Commercial Subleases Explained & FREE Agreement Template

Confused by how to create a commercial sublease agreement? 

Don’t worry; many commercial landlords and tenants are at a loss for where to begin and are tempted to employ expensive legal services to draft a contract which needn’t be so complicated.

In fact, you can use this commercial sublease agreement template (UK) to help you draft a flexible lease that suits a variety of real-world uses. 

Keep reading to find out what a commercial sublease agreement is, how it works, when to use one – and much, much more. 

Free Commercial Sublease Agreement Template UK

What is a commercial sublease agreement? 

A sublease is an agreement between a landlord and tenant to allow the tenant to sublet the property to subtenants. This agreement applies to the residential and commercial sectors, but the commercial sublease is slightly more complex. You might hear the tenant called a ‘sublessor’ and the subtenant called a ‘sublessee’.  

These are the parties involved: 

  • Landlord: The owner of the property who entered into the original lease agreement with the tenant. 
  • Tenant (Sublessor): The party currently leasing the property who subleases it to another party. 
  • Subtenant (Sublessee): The new tenant who occupies the property under the sublease agreement. 

Why use a commercial sublease agreement in the first place? 

There are many reasons. You might want to receive income on unused commercial space, you might want to trial a new business idea without committing to the terms of a formal lease, or simply fill a vacancy period so you don’t lose money. 

The many reasons people require a commercial sublease make it a popular solution that commercial tenants turn to – this free commercial sublease agreement template (PDF & Word) covers each of these reasons (and many more). 

Commercial Subleases

How does a commercial sublease work in the UK? 

Commercial sublease agreements lay out the transfer of responsibilities from tenant to subtenant regarding the property and clearly outline the responsibility of each party involved.

However, the master lease will still exist between the landlord and the tenant. 

What is included in a commercial sublease contract? 

There are various components that make up the agreement. For some sub-tenancies this will be simple, and others will require much more detail. Here are the basic details that should be included in sublease agreement templates: 

  1. The parties involved: sublessor (current tenant), sublessee (new tenant), and landlord. 
  1. Details about the property: the full address, description, and any specific areas/units being sublet. 
  1. Duration of agreement: including start and end dates, which shouldn’t exceed the original lease term. Any renewal terms should also be included. 
  1. Rent payment schedule: for example, the monthly rent amount, payment frequency, method, security deposit, and responsibility for utilities or service charges. 
  1. Landlord’s approval: there must be written consent from the landlord, as required by almost all original leases. 
  1. Restrictive covenants: sometimes, the landlord will stipulate that the subtenant follow particular rules during the tenancy, and can enforce action where there is non-compliance. These should be outlined in the agreement if relevant. 
  1. Obligations for everyone: for the tenant and the subtenant. This will include maintenance responsibilities, securing insurance, and ultimately paying the landlord. 
  1. Terms and conditions: commercial sublease rights, rules of access to the premises, any property alterations and improvements permission, and whether further subletting is allowed. 
  1. Ending tenancy terms: for example, the conditions for early termination, the notice period, and consequences of any breach in the agreement. 
  1. Other legal Clauses: These include indemnities, dispute resolution methods, governing law (UK), and an entire agreement clause. 

Free Commercial Sublease Agreement Template UK

Guidelines & considerations when crafting a commercial sublease 

The transfer of responsibilities from tenant to subtenant requires careful consideration, both from a practical and legal standpoint. Here are some of the guidelines to keep in mind when crafting your agreement – this commercial sublease agreement template (UK) takes all these factors into consideration. 

  1. Does the lease permit subletting? 

Check your original lease to see if subletting is allowed or not. Some leases will ban this outright, while others will allow in for a certain period of time or under certain conditions. 

Nearly every instance will require the agreement of the landlord, so it is critical to inform them of your intention to sublet before launching ahead. 

  1. The sublease must align with the original lease 

Usually, a sublease agreement must not allow the subtenant to use the commercial property in a way that is not allowed in the main lease agreement. 

The premises might be leased to be used as a restaurant. If so, it’s unlikely that your landlord will allow it to be sublet as a gym! 

Of course, the tenant could inform the landlord and ask them to amend their terms, but they are often under no obligation to do this. So be careful to align your sublease with the lease that’s already in place – or ask permission for a change of use. 

  1. Set the terms of the sublease carefully 

There are several key factors to consider when crafting your lease agreement terms. These include three main components: 

  • The length: While it may sound obvious, the sublease cannot exceed the term of the original lease, as it’s based on the existing lease in the first place. 
  • The rent amount: The sublease agreement needs to clearly explain the rent payable by the sublessee, when it should be paid, and who is liable to pay it. 
  • Obligations for everyone: The new agreement needs to explain everyone’s obligations to each other. For example, the responsibility for maintenance, utility bills, compliance with proper use rules, and any other terms specific to the commercial property. 
  1. Liability of the original tenant 

You might be subletting the property, but as the tenant, you still need to fulfil the obligations of the original lease. For example, you are still liable for paying the rent, and repairing any damages caused by the subtenant (or the operation of their business). 

