Subletting strategies: maximising flexibility in commercial leases

What is subletting?

Subletting, also sometimes referred to as subleasing or underletting, is the practice by which a tenant who has an existing lease on a commercial property creates another lease which operates below their existing lease.

The ability to sublet is contingent on the wording of the original lease between the landlord and tenant, but provided subletting is not prohibited, the tenant may sublet the entirety, or just part of, the property to a “subletter” (or “subtenant”).

For example, a tenant leasing three floors of office space from a landlord may wish to sublet just one of those floors. The wording of the lease should be checked carefully to ensure that sub-letting of part is permitted.

In some cases subletting may be permitted under the original lease, provided landlord consent is granted first. It is important to always check the wording of your lease, as this can vary from case to case.

Furthermore, it is sometimes possible for a subtenant to sublet the entirety, or part of, the property they are subleasing to another subletter. The practice of subletting an existing sublet is sometimes referred to as sub-underletting. 

Benefits of subletting

Subletting can offer benefits to landlords, tenants, and subtenants. This is in part due to the flexible nature of sublets, which allows them to be used as problem solving tools for those locked in to long term leases.

For landlords, having their tenant sublet the property ensures the tenant is receiving an additional income stream. This is beneficial to a landlord as it increases the likelihood of rent being paid on time and in full. Furthermore, if a tenant is not occupying the property, a sublet will ensure the property is still in use. This may be of benefit to landlords who own neighbouring properties or units, for example, in a shopping centre or on a high street. 

Tenants can benefit greatly from the flexibility offered by subletting. Say, for example, a tenant’s business is doing extremely well, and due to this, they decide they want a larger premises. In this scenario, a sublet allows the tenant to retain its interest in the original property, meaning they could move back to the property again in the future if necessary.

By a similar token, sometimes business go through hard times, and need to downsize. Subletting in this case would allow a tenant to move to smaller premises with the possibility of returning to the original property when business picks back up, or to sublet just the part of the property they are no longer using due to the contraction in size of their business. 

In addition to this, if a tenant is leasing a large enough property, they may wish to portion it up and sublet it to several different subtenants, as a way of generating a fresh income stream, but it is important to make sure that the lease allows the sub-letting of multiple different parts in this way.

Subtenants see a benefit from subletting in the form of reduced risk. A sublet will generally be a shorter term lease than if they were entering into a traditional commercial lease, meaning smaller, and perhaps newer, businesses will be taking on less risk when they enter into a sublet.

Considerations

Subletting offers a myriad of benefits, as detailed above, but also comes with several considerations that must not be ignored.

First and foremost, subletting introduces additional parties into the pre-existing landlord/tenant relationship, which can add an additional and unavoidable layer of complication. Additionally, the following should be considered:

• From a landlords perspective, should a breach of a sublease occur, they would have to approach the tenant rather than the subtenant in order to address the breach.
   
• For tenants, not only will they now have the additional task of collecting rent from their subtenant, they could also be liable for any breaches committed by the subtenant.
   
• For subtenants, they are susceptible to feel the brunt of any missteps made by the tenant or the landlord, anything the brings the original lease to an end would have a knock on effect of also ending the sublease.

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