Planning for the Grant of an Underlease
Preparing for underletting
Sometimes a tenant has premises, or a part of the premises, that it no longer needs to use. If the whole of the premises is surplus to requirements, the tenant may try to assign the lease. If assignment is not viable, or if only part of the premises is available, the tenant should consider underletting the space to a subtenant.
Does the lease permit underletting?
Before taking any further steps, the tenant needs to check the terms of the lease carefully. The “alienation” covenant will set out whether subletting is permitted, whether the landlord’s consent is required (it almost always is) and whether there are any conditions that must be satisfied in order for the underletting to go ahead.
A lease is more likely to permit underletting of the whole of the premises than underletting of part. If subleases of part are permitted, there may be restrictions on the areas that can be included in an underlease. For example, it may only be possible to underlet a whole floor or a whole wing of a building.
If the lease has an absolute prohibition on underletting, the tenant will be unable to let the space unless the landlord will agree to vary the lease to permit underletting.
Seeking the landlord’s consent to an underlease
Assuming that the lease permits underletting subject to obtaining the landlord’s consent, the tenant will need to apply for the landlord’s consent. This can only be done formally once the tenant has marketed the property and found a subtenant. However, it is wise to inform the landlord at an early stage that a subletting is contemplated so that the landlord can confirm what information it will require in order to make a decision on consent.
The tenant should make an application in writing seeking the consent of the landlord to the proposed grant of an underlease. The tenant should include all relevant information about the proposed undertenant, which is likely to include company details, audited accounts and references.