Landlord Considerations When Agreeing to Sublet

The rise of online shopping, changing consumer preferences, and the economic challenges brought about by Covid have led to tenants increasingly requesting consent from Landlord's to sublet their commercial leases.

So, what should the Landlord consider when granting consent?

A lot will depend on the provisions agreed in the lease, and therefore careful thought needs to be given to this at the outset of negotiations, particularly if the lease is silent on this issue or expressly allows underletting without consent.

If this is the case, the tenant is free to underlet the commercial property in whole or in parts without the Landlord's consent, and the Landlord may find their hands tied by what has been agreed in the lease.

Although the tenant remains "on the hook" in an underletting, the strength of the undertenant's covenant is still an important consideration.

Suppose the head lease falls away for any reason (i.e., is forfeited due to breach or even insolvency) then the undertenant may obtain relief from forfeiture from the courts and have the right to remain in occupation.

The rent should not be lower (or higher) than the market rent as it could have a negative impact if the lease has open market rent reviews, and consideration should be given to disregard the sublease rent from the rent review. 

It is common for a lease to contain a covenant by the tenant to pay the Landlord's costs for granting a licence to underlet, and landlords should ensure an appropriate undertaking is obtained from the tenant's conveyancer at the outset to avoid any dispute arising.

If the tenant is allowed to underlet with the Landlord's consent, then the Landlord will be under a duty not to unreasonably withhold consent.