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How to underlet business premises

Underlettings of Commercial Property

Preparing to grant an underlease 

Sometimes a tenant has premises it no longer needs and decides to underlet the whole or part of the premises. Before taking any further steps, the tenant needs to check the terms of the lease carefully to see whether underletting is permitted and whether any conditions need to be satisfied.

The landlord’s consent is almost always required for the grant of an underlease. The tenant will need to make a formal application for consent, supported by full information about the proposed subtenant.

Obtaining the landlord’s consent – the licence to underlet 

If the landlord has agreed in principle to a proposed subletting, the next stage is to negotiate and complete a formal licence to underlet to document the landlord’s consent. At the same time, the tenant and undertenant will be negotiating the underlease. The landlord will probably want to approve the wording of the underlease before it is granted.

Completion of underlease 

Once a licence to underlet has been completed the tenant and undertenant are free to complete the underlease.

After completion of the underlease 

The tenant will usually be required to give the landlord “notice of underletting”. There may also be stamp duty land tax (SDLT) and Land Registry requirements to comply with, depending on the level of rent payable and the length of term of the underlease.

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