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What is the Difference Between Sub-letting and Assigning a Commercial Lease?

26th November 2019

As a commercial property tenant, you have a number of options during your tenancy. Sub-letting and assigning a commercial lease are just two of them. Whilst often mentioned in the same breath, the two processes are very different, and tenants should be aware of these variations before taking the step that suits their specific requirements. 

As a leading commercial property estate agent serving landlords and tenants in Staffordshire, Cheshire and Shropshire, we help our clients cut through the legal jargon to understand and utilise the solutions that suit them. Here we shine the spotlight on sub-letting and assignment so you can have a clearer understanding and subsequently rent with confidence.

What is sub-letting?

A sub-let is arranged by the existing and original tenant, who (with the landlord’s approval) arranges for all or part of the commercial premises to be let to a third party. Sub-letting unlocks numerous benefits for the tenant, especially if they want to share the cost of renting a property. Even if the tenant chooses to sub-let however, they are still liable under the lease.

Another important difference between a sub-lease and assignment relates to the fact that normally the sub lease will be contracted outside of the ‘Landlord and Tenant Act 1954’, which removes the ‘security of tenure’ provisions from the sublease. This means that in the event that the head tenant vacates the building or ceases to trade the sub-tenant will lose their right of occupation and will be required to vacate as well. This is understandably slightly precarious from the subtenants point of view as the sub-tenant does not have the certainty of being able to remain in occupation indefinitely and depending on the head tenant’s circumstances may be required to vacate at short notice.

How is assignment different?

Assigning a commercial lease is the legal transfer of the lease to a third party. With assignment, the original tenant is not liable under the original lease, and responsibility is legally transferred as of the assignment date.

Unlike with sub-letting, when assigning a commercial lease, the original tenant does not share the property with the third party. This option is therefore more commonly used when a tenant has to sell their business and no longer has use for the commercial space they are legally bound to lease for the remaining period of their tenancy.

Do both options need a landlord’s consent?

Both sub-letting and assigning a commercial lease can only be done with the permission of the landlord or representing agent, a fact that will be stipulated in the lease itself. If the landlord objects to the sub-let or assignment, then they must do so on reasonable grounds. They are prohibited by law to withhold consent unreasonably. 

When assigning the commercial lease, a vetting procedure (complete with credit checks) will usually be completed prior to formalising the arrangement with the associated documentation.

Is sub-letting or assignment right for me?

Whether to sub-let your commercial property or assign a commercial lease depends entirely on your circumstances. As previously mentioned, sub-letting is beneficial for tenants who have additional space within the commercial premises that they do not use. By sub-letting this unused space, tenants can recoup vital running costs and even improve the viability of their own business. With sub-letting, the original tenant remains the tenant and as ‘head tenant’ you will have various responsibilities. 

A head tenant is essentially the landlord of the sub-tenant. The terms and conditions of the sub-let should therefore by formalised in writing with the landlord’s permission. 

Assigning your commercial lease to a third party is a better option if you wish to terminate your tenancy before your agreement comes to an end and vacate the premises completely. This may be necessary if you have had to sell or relocate your business. With an assignment, you will have no responsibilities as the original tenant from the date of assignment. All obligations as set out in your original tenancy agreement will be transferred to the new tenant or ‘assignee’. To formalise the transfer, all parties must agree and sign a transfer of lease and deed of consent.

For further information about sub-letting and assignment, please contact our dedicated team direct on 01782 715725. Alternatively, you can email enquiries@rorymack.co.uk to get in touch.