If you are a business that currently leases a commercial space from a property landlord and you’re thinking about subletting it to a third-party tenant, hold your horses. It’s not quite as simple as setting up a subtenant agreement and ensuring the rent continues to be paid to the property landlord.
In most cases, you will require the landlord’s permission to sublet all or part of your business space to another party. There are obvious benefits to subletting, if you are allowed. It’s helpful to have some of the rent covered if your business is looking to downsize its office or industrial space, or is struggling for cashflow whilst being some time away from a potential break clause in your tenancy. Read on to discover the steps you need to take to try and sublet your commercial property.
Check your existing lease with a fine-tooth comb
The last thing you want is to proceed with subletting your commercial property and risk invalidating your lease with the property’s landlord. Most commercial leases will have a forfeiture clause attached, which can be exercised by landlords in the event that a tenant is deemed to have breached a covenant of the lease e.g. subletting without permission.
Be sure to read through your lease as thoroughly as possible. It’s recommended that you engage with a property solicitor that can notify you of any clauses or loopholes that could enable you to sublet or prohibit subletting entirely.
Setting the conditions of a sublease
Even in examples where subletting may be permitted by your commercial property landlord, you will sometimes require formal written consent to proceed with arranging a sublease that’s agreeable to you and your landlord.
The terms of any sublease you negotiate require careful consideration. You’ll need to weigh up the potential sticking points before opening discussions with prospective subtenants:
- Your property landlord is well within their rights to insist that the terms of any prospective sublease match those of the head lease i.e. your active lease with the landlord. Tenants can request landlords to vary their lease, but this is a lengthy process and landlords won’t be prepared to adjust the terms to a point that they are potentially disadvantaged.
- Does your existing head lease insist upon full repair and maintenance to be undertaken by the tenant? Subtenants will often insist upon limited obligations regarding repairs, but this could be unacceptable in the eyes of the landlord.
- Some landlords will insist that subleases must provide for rent reviews at the same time and terms as those with the head lease. Legacy head leases may also insist upon upward-only rent reviews, which may not be agreeable to subtenants, particularly if they only require the space for a brief period.
- Some head leases will enforce restrictions on property alterations, which could prevent subtenants from using the space how they’d like it.
In summary, subletting a commercial property is by no means a walk in the park. It requires plenty of thought, negotiation and planning. Specialist legal advice is highly recommended to put you firmly in the picture.
Those considering subletting a commercial property might even be better off securing a bespoke commercial property lease that works on their very own terms. At Pall Mall Estates, our property professionals provide the space for businesses of all shapes and sizes to thrive with flexible lease arrangements.
To discuss your firm’s specific commercial property requirements, please don’t hesitate to arrange an initial consultation with our experienced team today by calling 020 8023 5900 or dropping us a line via our online enquiry form.