Importantly, if the subtenant fails to keep up with their responsibilities, any costs will fall back on the tenant and they will have to resolve the problem with the landlord. 

commercial space

Pros & cons of a commercial sublease agreement 

There are a range of advantages and disadvantages for the landlord, tenant and subtenant. See what some of these are for each party involved. 

The tenant (the sublessor)

Pros for the tenant

  • Reduced financial burden – a sublease allows the tenant to offset their rent, especially if they are no longer using part of the unit (but don’t want to terminate the lease). 
  • Vacate the property ‘silently’ – if a tenant wants out, they can end their operation without financial penalty when they sublet to a new tenant. That way, they don’t need to pay the penalty for ending the main lease early. 
  • Maximise unused space – even if the tenant is doing well financially, there may be an opportunity to maximise income using a sublease if they find that they are not using all of the building. 
  • Helps you handle changes to your business – a sublease can help a business in transition. If you’re growing rapidly, downsizing, or closing, a sublease can help you move on at short notice without incurring loss or penalty. Instead, the subtenant will pay the rent. 
  • You keep your rights as a tenant – you might not be 100% sure how much you’ll use the premises in the future, but want to keep one foot in the door and preserve the lease for the future. A sublease will let you do this, preserving your rights to the premises as a tenant. 

Cons for the tenant 

  • You remain liable – you retain liability for the original lease, and have the added anxiety of ensuring your subtenant stays on track with payments and looks after the building. If they default, you foot the bill. 
  • The landlord must approve – your landlord needs to approve the subleasing request. This can lead to delays in subletting the property, or even to outright rejection of your request. 
  • Potential issues with the subtenant – you take on the role of a landlord (though a lesser one). This means you’re likely to encounter problems, disputes and questions from your subtenant. This takes up extra admin time, and it will be important to keep on top of it all. 
  • Complex dynamics – the sublease will need to walk the line between honouring the original lease obligations, and providing operational flexibility for the subtenant. It can be tricky to negotiate until all parties agree on the terms, and depending upon the circumstances, this can take significant time to arrange. 

The subtenant (the sublessee)

  • It’s cheap – subtenants often opt to be subtenants because of the price, and appreciate the good deal they might be able to get (e.g. with a tenant who is desperate to vacate the property but needs a subtenant to cover costs). 
  • Shorter lease commitment –  the term of this sublease usually aligns with the remaining term on the original lease, which is ideal if you’re only looking for a short term arrangement (unlikely to be found with typical  lease agreement with a landlord). 
  • Quick access to space – renting space under a sublease agreement is often much quicker for the tenant than entering into a full tenancy agreement. 
  • Shared resources – depending upon the actual agreement, the sublessee may benefit from shared amenities or infrastructure provided by the sublessor. For example, where useful facilities have already been put in place by the tenant and the subtenant is allowed to use them. 
  • Ideal if you want to test a market – it’s obviously expensive to agree to a full tenancy agreement in an area you don’t know well. However, a sublease lets you test the waters without a lengthy tenancy. 

Frequently Asked Questions 

Commercial sublease creation raises many questions for the landlord, tenant and subtenant. Here are some answers to the most common questions: 

  1. Can a sublease include part of the property, or must it cover the entire premises?

This is often possible. Unless the original lease prohibits leasing parts of the building. In either case, you will need to ask the landlord for permission to sublet the building – whether in part or the whole premises. 

  1. What happens if the original lease prohibits subleasing?

You can still ask your landlord for permission. They may have included the sublease clause in the commercial lease agreement to protect themselves, but if you have a good working relationship with them, they might agree to an amendment which lets you sublet the property. 

  1. Are there specific laws governing commercial subleases in the UK?

Yes, but there isn’t a single governing law. The Landlord and Tenant Act 1954 is the most significant ruling, though subleases are also subject to standard contract law and property law in general. 

  1. Can a sublease agreement be terminated early?

Yes, in a similar fashion to a standard commercial lease (though more easily). First of all, there might be a break clause in the contract which allows the lease to be terminated after a specified time. Secondly, the lease can be terminated if there is a breach of the agreement, for example, damage to the premises or non-payment of rent. 

  1. How can I ensure my sublease agreement is legally binding and enforceable?

Mainly through standard due diligence, for example, ensuring that both parties sign the document with relevant witnesses. Also, be mindful of obtaining the landlords’ permission, aligning the sublease with the terms of the original lease, and ensuring the duration does not overshoot the length of the main lease. 

Get your Commercial Sublease Agreement Template UK 

We hope this article helps you understand the commercial subletting process more easily, and provides you with the resources you need to craft the contract that suits you. Download this free, sample Commercial Property Sublease Agreement Template today to make the process even easier. 

Free Commercial Sublease Agreement Template UK