Hospitality businesses are continually looking for ways to make better use of their space, manage costs and create new revenue opportunities. One option that could help is an underlease, but what exactly is it and what should businesses consider before entering into one?
An underlease, also known as a sublease, is a lease granted by an existing tenant to another business for all or part of the property. For hospitality businesses, this could provide greater flexibility in how space is used, while helping to offset ongoing costs such as utilities and service charges. It could also create opportunities to attract new customers and enhance the overall customer experience.
The interview explores how businesses could use an underlease to diversify their space and potentially create an additional revenue stream. Depending on the circumstances, bringing another business into part of a property could also complement the existing hospitality operation and benefit both businesses.
Yes. Businesses will generally need to obtain their landlord’s consent before granting an underlease of all or part of their property. As Layla explains, failing to obtain the necessary permission could constitute a breach of the existing lease.
The interview also looks at what form this consent may take, including a Licence to Underlet and the costs that a tenant may be expected to cover.
This is another important consideration for any hospitality business exploring an underlease. The Landlord and Tenant Act 1988 places duties on landlords when considering a tenant’s request, including requirements around responding within a reasonable time and providing written reasons where consent is withheld.
The terms of the existing lease will also play an important role, with landlords potentially imposing conditions around matters such as the length of the underlease, rent and the obligations of the undertenant. The full interview also explores whether heads of terms can be renegotiated, when an underlease can be terminated and what happens if an undertenant breaches the terms of their lease.
Read the full interview with Layla Banfield to explore the opportunities and legal considerations around underleases, and find out how they could help your hospitality business make better use of its space.
The article forms part of RWK Goodman’s Hospitality Pressure Points series, which brings together legal and industry expertise to explore some of the key issues facing the hospitality sector and provide practical guidance for businesses.
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