Subleases of commercial property – when the end may not be the end

Although there is a general rule that when a lease expires or is terminated, a landlord cannot be bound by a sublease, landlords should be aware that there are some situations in which they could be subject to a sublease unlawfully granted by a tenant in breach of the terms of the head lease.

 

The Application of the Landlord and Tenant Act 1954:

 

If a subtenant can demonstrate that they had a valid business tenancy at the time of termination or expiry of the head lease, the Act can operate to extend the sublease. This leaves the landlord with the following options:-

 

  • Claim against the former head tenant for breach of the alienation covenant in the head lease.
  • Claim against the subtenant for an injunction requiring them to surrender their tenancy – this has been particularly effective in cases where a subtenant accepts a sublease that they know is in breach of the head lease.
  • Terminate the unlawful sublease and oppose any application for a new tenancy under the Act where it satisfies one of the limited grounds of opposition.

     

Survival of Surrender:

 

Following surrender of a head lease, the head lease is treated as continuing solely for the purpose of preserving the sublease. This will in effect create a direct landlord and tenant relationship with a subtenant.

 

Relief from Forfeiture:

 

If a head lease is forfeited by the landlord, an unlawful sub-tenant can apply for relief from forfeiture. If successful, a new lease will be granted in favour of the subtenant. The terms of that new lease are entirely at the discretion of the court, but there is comfort to be found in the fact that relief is granted sparingly because it unfairly creates a contract between the landlord and a sub-tenant whom they may never have accepted as a tenant in normal circumstances.

 

In order to avoid being stuck with an unintended tenant, it is always wise for a landlord to ensure they are aware of who is occupying their property and on what basis throughout the duration of the term so that issues do not arise on determination.
For legal advice on leasing or subleasing a commercial property please contact us or call 01453 832566.

 

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