What is Sub-letting?
Sub-letting, often termed a sub-lease, is a common mechanism in Scots commercial property which allows a tenant (referred to as the head tenant) to grant occupation of all or part of their leased premises to a third party (the sub-tenant).
Crucially, and unlike an assignation of the lease (where the tenant transfers their lease entirely to a new party), sub-letting does not relieve the tenant of their original lease obligations. The tenant remains responsible to the head-landlord for rent, repairs and compliance with all lease terms—which is especially important if the sub-tenant fails to meet obligations under the sub-lease.
In recent times, sub-letting has become an increasingly beneficial tool for businesses navigating economic uncertainty, rising costs and changing work patterns.
Restrictions
Most commercial leases in Scotland contain explicit clauses governing whether a tenant may sub-let and on what terms. For example, it is not uncommon for a commercial lease to allow a sub-lease of the whole of the premises but prohibit a sub-lease of part. Parties should always check the lease terms and their obligations should they make or require to consider an application for a sub-lease.
Landlord’s Consent
Typically, the prior written consent of a landlord is required, but that does not mean that they have absolute discretion.
It is often the case, that consent will not be unreasonably withheld or delayed where the proposed sub-tenant is demonstrably capable of fulfilling the tenant obligations under the lease.
Whether a landlord’s consent has been “unreasonably withheld” is typically interpreted in the context of the proposed sub-tenant’s financial strength, business use and compliance with lease terms.
If the landlord refuses consent, the tenant risks breaching their lease by granting the sub-lease. If not obtained the tenant may be in breach of their lease and at risk of it being irritated by the landlord and at risk of a claim by a tenant if any warranties have been provided to a sub-lease.
Benefits of Sub-letting For Tenants
Sub-letting offers a flexible alternative to termination or assignment of the head-lease. Especially for businesses adapting to changes in the commercial market. In industries where demand patterns have shifted (e.g., retail and office sectors), tenants may find sub-letting useful to manage surplus space.
Sub-letting allows a tenant to:
- Reduce overheads by sharing or passing on lease liabilities with a sub-tenant;
- Generate revenue by ensuring rent under the sub-lease is higher than the original lease;
- Downsize space without terminating the original lease; and
- Retain a footprint in multiple locations.
Despite the commercial benefits, tenants must remember that they remain fully liable to the landlord. A default by the sub-tenant does not absolve the tenant of their obligations under the head lease.
Benefits of Sub-letting For Landlords
Landlords will primarily be concerned with control and risk management, especially where they have a lender and obligations to them. Granting a sub-lease means the landlord loses direct control over who occupies part or the whole of the premises and how they operate and cannot easily enforce lease obligations directly against the sub-tenant unless specific provisions are included.
Sub-letting is increasingly seen as a pragmatic option if reletting will prove difficult. A sub-tenant keeps the premises occupied and paying rent—often at market rates—potential reducing renunciations, insolvency of tenants and/or void periods that would otherwise diminish income. Sub-letting can allow a landlord to:
- Maintain income from premises without incurring the delay and cost of reletting;
- Prevent vacancies, especially where the tenant is struggling to pay rent; and
- Support tenants facing economic challenges, thereby preserving longer and healthier relationships.
Sub-tenant’s rights and relationship with Head-Landlord
Sub-tenant’s rights are governed by the terms of the sub-Lease. As the sub-lease must comply with, and often mirror, the terms of the head-lease, the sub-tenant will be extended similar rights to the head-tenant but must also fulfil similar obligations.
In Scottish commercial leases, there is no direct contractual relationship between sub-tenant and head-landlord. In Scotland, the termination, or irritancy, of the head-lease will automatically cause the termination of the sub-lease (unless stated otherwise by express provision).
Changes to Market Demands
Post-pandemic economic conditions and the rise of hybrid working have significantly altered the demand for commercial space. Many tenants occupy more space than current requirements justify and are looking for ways to adapt without breaking leases that may still be on favourable terms. Sub-letting offers a way to optimise underused space.
While it requires careful legal navigation—especially obtaining landlord consent and drafting compliant sub-leases— sub-letting is an option that can provide flexibility for tenants and income security for landlords.
