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When you sublease (also known as sublet) your commercial premise to another business, that business is renting part or all of your leased space off of you. Your original tenancy agreement continues under this arrangement. You now become a landlord to this subtenant business. However, it may be unclear how you should go about finding and securing a subtenant. This article will detail the four steps you should follow when subletting your leased commercial property. 

1 – Look at Your Lease

The first step you should take in subletting your premises is to check whether you can sublease. You can do this by looking through your tenancy agreement. Your tenancy agreement will likely contain a provision that allows or prohibits subletting. If your lease agreement does prohibit subletting, you may be able to negotiate terms to a sublease that your landlord will agree to. However, if you sublease your premises despite a clause prohibiting subletting, you may be fined or risk eviction from the property. 

2 – Talk to Your Landlord

Once you have looked through your tenancy agreement, you should approach your landlord about subletting. Most lease agreements require tenants to get their landlord’s consent before advancing with a sublease. Suppose your potential subtenant intends to use the premises for a different purpose than your business. Then you will also have to obtain consent to this use from your landlord. Your landlord is not entitled to unreasonably withhold their consent to the sublease or intended subtenant. However, your landlord is entitled to set out certain, reasonable conditions that must be met before they provide their consent to the sublease.

For example, your landlord may have to meet any potential subtenants and ensure that they can meet all of the tenancy obligations. 

3 – The Subletting Arrangement

After getting permission from your landlord to sublease your leased premises, you will need to think over the logistics of your subleasing arranging with your potential subtenant. These considerations will help you pick a suitable subtenant and confirm that you are interested in subletting your premises. 

Sharing Space

You will need to think about how you are going to share your leased premises with your subtenant. Under a subleasing arrangement, you can rent out part of the space and continue to operate out of the same property or sublease the entire commercial space. 

If you are going to share the space, you will need to make sure that your business and the subtenant can work effectively alongside each other. Are your businesses compatible? Will there be enough space for your staff and the employees of the subtenant’s business? If you decide to sublease the entire premises, can your business operate remotely or from a different location? 

Sharing Costs

If you decide to share the commercial premises with your subtenant, you will also have to think about how you will distribute the cost of rent and your other outgoings, such as insurance and utilities. It is common practice for subtenants to pay a portion of the rent that resembles the amount of space they are subletting. 

For example, if your subtenant will sublease 60% of your premises, they should pay 60% of your rent and outgoings. 

However, you may wish to use a different measure for the cost of utilities. Your subtenant may only use 20% of your leased premises but operate a business that uses large amounts of electricity and water. You may want to inquire about the cost of all potential subtenant’s utilities by asking for prior bills or meter measures to grasp how you should split costs.

Your Obligations

Once you have sublet your premises, your original lease agreement still remains. You maintain your obligations as a tenant and take on obligations as a sublandlord to your subtenant. Under this arrangement, you will be required to:

  • pay any rent or outgoings to your landlord that your subtenant fails to make;
  • repair or pay for any damage caused to the premises by your subtenant; 
  • obtain your landlord’s consent for any matters undertaken by your subtenant. For example, if your subtenant wants to make alterations to the premises, you will have to get permission from your landlord; and
  • ensure that the subtenant’s rights under their lease agreement are upheld. 

Before you enter into a sublease agreement, it is crucial that you are aware of all of the obligations you will be taking on. These obligations can be partially relieved by a reliable subtenant.

You should carry out comprehensive due diligence on all potential subtenants to ensure that they will pay their rent on time and uphold their tenancy obligations. 

4 – The Deed of Sublease

Once you have decided upon your distribution of costs and the leased space and found a suitable subtenant, you are ready to draw up a deed of sublease. This document will govern the legal relationship between you, your landlord and your subtenant. This deed should include:

  • the area of the commercial property that the subtenant is subletting;
  • the distribution of rent and outgoings;
  • what the term of the sublease is. This period should expire before termination of your lease; 
  • your master lease, or the original lease agreement. Your subtenant will usually take on the same obligations that you have under your lease. However, if the subtenant is subject to any new provisions, you should clearly outline these obligations in the deed;
  • the subtenant’s use of the premises. This detail only has to be included if their use differs from your business’s; and
  • your landlord’s and subtenant’s signatures. 

Key Takeaways

As a commercial tenant, you may wish to sublease part of or all of your leased premises. It is important that you go about the appropriate subletting process to ensure that you are not breaching your tenancy agreement. If you do wish to sublease, you should:

  • make sure that your lease agreement does not contain a provision that prohibits subletting;
  • secure your landlord’s consent; 
  • think through your subletting arrangement, such as how you will share the leased premises and what portion of costs that the subtenant will pay for; and
  • enter into a deed of sublease. 

If you want assistance with subleasing your commercial property, contact LegalVision’s property and leasing lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions 

What is a commercial sublease?

A commercial sublease is when a business allows another business to move into their leased premises for a fixed period. Under this arrangement, the original tenancy still continues, and the tenant becomes a landlord to the subtenant. 

What should a commercial sublease agreement include?

A commercial deed of sublease should include the: area of the commercial property that the subtenant is subletting, distribution of rent and outgoings, term of the sublease, original lease agreement, subtenant’s use of the premises and landlord’s and subtenant’s signatures. 

Can you sublet commercial property?

Most commercial tenants are able to sublease their commercial premises. However, it is best practice to consult your tenancy agreement and speak to your landlord before doing so.

Do you need permission to sublease?

Most commercial tenants will need permission from their landlord before they enter into a subleasing arrangement. It is crucial that you obtain your landlord’s consent to the sublease to ensure you are not breaching your tenancy agreement.

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