When a contracted-out sublease expires, it is usually necessary to obtain a fresh superior landlord's consent to a new sublease. But what if expiry is imminent and the superior landlord has not responded?
There are several potential solutions, but none are without their risks. Commonly, leases require tenants:
- Not to grant any sublease without first obtaining landlord's written consent (such consent not to be unreasonably withheld or delayed); and
- To ensure that any sublease is contracted out of the statutory protection conferred by the Landlord and Tenant Act 1954.
If a sublease is contracted-out, the subtenant is unable to 'hold over' on the basis of its existing tenancy after expiry and a brand new sublease must be sought. The above provisions would oblige the tenant to make a fresh application for superior landlord's consent, even if the proposed new sublease is on substantially the same terms as the existing sublease, to which the superior landlord previously consented.
This can leave both tenant and subtenant in a precarious position.
Is the landlord's delay unreasonable?
Even if there is no express obligation on the superior landlord to deal with applications for consent in a reasonable period of time, such an obligation is automatically implied. If he fails to respond in a reasonable period, he is deemed to have automatically consented to the underletting. But what is a 'reasonable period'? Unless the application is particularly complicated, it is usually calculated in days rather than weeks.
Therefore if no response is given within a month, the tenant could argue that the superior landlord has unreasonably delayed and on that basis, complete the new sublease.
This is a risky strategy, as the superior landlord may dispute that its delay is unreasonable and seek to forfeit the tenant's lease for breach of the alienation covenant. A safer (but more expensive) alternative would be for the tenant to seek a court declaration confirming the delay is unreasonable such that no further consent is needed.
Granting a tenancy at will
Pending consent being given, the tenant may consider granting a tenancy at will to the subtenant, which can be terminated by either party on 24 hours' notice.
Despite its very short term nature, a tenancy at will still amounts to a proprietary interest and therefore potentially gives rise to a right to forfeit the tenant's lease.
Generally, prior to forfeiture, a landlord must first give the tenant notice of the alleged breach and give them a reasonable opportunity to remedy it. The Courts have historically held that parting with possession in breach of an alienation provision is irremediable and so there is therefore no guarantee that relief will be granted or of what the terms of that relief would be.
Granting a licence
Unlike a tenancy at will, a licence does not create a proprietary interest in land. Accordingly in theory, it does not fall within the alienation provision and superior landlord's consent would not be required before it is granted (although check for provisions preventing the sharing of occupation).
However, the fact that a document is labelled a licence does not prevent it from being a lease if it ticks all the 'lease' boxes i.e. if it confers exclusive occupation on the subtenant and requires payment of a regular fee there is a significant risk of the superior landlord arguing that the tenant has in fact granted a sublease.
It is therefore vital that any licence is tightly drafted and the nature of occupation monitored to avoid any such argument being successful.
Taking steps to obtain possession from the subtenant will protect the tenant's position as against the superior landlord, helping to avoid the tenant's own lease being forfeited. Plus, the litigation process can take several weeks or sometimes even months to conclude.
During this time, the tenant could write to the subtenant on a 'without prejudice' basis explaining that it is only taking such steps in order to protect its position and that, upon consent being granted, it intends to grant a new sublease.
The disadvantages of this approach are that it requires a fine balance between the tenant taking sufficient steps to protect its position and trying to maintain a commercial relationship with the subtenant. There will also be costs implications and the tenant would want to see the subtenant pay these costs.
Unfortunately there is no easy and fool proof solution, with each alternative bearing its own particular risks. In an ideal world, consent would be sought well in advance of the existing sublease expiring but this is not always commercially possible.
We therefore recommend that legal advice is sought prior to pursuing taking any of the above steps, in order to minimise the risk of the tenant facing legal action from the superior landlord.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.