Negotiation and Completion of a Licence to Underlet
Heads of terms for an underlease
Once a tenant has obtained the landlord’s consent 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.
It can be helpful to draw up heads of terms so that the landlord, tenant and undertenant (and their legal advisers, if any) have the information they need to enable the licence to be drafted. This will include the parties’ full names, addresses and company numbers (if applicable); details of the lease; timescale; costs; and any particular provisions to be included in the underlease.
If the underlease is of part of the tenant’s premises, as opposed to the whole, it is good practice to attach a plan to the heads of terms so that the extent of the property is clearly defined. If the underlease is to have a term of more than 7 years the plan must be Land Registry compliant. Further information about the Land Registry’s requirements for lease plans can be found on the Land Registry website: http://www.landregistry.gov.uk/professional/guides/practice-guide-40.
Drafting, negotiating and completing the licence
The landlord, or its solicitors, will prepare the first draft of the licence to underlet. This will be circulated to the tenant and undertenant, or their respective solicitors. The tenant and undertenant may ask for amendments to be made to the licence. These will be discussed and then a final agreed version of the licence will be produced for execution as a deed by all parties.
Best practice is for all three parties to execute three copies of the licence. This means that after completion of the licence each party can retain an original licence document executed by all three parties. However, if timescale or logistics make this approach difficult, the licence can be executed in separate parts by the landlord, tenant and undertenant.
When the licence has been executed by all three parties, they need to agree to complete it by entering the date in the gap at the top of the licence. (The date should be left blank until this point.) Once the licence has been completed, the tenant and undertenant may proceed with the grant of the underlease.