Subleases on the Rise

It is safe to say that the COVID-19 pandemic has had considerable implications for the property industry and in particular the leasing market in Australia. Both landlords and tenants have felt the effects across retail and commercial leasing. As a result there has been an increase in subleasing in the Sydney CBD which is expected to flow through to Parramatta and North Sydney, particularly for the former with the recent increase in major Government projects.

A sublease is a great way for a tenant to reduce their rent expenses and mitigate any commercial losses experienced as result of the pandemic. Even for those commercial tenants who have emerged relatively unscathed, the rise in popularity of “work from home” arrangements has seen a decrease in demand for office space with many multinational corporations looking to offload in 2021 and into 2022.

The Sydney CBD has seen record numbers of advertised subleased space in the first quarter of 2021. Subleasing is providing non CBD tenants with the opportunity to take premium space and capitalise on the current market conditions.

Sublease

A sublease is where a tenant grants a lease of all or part of their premises to a subtenant. An assignment of lease is more commonly used where the tenant wishes to offload the entire premises. That’s not to say that subleases of entire premises are rare. For example, in circumstances where a tenant is subleasing for less or more rent.

Beware

By subleasing a premises the tenant is not discharged from their responsibilities under the lease. The tenant will generally remain liable:

1. to the landlord for the payment of rent and all other monies payable under the head lease; and,

2. in relation to any damage caused to the premises by the subtenant.

Landlord’s consent

The first and most important precondition of a sublease is obtaining the consent of the landlord.

A lease will usually contain the conditions of consent, mainly that the subtenant is respectable and responsible (or other words of that meaning). The landlord may also require the parties to enter into a deed of consent where the subtenant agrees not to do anything which would constitute a breach of the head lease and an acknowledgement that if the head lease is terminated the sublease will also be terminated.

Retail Leases Act

While retail leasing legislation provides tenants with added protection in assigning a lease, a landlord can refuse to consent to a sublease usually in their absolute discretion. If consent is granted, the tenant will be required to provide the subtenant with a disclosure statement and generally pay the costs of the landlord in respect of the sublease.

Typical Clauses

Subleases can either incorporate the terms of the head lease or function as a stand-alone document. In both cases they generally state that in the event of any inconsistency between the head lease and the sublease, the head lease will prevail. Also, a prudent landlord will ensure that the sublease contains clauses whereby subtenant must provide the tenant with the requisite insurances and security to cover the subtenant in the event of breach.

Henry William is available to assist landlord and tenants in respect of their leases and subleases. Feel free to contact our people.

Ron Zucker 0410 590 111

Vincent Tripodina 0408 228 10

Chelsea Woodward 0404 065 899

Anna Polhill 0431 174 352