Subletting of Commercial Property

If you are a tenant of commercial premises and you are thinking of down-sizing, then you may want to consider subletting the whole of the premises or to stay in the premises and sublet the extra space.

In the first instance, this option is only available if your Landlord gives consent to do this. And where the existing lease does not contain a provision allowing you to sublet, you may be able to convince your landlord that this option will be in the best interests of all concerned. In either case, you will need to formally apply to the landlord for a licence to sublet.

A Landlord will want to consider some of the following issues:

  • Will the rent for the subletting be less than the rent paid by the Tenant under the existing lease? Is there is a provision in the lease that prevents the Tenant from subletting in this situation?
  • Will the sub-tenant be bound by the same strength of covenants that apply to the Tenant? Usually the covenants with the Tenant remain in situ, and the covenants with the subtenant are weaker. The Landlord could refuse consent on the basis of the covenant strength of a sub tenant (NCR LTD v Riverland Portfolio (No.1) Limited).
  • Is the sub-tenant likely to breach the lease covenants? The Landlord could withhold consent if it believes that the sub tenant will substantially breach the covenants.
  • What are the proposed clauses of the subletting? The Landlord is entitled to ask as much information as possible in relation to the subletting and is also entitled to see the subletting agreement itself. The Landlord can refuse consent if it is not satisfied with the terms of the subletting.
  • If the Landlord wants to refuse consent, are the grounds for refusal reasonable? If so, then all the grounds must be listed clearly in a formal written response to the Tenant.
  • If the Landlord refuses or delays giving the consent to a subletting, will this be in breach of its statutory duties and will it cause the Tenant loss as a result? If so, then it will be exposed to a potential damages claim by the Tenant.

Note: If you are a Tenant or a Landlord who is considering a request for subletting, then you are advised to seek legal advice to ensure that you make the right decision and the transaction is dealt with swiftly and smoothly without any hiccups.

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