What is a commercial property sublease?

Commercial property leases usually have a term of several years with options to extend the term. Subleasing or subletting is an arrangement where the head tenant or head lessee may further let out the property or portion of commercial property to a third party known as the subtenant or sublessee.

Commercial subletting arrangements are very popular in large, multi-storied office buildings which are generally owned by strata companies or body corporates. Such companies are the head lessors or head landlords in the main leasing arrangement with property management companies. The property management companies then sublet suites or even whole floors to separate business owners.

The subtenant or sublessee has the same rights and responsibilities as the head lessee under the main lease. The head lessee will be responsible for the sublessee’s behaviour and for any loss or damage caused by them.

How to obtain head lessor or landlord’s consent and enter into a subletting arrangement

The head lease or main lease agreement must allow for subletting arrangements in commercial properties. If the head landlord/head lessor permits, the head lessee (or the sublessor in the sub lease arrangement) will need to arrange for a separate sublease documentation and arrangement with the subtenant or sublessee. The head lessee will effectively act as a landlord in relation to the sublessee: collecting rent and dealing with them directly, while at the same time maintaining all the responsibilities of a lessee under the head lease agreement with the head lessor.

Terms of some of the head leases will require the head lessee to provide the head lessor/landlord with specific information about the sublessee for them to consent to the sublease. The landlord’s consent needs to be in writing.

A common practice of obtaining landlord’s consent is officiated through entering a deed of consent.  This  states that the landlord has agreed or consented to the arrangement of a sublease. The subleasing documentation process begins afterwards.

The subtenant or sublessee has the same rights and responsibilities as the head lessee under the main lease. The head lessee will be responsible for the sublessee’s behaviour and for any loss or damage caused by them.

Which terms are important in finalising subleasing documentation?

In the case of subleasing arrangements, the following terms should be clearly mentioned in the sublease agreement/documentation to avoid any future disputes.

  • Term of the sublease – The term of a sublease can, in no circumstance, exceed the term of the head lease.
  • Facilities – The sublease documentation should specify which facilities the sublessee can access within the property like warehouses and toilets.
  • Trading hours – In case of a commercial sublease, specifying trading hours  is also importanat. These hours can only be within permissible hours under Queensland legislation –  Monday to Friday 8am to 9pm and Saturday 8am to 5pm.
  • Permitted Use – In a commercial sublease this term is significant as it prescribes what kind of business can be carried out or operated from the premises. The sublessee should be aware of the terms of permitted use and should diligently follow the terms to avoid being in breach of the head lease terms.
  • Outgoings – Outgoings in a commercial lease are the operating costs associated with the premises. The sublease documentation must specify the sublessee’s share of outgoing payments.
  • Parking – The sublease documentation should specify the allocated number of parking spots and also the area specified for parking.
  • Possession – Whether or not exclusive possession is granted to the sub tenant/sublessor in use of the property space should be specified in the sublease documentation.
  • Rent – The sublease documentation should also specify the amount of initial rent and also the amount, time and method of rent increase.
  • Subtenant/sublessee’s rights and obligations – The sublease documentation should specify the subtenant’s rights and obligations in lieu of maintenance, repair and upkeep of the property.
  • Make Good Obligations – Since the sublessee or subtenant steps into the shoes of the head lessee, the lease must specify Make Good Obligations or end of lease obligations in the sub leasing documentation to avoid disputes regarding cleaning, repainting or any other end of lease obligations on expiry of the lease.

Note that in Queensland, the Retail Shop Leases Act 1994 is applicable to all retail shop leases in Queensland. The subleases for all retail shops will also fall under its purview and it is important that both the sublessor and sublessee are aware of their rights and obligations under the Act before entering a retail shop sub lease.

CMB Lawyers know leases and sub-leases.  We can help, today.

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