What is a Commercial Sublease?

A commercial sublease is exists when a tenant leases all or part of the premises it is leasing to a third party.

A sublease is different to a transfer of lease or assignment of lease, because the tenant remains bound by its lease with the landlord and must continue to pay rent and comply with all the obligations of the lease.

With a sublease the common legal expressions used are:

  • Headlease: this is the lease between the tenant and the landlord
  • Sublease: this is the lease agreement between the tenant and a third party for all or part of the premises being leased by the tenant from the landlord.
  • Headlessor: this is what the landlord is often called in a sublease.
  • Sublessor: or head tenant this is what the tenant who is subleasing the premises to a third party is often called.
  • Subtenant or sublessee: this is the third party that is leasing part or all of the premises from the tenant.

 

Can a Commercial Sublease be for Part of a Property?

A sublease can be for the entirety of a property, but generally occurs when a tenant no longer requires part of the premises they are leasing. This can often be the case where a tenant has decided to close part of its business and therefore no longer needs that part of the premises any longer. This is just one example.

Does a Landlords Consent need to consent to a Sublease?

All leases contain a clause which prohibits a tenant subleasing all or part of the premises. So, if a tenant wishes to enter into a sublease then the landlord’s consent must be obtained. Before a landlord will consent to a sublease, generally they will want to know the intended use to which the subtenant intends to use the premises and the financial viability of the subtenant. Notwithstanding this, the tenant will remain liable under its lease with the landlord.

 

Essential Elements of a Sublease

There are many traps with a sublease, the biggest one being what happens to a subtenant if the lease between the landlord and the tenant is terminated?

Often when negotiating a sublease, terms may be agreed upon between the tenant and subtenant which are different from the terms in the lease between the landlord and the tenant.

For example:

  • a subtenant needs to be certain that the term of its subtenancy and any options are the same as those of the tenant; or
  • a tenant needs to ensure that the obligations of the subtenant to make good or reinstate the premises at the end of the sublease are the same as the obligations on the tenant under the head lease.

For this reason, if you are considering a sublease it is important to get advice from a solicitor not only expert in leasing law but also one with extensive commercial experience.

 

Retail Leases Act and Subleases

Just as with any retail lease with a sublease, the tenant will need to provide a Disclosure Statement to the subtenant. Read more about sub leasing on the commercial real estate website.

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