A tenant can often sublet the whole premises under a commercial lease, but the right to do so comes from the lease rather than from simply holding the keys. This guide explains subletting a commercial lease, alienation clauses, landlord consent under the Landlord and Tenant Act 1988, underleases and the continuing liability that catches so many business tenants out.
Yes, a tenant can sublet the whole premises if the commercial lease permits underletting and any required conditions are satisfied. Most modern leases regulate subletting through an alienation clause and may require the landlord's prior written consent. The tenant should therefore check the headlease before negotiating or granting an underlease.
If you are reading this, the chances are you have signed a commercial lease and something has changed. Perhaps the business has outgrown the premises, perhaps it has shrunk, or perhaps you are consolidating two sites into one. You do not want to walk away from the lease, and you cannot always negotiate a surrender. Subletting the whole premises can look like an obvious answer.
It often is. But it comes with a catch that surprises a lot of otherwise well-advised tenants. When you sublet, the original lease does not disappear and neither do your obligations under it. You become the head tenant, and you remain on the hook for rent and compliance with the headlease even after someone else has moved in.
In our experience acting for tenants and landlords across England and Wales, the commercial pressure usually comes from one direction and the legal risk from another. The practical question is rarely "can I sublet?" It is "on what terms, with whose consent, and what happens if the undertenant defaults?" Those are the questions this guide answers.
GOV.UK confirms that whether commercial premises can be sublet depends on the lease and that landlord permission will be required where the lease makes this necessary. Where the tenant sublets, GOV.UK also warns that the tenant remains responsible for paying rent to its landlord even if the subtenant does not pay.
If you are dealing with the wider picture of leaving premises and want to understand every route available, our guide to commercial lease exit options sets out subletting alongside assignment, break clauses and surrender so you can compare them properly.
Subletting the whole premises means the existing tenant grants another business a new lease of all the property included in its own lease. The original tenant remains the tenant under the headlease, while the incoming occupier becomes the undertenant and pays rent to the original tenant under the new underlease.
How the structure works
Property owner / landlord
Headlease
Existing tenant / head tenant
Underlease
Undertenant / subtenant
A practical example. ABC Ltd has eight years remaining on a warehouse lease but relocates its operations to a larger site. Instead of surrendering the warehouse, ABC Ltd seeks the landlord's consent to grant XYZ Ltd an underlease. XYZ Ltd occupies the warehouse and pays rent to ABC Ltd. ABC Ltd still owes its headlease rent to the landlord, whatever happens next.
The tenant should check the alienation provisions of the commercial lease before agreeing terms with a proposed undertenant. These provisions regulate assignment, underletting and other dealings with the premises and may prohibit underletting altogether, permit only whole-premises underletting, or allow it subject to landlord consent and detailed conditions.
The clause may say any of the following:
Do not assume that because assignment is permitted, subletting is also permitted. They are legally different transactions and frequently treated differently in the same clause.
Our page on assignment and subletting negotiations explains how these provisions are negotiated from the outset, which matters even if you do not plan to sublet on day one.
If the headlease requires landlord consent before underletting, the tenant should obtain that consent before granting the underlease or allowing the proposed undertenant into occupation. Consent is commonly documented by a Licence to Underlet involving the landlord, existing tenant and, depending on the transaction, the proposed undertenant.
Proceeding without required consent puts you in breach of covenant. That can expose you to enforcement action under the headlease, and it can be far harder to unpick after the undertenant has moved in and started trading.
Where a lease contains a qualified covenant against underletting, meaning underletting requires consent but consent cannot be unreasonably withheld, the Landlord and Tenant Act 1988 imposes important duties on the landlord. Whether refusal is reasonable depends on the lease, the proposed transaction and the particular facts.
Following a proper written application, the 1988 Act can require the landlord to do all of the following:
The legislation also places the burden on the landlord in specified circumstances to establish that refusal, conditions or timing were reasonable. You can read the Landlord and Tenant Act 1988 on legislation.gov.uk for the exact wording. This is one reason why a consent application should be properly prepared and submitted in writing rather than agreed informally over the phone.
A landlord considering an underletting application will usually want enough information to assess the proposed undertenant and confirm that the transaction complies with the headlease. The precise requirements depend on the lease and circumstances, but financial information and details of the proposed underlease are commonly relevant.
In practice, the application often includes:
Proposed undertenant's full company details and Companies House information
Recent accounts and management accounts
Bank or professional references
Proposed use of the property
Draft Heads of Terms
Proposed underlease rent and term
Details of any guarantor
Other evidence reasonably required under the lease
A clear, complete application at the outset reduces avoidable delays. If you want support preparing and submitting that application, see our landlord consent application service.
