An overview of what a Licence to Underlet is and what it is used for in the context of property transactions.
What is a Licence to Underlet?
A licence to underlet is a legal document comprising a formal, written consent given by a landlord to their tenant, allowing the tenant to grant an underlease (also known as a sublease) of all or part of the leased property to another party who then becomes the undertenant (or subtenant). Attempting to grant an underlease without a licence to underlet (where required) can be a breach of a lease, potentially giving a landlord cause for legal action against their tenant.
The document itself does not grant the underlease, but it allows the tenant to go on to grant one. The licence is instead a deed which contains the terms under which the landlord consents to the proposed underletting. This will impose conditions upon the tenant (and undertenant) to ensure the underlease complies with the terms contained within the headlease, in addition to perhaps setting out additional conditions. It may also have annexed a copy of the proposed form of underlease (or sublease).
When is a Licence to Underlet typically used?
Most leases restrict underletting and require the landlord’s prior written consent before the tenant can grant an underlease. This consent is therefore granted and formalised, typically, by using a licence to underlet.
Who pays for it?
Usual practice would be for the tenant to pay the landlord’s reasonable legal costs in preparing and granting a licence to underlet. This is because it is the tenant who is seeking the landlord’s consent to underlet the premises for the tenant’s benefit.
It should be noted, however, that this is variable and in some instances each party will be responsible for their own costs, and sometimes one party will pay the whole of the other’s legal costs or indeed give a contribution towards the same.
What does a Licence to Underlet cost?
There is no fixed cost for a licence to underlet. Legal costs will depend on the value of the property and whether a review of the underlease is also required. Fees can be lower or higher depending on these factors and whether terms go on to be heavily negotiated.
Does a Licence to Underlet need registering?
A licence to underlet does not usually need to be registered at HM Land Registry because it is a personal permission that does not itself create or transfer a legal interest in a property.
Who drafts a Licence to Underlet?
Typically, a licence to underlet is drafted by the landlord’s legal representative. The reason for this is that the landlord is the party granting consent and so will want to ensure that the terms of the underletting and the licence protect their interests. Once the first draft is prepared, the tenant’s solicitor can then review and negotiate the terms of the licence on the tenant’s behalf as necessary.
Licences to underlet are formal legal documents which include obligations, restrictions and conditions that can have long-term impacts on either party. Legal advice helps ensure the licence reflects the agreed position and avoids disputes later in the underletting process.
If you require assistance with an underlease and/or licence to underlet, please contact our Real Estate Team who would be happy to assist.
