Premises - Can I Sub-Let?
Whether you can sublet depends on the wording of your lease. Longer leases e.g. over 5 years, are more likely to allow subletting than a short-term lease e.g. 3 years where the tenant is making less of a long-term commitment to the premises.
Finding out that your lease does permit subletting is just the start of the process which has many aspects, but here are the main things to think about and deal with:
1. Do you wish to sublet the whole of the premises?
In your case, the process has several factors that need to be dealt with because you are sub-letting part rather than the whole of the premises. Here are the main factors you need to think about and deal with:
What does sub-letting mean? – when you sublet, you are still responsible to your landlord for the payment of the rent under your lease. In addition, your lease will contain clauses to protect the landlord’s interest in the property such as an obligation to repair any damage caused. Your obligations under your own lease continue, even if you have allowed someone else into possession. That means that you need to make sure you have the right documents in place so that you can take action against the sub-tenant if they breach your own obligations.
This is particularly important when you are sub-letting part because if there is a breach of your own lease, even by the sub-tenant, the landlord can potentially terminate your own lease and take back possession and re-let your part of the premises.
Landlord’s consent – you will need your landlord’s permission to sublet and that permission will also include getting the landlords approval to the proposed sub-tenant. The landlord will want to make sure that the sub-tenant is of good financial standing and likely to be able to comply with their responsibilities in relation to the property. The landlord will therefore ask for references and will want to approve the form of sub-lease.
Landlord’s conditions – the lease almost certainly contains a number of conditions which must be met before subletting is allowed. This may include a condition that your own rent is up to date at the time of subletting, but there may also be conditions about the subletting itself e.g. that the rent under the sublease is that the current market rent or even that it is at at least the rent that you already pay. This may sound straight forward but if rental values go down then you simply may not be able to sublet at your own rent so you may need to have further negotiations with your landlord so see if this can be changed.
Length of sublease – if you have, say, a 5-year lease, then you obviously cannot grant the sub-tenant a lease longer than your own lease period. You may therefore wish to have the sub-tenant in for as long as possible, in which case it is usual for the sub-lease to be for the remaining period of your own lease less 5 or 10 days. However, you might only want to sublet the property for a shorter period e.g. because you think you may wish to take the premises back and expand your own operation in the future and, of course, the sub-tenant may themselves only want a short lease.
Contracting-out – most leases to business owners have statutory protection so that when the lease comes to an end, the tenant is entitled to a new lease and the landlord can only object on very limited grounds. However, it is possible to contract-out of this statutory protection and this will be particularly important if you do indeed think you may need to take back the premises in the future. Indeed, in your own lease contracting-out may be a condition of any subletting because the landlord, when your lease comes to an end, does not want to find they are then stuck with a sub-tenant.
Practicalities – if you currently have a lease of the whole building then it is possible that your building is not physically designed to sublet. That means you need to think about the practical changes you may need to make and these will also need to be reflected in the sublease. Issues to look at include:
How much are you going to sublet? Subletting one floor might sound easy but you need to be absolutely clear which area will be sublet and which will remain occupied by you under your own lease.
Car parking – if you are subletting part of the building, will that also include shared car parking? If so, will you distinctly separate or designate the particular car parking spaces available for the subtenant or will you and your staff share these with the subtenant and their staff? Remember that car parking is a fertile ground for arguments and disputes that can sore relations between yourself and the subtenant so the greater the clarity on this, the better.
Access – will the sub-tenant use the same access as you and, if so, is that practical? Once in the building, will the subtenant and their staff need to walk through your own areas to get to the sublet area?
Shared facilities – will the sublet area have its own facilities e.g. toilets, kitchen, etc., and any communal areas? If not, how will it work in practice?
Security - If so, does that bring any security concerns for either party, e.g. as a firm of solicitors, it would not be appropriate for us to allow a sub-tenant to have free accepter to confidential information. If not, you need to put in place and e.g. solicitors.
Utilities – is the proposed sublet area separately metered for electricity and any other external services? If not, is the subtenant expected to contribute to the cost or are you happy to include this in the rent? If you do wish to have the subtenant contribute, then you need to decide how this will be calculated. You could agree a fixed sum or you may install a sub-meter. However, there is obviously an expense to this.
Services within the building and repairs – are there services within the building that will be shared jointly with the subtenant e.g. air conditioning, lifts, grounds maintenance, maintenance for the building etc? If so, then, as with utilities, how will you deal with this in terms of a contribution by the subtenant?
Rates – again, will the subtenant’s area be separately rated or will they contribute to the rates (or will it be included in the rent)?
If, having considered all the above, you need to make changes to the premises then again you need to check your lease. Most leases contain a clause prohibiting any alterations without landlord’s consent. If you need to make any changes, e.g. installing petitions to create corridors, then you may well need landlord’s consent and you need to obtain it at the same time as you get consent to the subletting. Failure to do this will, at best, mean that you have to pay more landlord’s costs but could mean that the subletting is in jeopardy if the landlord will not agree.
3. Landlord’s costs
Your lease will provide that you pay all the landlord’s costs in relation to any request for consent under the lease. This will of course include request for consent to sublet and also possibly consent for alterations. The landlord’s costs can vary wildly depending on the landlord’s attitude, which solicitors, and whether the landlord uses an agent. However, as their costs are being paid by you, most landlord’s will not skimp on this and will expect their solicitor to do a proper job.
Further, because you are paying the landlord’s costs, the landlord’s solicitor will insist on a cost undertaking from your own solicitor before doing any work. This means you will have to lodge the expected landlord’s costs with your solicitor before anything happens, and, of course, the landlord’s costs are on top of any other legal costs you may incur yourself.
Check your lease
Think through the practicalities
Prepare a plan of what you will need
Approach the landlord