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Commercial Property Management

Underletting Terms and Licences

Some business Leases, particularly those with terms over 5 years, permit a tenant to underlet the premises subject to obtaining the Landlord’s consent. The Landlord’s consent is usually given in a formal Licence to Underlet.

Before a Landlord will give consent he will usually want to be satisfied that the proposed Undertenant will be able to pay the underlease rent and generally be a suitable occupier of the premises. However, it is harder for a Landlord to object to an underletting than an assignment because the Landlord will continue to receive rent from the Tenant during the term of the underlease.

In this folder we have Heads of Terms for Underleases and for Licences to Underlet, Letters for the Landlord to send to the Tenant and template Licences.

Landlords should refer to the Protocol for Applications for Consent to Assign or Sublet when dealing with an application for consent to underlet. The Protocol can be found at http://www.propertyprotocols.co.uk. Compliance with the Protocol is voluntary but the Protocol is widely supported in the commercial property sector. Our documents are designed to aid compliance with the Protocol.

Other documents may be needed during the term of a Lease. A wide variety of documents can be found in our Managing the Letting, Breaches of the Lease, Alterations and Assignments folders.

Underletting Terms and Licences is part of Property. Just £38.50 + VAT provides unlimited downloads from Property for 1 year.

Frequently Asked Questions

My tenant wants to sublet part of the premises. What consent is needed? +
Where the lease permits underletting subject to consent, the tenant needs the landlord's formal consent, usually a licence to underlet. Leases often allow this for longer terms. You will want the undertenant to be suitable, though it is harder to object than on assignment because your tenant stays liable for the rent. This sub-folder has the documents.
Can I refuse consent to an underletting? +
Where the lease allows underletting with consent, section 19 of the Landlord and Tenant Act 1927 means you cannot unreasonably withhold it. You can, though, insist the underlease protects you, for example at a market rent and contracted out of the 1954 Act. This sub-folder's licences and heads of terms build in those protections.
Should the underlease be contracted out of the 1954 Act? +
Usually you will want it to be. If the underlease is protected by the Landlord and Tenant Act 1954, the undertenant could gain a right to renew that outlasts your tenant's lease. Contracting the underlease out, with the warning notice and declaration completed first, avoids that. This sub-folder's heads of terms address security of tenure for the underlease.
Why is it harder to object to an underletting than an assignment? +
Because you keep your original tenant. On an underletting your tenant remains liable to pay you the rent and perform the covenants, so your position is better protected than on an assignment where the tenant leaves. That makes some objections that would be reasonable on an assignment unreasonable on an underletting. This sub-folder's documents reflect that.
What terms should the underlease itself contain? +
It should sit consistently under your lease, typically at no less than the passing rent, on back to back repairing and use terms, and contracted out of the 1954 Act where appropriate, so it does not create obligations you cannot pass up the chain. This sub-folder has heads of terms for underleases and licences to underlet to keep the terms aligned.
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