Yes. Subletting normally does not release the original tenant from its obligations under the headlease. The head tenant remains responsible to its landlord for rent and other lease covenants even if the undertenant fails to pay its rent, becomes insolvent or breaches the terms of the underlease.
This is probably the most important commercial risk in the whole transaction, and it is the one tenants most often misunderstand.
Worked example
Headlease rent:
£60,000 per year
Underlease rent:
£60,000 per year
The undertenant stops paying after six months. The head tenant cannot normally tell the landlord that the undertenant has stopped paying, so it will stop paying too. The head tenant's obligation under the headlease continues regardless.
GOV.UK expressly warns that where a tenant sublets, it remains responsible for paying rent to its landlord even if the subtenant does not pay. For more context on what that means when a lease is ending, see Ending a commercial property lease early on GOV.UK.
In practical terms, this is why we treat the financial standing of the proposed undertenant as a commercial question and not a box-ticking exercise. If you are subletting, you are effectively taking on a degree of credit risk in relation to a business you do not control. Our guide to commercial lease advice for tenants covers how to manage that exposure.
The underlease must be drafted consistently with the headlease and any conditions imposed by the landlord's consent. The head tenant should avoid giving the undertenant greater rights than it possesses itself and should ensure that relevant headlease obligations are appropriately reflected in the underlease.
| Issue | What needs checking? |
|---|---|
| Term | Must fit within the headlease term |
| Rent | Must comply with headlease requirements |
| Permitted use | Must not conflict with the headlease |
| Repairs | Should reflect relevant obligations |
| Alterations | Must respect superior restrictions |
| Insurance | Must work with headlease arrangements |
| Assignment | Usually tightly controlled |
| Further underletting | Often prohibited |
| Access rights | Cannot exceed rights available under the headlease |
| Services | Must reflect rights under the headlease |
| 1954 Act | Security of tenure must be considered |
The underlease and Licence to Underlet should therefore be considered alongside the headlease, not drafted in isolation. If you need help getting the drafting right, our commercial subletting agreements team can prepare and negotiate the documents.
An underlease must not purport to continue beyond the interest from which it is granted. Commercial headleases also commonly require an underlease to expire before the headlease itself ends. The precise permitted term should therefore be checked carefully against the alienation provisions before Heads of Terms are agreed.
For example, if the headlease expires on 31 December 2032, you should not simply agree an underlease ending after that date. The headlease may also require the underlease to end a specified period before the headlease expiry. Our Heads of Terms page explains where these terms are usually first agreed.
Not necessarily. The headlease may regulate the rent at which an underlease can be granted, so the alienation clause should be checked before agreeing financial terms with an undertenant. The parties should also consider the current statutory rules affecting commercial rent arrangements and obtain valuation advice where appropriate.
The tenant should not agree the underlease rent first and investigate the headlease afterwards. A safer sequence is:
On rent levels generally, the RICS Code for Leasing Business Premises remains a useful reference point for what the market regards as fair and transparent.
A commercial underlease may qualify for security of tenure under Part II of the Landlord and Tenant Act 1954 where the statutory requirements are satisfied. This can potentially give an undertenant renewal rights when the contractual term ends unless the tenancy has been validly contracted out before it is granted.
This point deserves particular care, and it is where we see the most costly mistakes.
Many headleases require an underlease to be contracted out of sections 24 to 28 of the Landlord and Tenant Act 1954. Contracting out is not achieved simply by adding a sentence to the underlease. Section 38A and the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 establish a formal procedure involving a prescribed warning notice and the tenant's declaration before the tenancy is entered into. You can review section 38A of the Landlord and Tenant Act 1954 in full on legislation.gov.uk.
A landlord may require an underlease to be contracted out so that the undertenant does not acquire statutory renewal rights that could complicate recovery of the premises when the headlease approaches expiry. Whether contracting out is required should be checked in the headlease and dealt with correctly before the underlease is completed.
The logic is straightforward. If the head tenant's lease ends but the undertenant claims statutory rights, you can find yourself with an occupier who has a right to stay in premises you no longer control. That is an obvious problem for the landlord, and it is usually a problem for the head tenant too.
GOV.UK also warns that contracting out removes the tenant's statutory renewal right, so the warning notice procedure is not a formality. It is designed to make sure the undertenant understands what it is giving up.
Our Landlord and Tenant Act 1954 security of tenure service covers renewals, contracting out and the notices that make the process valid.
A Licence to Underlet is a formal document recording the landlord's consent to the proposed underletting where consent is required. It commonly sets out conditions governing the transaction and confirms that granting the underlease does not release the existing tenant from its continuing obligations under the headlease.
The parties commonly include the landlord, the existing tenant and the proposed undertenant. There may also be superior landlords, lenders or other parties whose consent is required, so the transaction can involve more than just the immediate landlord and tenant.
