sub-lease
Explanation
A sub-lease is one lease in a chain of leases applying to a property. In diagram form the chain is as follows:-
owner (otherwise called the head landlord)
l
tenant (otherwise called the mid-landlord)
l
sub-tenant
At the head of the chain is the owner. The owner has leased the property to a tenant. In the context of a sub-lease interest, the lease between the owner and the tenant is called the head lease. The tenant under the head lease, in turn, intends to sub-let the tenant’s interest in the property to a sub-tenant. This interest is called a sub-lease. The sub-tenant’s interest is subject both to the terms and conditions of the sub-lease and also to that of the head lease.
Practical significance of the head lease/sub-lease structure
There are two practical points.
First, a lease and sub-lease structure is more complex, expensive and time-consuming than a straight lease between owner and tenant. Why? Because (a) there are more people who will have an input on every decision involving a property, (b) there are more professionals’ fees to be paid and (c) there will be more documents to check through (ie, the head lease and sub-lease).
Second, a sub-tenant under a sub-lease has less security of occupation than a tenant under a lease. Even if the sub-tenant dutifully meets all of its obligations (e.g. payment of rent to the tenant), it does not know if the tenant complies with all of its obligations (e.g. payment of rent to the owner). The risk exists that the owner terminates the head lease... with the effect that the sub-lease is also automatically terminated. This occurs because the existence of the sub-lease is entirely dependent on the existence of the head lease. As a result, in the event of the tenant under the head lease failing to pay rent on time or otherwise breaching the head lease, it is commonly open to the head landlord to bring the head lease to an end. Please note that, unlike under English law, a tenant of commercial premises in Scotland has no special statutory protection and must seek to negotiate with the head landlord any additional measure of protection. There are ways in which the sub-tenant can take steps in order to safeguard its interests but it varies, in practice, whether the sub-tenant can actually fully safeguard its interests.