By Claire Miller, Partner, Penman Sedgwick LLP
Subletting (also known as underletting) might be an option worth considering if you find you have more space than you need at the moment, with many staff still working remotely and ongoing challenges which are putting pressure on the bottom line.
If your lease allows this (and note that the landlord’s prior written consent will almost certainly be required), the key issues to consider are as follows:
Can you sublet part, so that you can stay in occupation of the remainder of your premises, or are you only able to sublet whole?
Check the restrictions in your lease carefully: you must not deviate from these (even in a side agreement) and you can expect these to control matters such as:
- The level of rent that you can charge your subtenant
- Rent review provisions, including the review dates
- Service charge
- Dealings with the sublease (e.g. assignment, further subletting)
- Permitted use
- Exclusion of the subtenant’s rights of security of tenure
- The form of the sublease itself
Length of term: it is essential that the sublease will expire before your own lease expires otherwise it will take effect as an assignment of your lease (subject to certain exceptions), even if that is not what you intended.
Costs: subletting can be expensive, as your landlord will require you to cover their professional costs (which may include managing agents’ costs and/or surveyors’ costs as well as legal costs), and the costs of any superior landlord and/or any mortgagees whose consent is also required. Added to your own legal costs, the bills can mount up…
Don’t forget to serve formal notice of the grant of the sublease on your landlord after completion and pay the notification fee due, as required by your lease.
And… make sure you keep all the original documents relating to the sublease safely for the whole of the sublease term: you will need them for tax purposes and/or if you have to take enforcement action.
If you are looking for legal advice, Penman Sedgwick can help.