Guide to our Licence to Sub-Let Template

Posted by David Cammack on 14th May 2015

Our Licence to Sub-Let template is for use by the tenant with leased commercial premises to sub-let the complete premises to a sub-tenant. This licence incorporates various options, so it is appropriate where:
1. there was or was not someone guaranteeing the tenant’s obligations under the original lease; or
2. there is or is not an option to renew the sub-lease on expiry (called “security of tenure”).

A brief guide on security of tenure (including the prescribed form of words for contracting out of the right for the tenant to apply for a new lease on expiry under the Landlord & Tenant Act 1954) is included in the guide to the Licence to Sub-Let Template, which is available on this Legalo website.

Along with the Licence to Sub-Let (which gives you the permission from the landlord), you will need a Sub-Lease Agreement (which effects the sub-letting).

Clauses in this Licence

Date – Insert just the year at this stage. Handwrite the rest of the date in the licence once all the parties have signed it.

Party clauses – You will need to insert the names and addresses of party 1 (the landlord), party 2 (the tenant) and party 4 (the sub-tenant). If there was a guarantor of the tenant’s obligations in the original lease, then insert the name and address as party 3, otherwise delete party 3.

Background

(B) Delete this paragraph if there was no guarantor of the original lease.

Numbered clauses of this Licence

1. Interpretation – This clause defines the main terms used in the licence.

  • Guarantee – this should either define the Guarantee as “the Lease” if the guarantor was a party to the lease and there was no other separate guarantee document, or please set out details to identify the guarantee (you can follow the format used in the definition of “the Lease”). If there was no guarantor of the lease, delete this whole definition.
  • Lease – the details need completing.
  • Property – insert the name of the property, preferably with full postal address. If it is only part of a building, make it clear which part/parts. If you are adding a plan of the premises to make it clearer which areas are being let, then also add the words “which is shown for identification only as the area outlined in red on the plan attached to this agreement”.
  • LTA 1954 – delete this whole definition if security of tenure has been given under the lease and is now also being given under the sub-lease. See the note on clause 5 below.

2. Consent – This clause provides the landlord’s necessary consent for the tenant to sub-let the property.

3. Terms of Sub-Lease – This clause sets out some basic provisions that must feature in the sub-lease when granted (in order to protect the landlord’s rights). In clause 3.3, if the term of the sub-lease is for more than 7 years, then it needs to be registered at the Land Registry – the tenant is the one who should register it. If the term is for less, then all of clause 3.3 should be deleted.

4. Obligations – This sets out some basic requirements the landlord imposes in return for his consent. Complete in the amount in clause 4.2.2 that the landlord will charge for noting the sub-lease has been granted – this is usually a fairly low sum. NB this is separate from the main costs the landlord will charge under clause 6 below, which will be more substantial. Clause 4.5 refers to the right of the landlord to collect the rent direct from the sub-tenant in the event that the tenant becomes insolvent.

5. Exclusion of security of tenure – A right of the sub-tenant (who occupies the property for the purposes of its business) to apply to continue the sub-lease on similar terms when the sub-lease expires is granted by the Landlord and Tenant Act 1954 (sections 24 to 28). To qualify, such a sub-lease must be for a term of a minimum of 1 year and for a set fixed term (with or without a break clause). Almost all commercial leases these days exclude the right. If the lease is contracted out of the 1954 Act, then the sub-lease should also be contracted out. Even if the lease is not contracted out, the tenant or the landlord may want sub-leases to be contracted out. If either of them does not want to offer the sub-tenant such a right to apply to continue the sub-lease, then the correct procedure must be followed under the 1954 Act to contract out of it. If it is not followed exactly and precisely, then the sub-tenant will still have the right to apply to continue the sub-lease. (For further information, see the guide which accompanies the Sub-Lease Agreement Template – click the link.) This area of the law is technical and you should seek independent legal advice on this to ensure the correct procedure is carefully followed to the letter. If security of tenure is being offered for the sub-lease, then delete all of this clause.

6. Landlord’s costs – this clause presumes that the tenant is paying the landlord’s legal and other costs of issuing this licence. Choose if they are to be VAT inclusive or VAT exclusive.

7. Re-entry in the Lease – A landlord can forfeit (i.e. cancel) the lease for a tenant’s breach of covenant if the right is expressly stated in it. If the lease has such a right in it, then this clause also enables the landlord to forfeit the lease if there are any breaches of this licence. Without this provision, the landlord could only claim damages for such a breach. Commonly a lease will provide for forfeiture in the event only of material breach, so that minor breaches will not trigger forfeiture – this is not stated in this licence.

8. Indemnity – The tenant and sub-tenant are both responsible to the landlord if there is a breach of this licence.

9. Tenant’s Guarantor – If there was no guarantor of the lease, delete this whole clause.