Possibly. A mortgage or restriction affecting the landlord's title may require lender consent to certain lease transactions. The title and superior documents should therefore be reviewed where appropriate rather than assuming that consent from the immediate landlord is the only approval needed.
This matters particularly where the property is mortgaged, the landlord itself holds a lease, there is a superior landlord, or Land Registry restrictions apply. Our guide to commercial lease title due diligence explains what these investigations usually reveal.
Subletting creates a new landlord and tenant relationship beneath the existing lease, while assignment transfers the existing tenant's lease to another party. With subletting, the original tenant remains the head tenant. With assignment, the incoming assignee becomes the tenant under the existing lease, subject to the applicable legal arrangements.
| Subletting | Assignment |
|---|---|
| Creates a new underlease | Transfers the existing lease |
| Original tenant remains head tenant | Assignee becomes the tenant |
| Head tenant collects underlease rent | Assignee pays the landlord |
| Headlease continues | The same lease transfers |
| Head tenant remains directly liable | Position depends on the assignment arrangements |
| Undertenant occupies below the headlease | Assignee occupies under the original lease |
The right choice depends on what the business is trying to achieve. Our assignment vs subletting guide walks through the assignment route in detail if you are weighing up the two.
Subletting can reduce the financial burden of unwanted premises, but it does not remove the head tenant's responsibilities. The principal risks include undertenant default, breaches of the headlease, inappropriate underlease terms, consent problems and complications concerning security of tenure or the end of the headlease.
1. Does my lease permit underletting of the whole?
2. Is underletting of part prohibited?
3. Do I need landlord consent?
4. Are there conditions governing consent?
5. Does the landlord require financial information?
6. What rent may I charge?
7. How long can the underlease last?
8. Is the proposed use permitted?
9. Must the underlease be contracted out of the 1954 Act?
10. Who will repair the property?
11. Who pays service charges?
12. Who pays insurance contributions?
13. Can the undertenant make alterations?
14. Can the undertenant assign?
15. Is further subletting prohibited?
16. What happens if the undertenant stops paying?
17. What happens if the undertenant becomes insolvent?
18. Are lender or superior landlord consents required?
19. Who pays the landlord's legal and surveyor costs?
20. What happens when the headlease ends?
Subletting and surrender achieve different outcomes. Subletting keeps the headlease alive and leaves the original tenant responsible to its landlord, whereas an agreed surrender ends the lease and releases the property back to the landlord on negotiated terms. The better commercial route depends on the lease, the market and the landlord's position.
A tenant should therefore consider all available exit strategies, which may include subletting, assignment, exercising a break clause, a negotiated surrender or simply remaining in occupation.
If you are leaning towards ending the lease rather than subletting, our surrender negotiations page explains how the terms are usually agreed. If insolvency is the underlying concern, our lease insolvency advice covers what changes when a tenant or undertenant fails.
Whichever route you take, the earlier you identify the problem the more options remain open. Once a default has occurred, the landlord's remedies tend to narrow the choices considerably.
More general questions are answered in our commercial lease FAQs.
Yes, potentially. But the right to do so comes from the lease and the applicable law, not simply from the tenant having possession of the property.
The first step should always be to review the alienation clause. You then need to work through landlord consent, the proposed undertenant, underlease terms, rent, permitted use, repairs, insurance, the remaining headlease term and security of tenure under the Landlord and Tenant Act 1954.
Most importantly, remember that subletting does not normally release the head tenant from its existing lease. If the undertenant fails to pay, the head tenant still has a landlord expecting rent. That makes the financial strength of the proposed undertenant and the quality of the underlease particularly important.
If you take one thing from this guide, let it be the sequence. Check the lease, understand the consent position, assess the undertenant, then commit. Doing that in the right order costs very little. Doing it in the wrong order is how businesses end up paying rent on premises they no longer use and cannot control.
If you are new to commercial leases altogether, our first commercial lease checklist is a useful starting point, and our commercial lease solicitors hub brings the full range of services together in one place.
Underleases and Licences to Underlet drafted to fit the headlease.
Negotiating alienation provisions that keep your options open.
How assignment differs and when it is the better route.
Preparing a written application that the landlord cannot easily refuse.
Security of tenure, renewals and contracting out explained.
Subletting, assignment, break clauses and surrender compared.
Our commercial lease solicitors can assist landlords, tenants and undertenants with commercial lease subletting, underleases, Licences to Underlet, landlord consent applications, alienation clauses, Landlord and Tenant Act 1988 issues, contracting out of the Landlord and Tenant Act 1954, assignment of commercial leases, commercial lease surrender, Heads of Terms, lease reviews and exit strategies.
Contact Commercial Lease Specialists before agreeing a commercial subletting, so that the headlease, landlord consent requirements and proposed underlease can be reviewed before you become legally committed.