The SME Guide to Subletting and Assigning Your Commercial Lease

Business circumstances change. The space that was perfect when you signed the lease may now be too large, too small, in the wrong location, or simply surplus to what you need. If you are in a commercial lease without a break clause and cannot wait for the next renewal, subletting or assigning are your two main options.

Both have advantages and risks. Here is what you need to know.

Assignment: Handing the Lease to Someone Else

An assignment transfers your lease to a new tenant. The incoming occupier takes over the remaining term, the rent, and all other lease obligations. From the date of assignment, they become the tenant — not you.

The advantages: A clean exit. Once assigned and completed, you are out of the lease (subject to any continuing liability — see below).

The complication: Landlord consent is almost always required. The landlord has the right to approve the incoming tenant and may withhold consent on reasonable grounds — poor covenant strength is the most common. If the assignee's financial position is significantly weaker than yours, the landlord may refuse or impose conditions.

Continuing liability: Under older leases, the original tenant can remain liable for rent even after assignment if the assignee defaults — known as "privity of contract." Under post-1996 leases governed by the Landlord and Tenant (Covenants) Act 1995, you are released from liability on assignment, though the landlord may require an Authorised Guarantee Agreement (AGA) committing you to guarantee the assignee's obligations. Understand your position before you complete an assignment.

The market for assignments: In the current environment, some tenants are actively looking for assignment opportunities — particularly in locations where good space is hard to find and the existing rent is at or below market. Finding the right assignee is a matching problem; it helps to market the lease actively, including through commercial property platforms.

Subletting: Becoming a Landlord Yourself

A subletting keeps you in the lease but allows another business to occupy all or part of the space in exchange for a sublease rent. You remain the tenant under your head lease and take on a landlord role for the subtenant.

The advantages: You reduce your net occupancy cost (the subtenant's rent offsets your own). You retain the option to recover the space at the end of the sublease if your business needs change.

The complication: You must manage a subtenant, deal with any issues that arise during the sublease, and ensure the subtenant complies with their obligations — failure to comply can affect your position under the head lease. Landlord consent is usually required; the lease will specify the conditions under which subletting is permitted.

Sublease rent. The rent you charge the subtenant cannot exceed your own passing rent without landlord consent in most leases. In a rising market, this limits the income you can generate. In a flat or falling market, it may be difficult to find a subtenant at your passing rent — particularly if the space has not been well maintained or is not what the market wants.

Which Route Is Right for You?

Assignment suits you if you want a complete exit and can find a creditworthy occupier to take on the full lease. It requires landlord consent, takes time to arrange, and leaves you with potential continuing liability under older leases.

Subletting suits you if you want to reduce costs without fully exiting the lease, or if you need to retain the option of re-occupying later. It keeps you in the relationship and requires you to manage a subtenant.

In both cases, the earlier you start the process, the more options you have. An assignment or subletting that has not been arranged by the time your lease expires is a lease expiry — and a potential dilapidations liability.

RE:match can help you find businesses looking for space in your location. If you need to assign or sublet, posting a brief describing the space available is a direct way to reach potential occupiers.

Contact RE:match to discuss how the platform can help connect you with businesses looking for space at rematch.co.uk.

FAQ: Subletting and Assignment

Do I need my landlord's permission to assign or sublet? Almost certainly yes. Most commercial leases require landlord consent for both assignment and subletting. The landlord can withhold consent on reasonable grounds and must respond within a reasonable time. Proceeding without consent is a breach of lease.

Can the landlord charge me for giving consent? The landlord can charge reasonable legal and administrative costs for processing a licence to assign or sublet. These are typically borne by the outgoing tenant.

What happens to my deposit when I assign? Your deposit is usually held against your obligations as tenant. On a valid assignment, it may be returned to you (if the lease is clean) or transferred to cover the assignee's period — the mechanics depend on the lease and the terms of any licence.

What is an Authorised Guarantee Agreement? An AGA is a guarantee given by an outgoing tenant to the landlord on assignment, committing the outgoing tenant to guarantee the obligations of the incoming tenant. Under the 1995 Act, landlords can require an AGA as a condition of consent to assignment. If the incoming tenant defaults, you may be called on under the AGA.