BLB’s Head of Commercial Property, Caroline Entwistle, examines the key considerations in subletting part of industrial premises.
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During your lease term, circumstances may lead you to consider subletting part of your industrial premises. For example, perhaps economic conditions make rent payments difficult, or contracting business operations mean you no longer need the entire space.
Subletting part of the premises generates a rental income and enhances the utilisation of the property. And depending on the circumstances, you may find other economies by sharing some facilities and overheads.
Flexibility is key
As a tenant, flexibility in your lease is crucial in ensuring that business operations continue should unforeseen issues arise. That’s why negotiating the terms of a new lease is so important and the alienation provisions form a significant part of those initial negotiations.
Typically, landlords wish to maintain as much control as possible over who occupies their property. So, your lease may say that:
- any third party occupation of part of the industrial premises is prohibited; or
- subletting is allowed, but only on condition that a limited number of third party occupiers are in the building; or
- any third party occupiers should occupy a designated part of the building as specified before the lease commences.
Landlord’s written consent
Should the lease permit a sublease of part, then, inevitably, you’ll require the landlord’s formal written consent. And there will be a cost in obtaining that consent. Proceeding without it breaches the lease and may result in lease forfeiture proceedings.
Health and safety issues
Industrial premises can be dangerous, so you must consider and document responsibility for health, safety, security and insurance in the common areas shared by you and the third party occupiers.
Remember – the buck stops with you
And don’t forget that you remain the main tenant, even with a third party occupying part of the premises. As such, you are responsible to the landlord for the entire property. For that reason, it’s essential to have a robust sublease in place between you and the third party occupier as well as having the landlord’s formal consent to the arrangment.