What is a licence to sublet?
This is best shown by way of the following example.
A landlord owns commercial premises and their tenant is leasing the premises for 12 years. In year 6 of the lease, the tenant decides they want to sublet the business premises because they want to slim down their business activities, take a break or sublet for a higher rent than the landlord’s rent.
The tenant decides to sublet for a part of the term of years left on the lease and now becomes the ‘sub-lessor’. To be able to do this, the outgoing tenant must get formal consent from the landlord in the form of a Licence to sublet. This is signed by the landlord, the outgoing tenant and the incoming tenant.
The head landlord remains safe as the new tenant (the 'sub-lessee') is liable to the outgoing tenant (the 'sub-lessor') and the outgoing tenant remains liable to the head landlord.
Before agreeing to sublet
First, you should get details of the proposed new tenant. Ask for references, such as bank details, trade and get professional and character references.
The old tenant may consider asking for additional security from the new tenant, such as a guarantee or a deposit under a Rent deposit deed. This is a sum of money held as added security for the payment of rent and performance of obligations under the lease.
The new tenant may wish to alter the premises to suit their own business. A licence to alter and/or a licence to change the use of the premises may also be required.
A licence to change the use of the premises may be subject to planning permission.
Final checklist for a licence to sublet
You should consider the following:
- check that the lease will allow a tenant to sublet the property
- the old tenant can ask the new tenant for additional security ie rent deposit, guarantor, bank guarantee
- would it be better for the tenant to assign rather than sublet?
- is a change of use proposed and will a licence to change use be required?
- do you need to make provisions for shared parts?
- do you need a licence to alter?
Guidance for landlords in Scotland
With your consent, your tenant can sublet the property for the full unexpired period of the lease. If the head lease is terminated before it is due to expire, the sublease will automatically end.
In most cases, the new tenant will have no direct relationship with you. The old tenant will have responsibility for any breaches of the lease by the new tenant.