Granting an Underlease
Timing of grant of underlease
Once a licence to underlet has been completed the tenant and undertenant are free to complete the underlease. This will often be done on the same day as the licence is completed. However, the sublease may be granted some days, weeks or months after the date of the licence, so long as any time limit imposed by the licence is complied with.
Negotiating an underlease
Ideally, the tenant and undertenant will have agreed heads of terms for the underletting at the outset. If so, the draft underlease will reflect those heads of terms.
Underlease negotiations will usually run in parallel with the negotiation of the licence to underlet. The agreed form of underlease is often annexed to the licence so that it is clear what the landlord has agreed to.
If the underlease is to be very simple, with a low rent and a short term, the tenant may deal with negotiations himself. However, in most cases the landlord will instruct a solicitor to handle matters on his behalf.
Many of the steps taken by the tenant and undertenant will be the same as those taken when granting a standard lease. Our page Negotiating a Business Lease has useful information for both parties.
Notice of underletting
The lease or the licence to underlet (or both) will usually include a clause requiring the tenant to give the landlord “notice of underletting”. This is a formal notice confirming that the underlease has been granted. A certified copy of the underlease should be enclosed for the landlord’s records.
If the underlease has been registered at the Land Registry (which will be necessary if it has a term exceeding 7 years), the tenant will also need to give the landlord copies of the Land Registry title for the underlease.