As the dust settles on the pandemic, it has become clear that the hybrid working model is here to stay. At our recent annual property conference, almost 500 industry professionals were asked to predict the average daily rate of office occupancy in Dublin in 2026. The majority of respondents (51%) estimated that it will be between 50 and 70%. We explore the potential for sub-letting as a solution for excess or under-utilised office space.
What is a sub-lease?
A sub-lease is a lease of all or part of a premises held by a tenant under an existing lease, to a third party. The existing lease remains in place and the tenant remains liable to the landlord under the terms of the lease.
Landlord consent
Almost all commercial leases contain restrictions on sub-letting without landlord consent. Irish landlord and tenant legislation[1], in addition to the terms of a lease, provides that sub-letting cannot be prohibited but will be subject to the consent of the landlord, which cannot be unreasonably withheld.
Common conditions or restrictions on sub-letting that should be considered before a tenant commences negotiating a sub-lease include that:
- Any sub-lease can be of the whole demise only – particularly where a property is not designed for multi-lets
- The landlord can require provision of all relevant information on the transaction – this allows a landlord to consider the application for consent in the round, including whether a guarantee or rental deposit may be required
- The sub-tenant enters a direct covenant with the landlord to comply with the covenants and conditions in the lease – this enables the landlord to enforce the covenants and conditions directly, if necessary
- The sub-tenant executes a deed of renunciation – this will ensure that the sub-tenant does not gain statutory rights to renew the sub-lease
- The tenant or sub-tenant discharges the landlord’s costs for the consent process – landlords generally require the tenant to pay costs before issuing consent
- The rent in the sub-lease is the greater of open market rent or equivalent to the rent passing under the existing lease – this will be an obstacle to sub-letting if market rents are lower than the rent under the existing lease, and
- The sub-lease is in substantially the same form as the existing lease – this protects the landlord, as in the event that the tenant’s lease is terminated, the landlord will have a direct relationship with the sub-tenant, on the terms outlined in the sublease[2]
Tenant checklist
- Pre-conditions – prior to engaging in negotiations for a sub-lease a tenant should review its lease in detail to be clear on any restrictions on sub-letting or conditions to landlord consent to sub-let , including those detailed above.
- Practical implications – if sub-letting part of a space, consider what works, if any, will be required to partition the premises, and whether landlord consent to these works will be required. Consideration should be given to how service charge and other payments such as the insurance premium will be apportioned.
- Alignment with terms of existing lease - in general, even if the existing lease does not require that the sub-lease is in substantially the same form, it is preferable for a tenant to ensure that its obligations to its landlord and the sub-tenant’s obligations to them are back-to-back/aligned in so far as possible.
- Yield up – unless it is commercially agreed that the sub-tenant’s repair, decoration and yield up obligations will be diluted, they should mirror those in the existing lease to ensure the tenant is not exposed to significant dilapidations. If the tenant may need to carry out works to the premises after expiry of the sub-lease, it should ensure to allow a sufficient gap between expiry of the sub-lease and the existing lease.
Conclusion
When considering sub-letting space held under a commercial lease, a tenant should, at the outset, review its lease in detail as regards restrictions and required consents. To prevent delays with the ultimate sub-letting, we recommend engaging with the landlord early in the process to ascertain its requirements in order to consider an application for consent to sub-let.
If you are considering sub-letting part of your commercial space, contact a member of our experienced Real Estate team for more information.
The content of this article is provided for information purposes only and does not constitute legal or other advice.
[1] Section 66 of the Landlord and Tenant (Amendment) Act 1980
[2] Section 78 of the Landlord and Tenant (Amendment) Act 1980
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