go to the head landlord and negotiate. For example, it may be possible, with the landlord's consent, to increase the rent under the head lease 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 underleases that require registration, prescribed lease clauses (PLCs) can be added easily
• new 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)

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 law in this underlease

Commercial lease law is regulated primarily by the LTA 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 underleases. This version will be used for most situations. The alternative is for circumstances where the head landlord has required deeper and more detailed involvement in the relationship between himself and the new subtenant.

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

Contents

The template is comprehensive at 23 pages excluding guidance notes. Contents include:

• the sublease
• 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
• 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 underlease.

Scottish version of this document

The law governing commercial leases is substantially different in Scotland as compared with England, Wales and Northern Ireland. In Scotland there is no equivalent to the Landlord and Tenant Acts. 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 underlease please select "Scotland" from the list in top box.