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Lease Overview: Selling/Sub-letting

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Part 10 – Selling / Sub-letting

Alienation is the formal term for the ability of the tenant to deal with the lease, whether by selling it on to a new tenant, commonly known as assignment, or by granting a sub-lease to their own sub-tenant.  If there are no break options, alienation can be only way, short of surrendering the lease, that a tenant can get legitimately out of the lease. 

Assigning the lease is the most common exit route for tenants and is generally permitted by most commercial leases; expect perhaps those for short terms.  It will always be subject to the landlord’s consent, which is only granted on certain conditions, not least that all their fees must be paid by the tenant.  A landlord will be entitled to ask for references from the incoming tenant, as well as rent deposits and/or personal guarantors if they feel security is needed.  In virtually every case, the outgoing tenant will be required to guarantee the performance of the incoming tenant under an Authorised Guarantee Agreement.  This guarantee will mean that the outgoing tenant retains a liability even after they have moved out and ultimately they might have to take the lease back if the new tenant fails. 

Sub-letting is less common as it is not always permitted by landlords.  If a tenant sub-lets the property, they remain wholly liable under the original lease, which becomes known as the head lease, so even if their sub-tenant doesn’t pay them the rent, they are still obliged to pay the landlord.  The terms of the sub-lease will have to be approved by the landlord and can be no less onerous than those of the head lease.  Specifically, the rent cannot be lower in the sub-lease than in the head lease as otherwise this could give rise to difficulties on a rent review in the head lease. 

In this series of articles, we are aiming to give you a brief overview of the principal areas covered by a commercial lease.  These articles are for guidance only and do not represent legal advice.  If you need advice or assistance on leases or any other property concern, please do not hesitate to contact Andrew Rannie, Head of the Property Department for a free initial consultation.