It is common for leases of commercial premises to restrict the terms on which a tenant can sub-let the premises to a third party and to include in such restrictions an express stipulation that the sub-letting must be at no less than the greater of the open market rent or the then passing rent.
The punitive effect of these restrictions became only too clear during the early 1990's when commercial rents declined significantly.
A recent Court of Appeal case presents a major headache for tenants seeking to off-load overrented premises by a sub-letting below passing rent levels, where the tenant's Lease contained a restriction on sub-letting in these terms.
What that case has decided is that a landlord can lawfully refuse to give consent to a sub-letting in these circumstances. To add insult to injury it has further decided that it is not permissible for the tenant to side-step these restrictions by using side agreements.
The temptation for the tenant in these circumstances trying to obtain an income from an overrented property he no longer nee for his own trade is to go underground and arrange secret deals with sub-tenants so as to obtain consent to the sub-letting without disclosing the concessions given.
The risks of this course of action include:-
a risk that the Landlord will issue an injunction to force a surrender of the sub-lease when he discovers the true nature of the deal
a solicitor and surveyor may be professionally embarrassed if false information is given in respect of an application to sub-let
Tenants and sub-tenants in such a situation should take professional advice before yielding to the temptations of going underground.
When considering and negotiating the provisions of a new Lease, tenants' advisers should resist such restrictions where sub-letting is to be permitted and, by the same token, sub-tenant's advisers should check the provisions of the Superior Lease to establish if such restrictions exist.
