For those tenants who are downsizing; offloading current premises as quickly and efficiently as possible is key. Since the Good Harvest case which has been widely reported in the property press, underlettings are now often considered the preferred mechanism for offloading unwanted premises. Landlords are more at ease in consenting to an underletting given they retain privity of contract with the current tenant and, perhaps more importantly, with their guarantor (if one was provided).
We are still seeing leases which include provisions in the underletting clause only, permitting underletting at a rent not less than the passing rent under the lease, without taking a fine, premium or other consideration and at no time releasing the undertenant from the obligation to pay such rent.
A tenant and undertenant may agree a form of underlease that complies on the face of it with the headlease requirements, and then separately agree a rent free period for example. This separate agreement may be documented within a side letter or a supplemental deed. There are, however, inherent risks in pulling the wool over the landlord's eyes because the landlord is entitled to be told the true nature of the proposed transaction.
Pre-conditions are important (and common) in relation to the grant of underleases and allow the landlord an element of control over the terms of the underlease, for example, as to the level of the rent at grant, the timing and basis of rent reviews and the overall scope of the underlease covenants.
The use of a pre-condition was illustrated in the case of Crestfort Ltd v Tesco Stores Ltd (2005) EWHC 805 (Ch), where the landlord successfully obtained an injunction requiring the surrender of an underlease that had been granted in breach of the conditions in the lease. In this case, the landlord was entitled to the remedy because in addition to establishing breach of contract on the part of the tenant, the landlord was also able to establish liability in tort on the part of the undertenant for unlawful interference with contractual relations between the landlord and the tenant.
Commercial reality may mean a tenant will be prepared to run the risk of being 'found out', however. Obviously the safest approach is to get the landlord to consent to the actual true nature of the underletting, but given timeframes are often tight, coupled with the fact that it may be likely a landlord would withhold their consent if they were aware of the true nature, is it surprising such practices are being seen?