Sub-letting of part – the issues a landlord should take into account

9 November, 2018

What are the issues that need to be taken into account when a landlord is considering allowing a tenant to sub-let part of a property?

Firstly, they will need to consider whether they wish to allow sub-letting of part in the main head lease.  This will depend largely on whether the property itself lends itself to sub-letting of part.  For example, whether each tenant would be able to properly separate their part of the property.  The landlord may also want to consider restricting this to only allowing a certain extent of the property to be sub-let, for example, one room or one floor at a time.

If sub-letting of part of a property is going to be permitted by a landlord, they need to ensure that any sub-lease contains the appropriate provisions.  For example:

  1. Will there be shared parts such as toilets and reception areas?
  2. Will a service charge need to be put in place for maintenance of these shared parts?
  3. How much will each tenant be contributing towards the maintenance costs and insurance of the building?  Will it be a fixed percentage or calculated based on floor area?
  4. If there is a break right in the head lease, this will need to be incorporated into the sub-lease to allow at least the head landlord to terminate the sub-lease at the same time when they can break the head lease.
  5. If there is provision for rent review in the head lease, how will the rent review be calculated in the sub-lettings?  Will it be adjusted in the same proportion as that of the head lease, or calculated separately?

It becomes even more complicated when further sub-lettings are permitted, especially if further sub-lettings of part are permitted.  The lease terms need to be carefully considered to ensure that each level of sub-letting reflects the terms of the superior leases where appropriate, but also contain bespoke provisions particular to the extent of the property that particular sub-tenant will be occupying.  For example, it may not be appropriate for all sub-tenants at all levels to have the same rights.  If it is of a very small area, such as one room in an office block, it may not be appropriate to allow that sub-tenant to have signage outside the building and the landlord may wish to restrict this to the larger tenants within the building.

It is also important to carefully consider the term of each sub-letting.  To avoid a sub-letting being deemed to be an assignment of the head lease, sub-lettings should always exclude security of tenure rights and specify the date on which the term comes to an end, being at least a few days before the end of the head lease.

These are just a few examples of the situations that need to be taken into account and the terms that need to be agreed between the parties when considering allowing sub-letting of part.  Each building will have different factors that will be a concern and it is important these are thought through carefully to guarantee that sub-lettings at all levels contain the most suitable terms for that property and the parties.