Underletting Flashcards
What is underletting?
When a tenant grants an underlease to an undertenant while retaining its own lease with landlord
What is subletting?
Underletting
What is the key rule on an underlease?
Must be for a shorter term (even by one day)
Who is responsible for obligations in an underletting?
The tenant is responsible for paying the rent to the landlord and its obligations
Why would a tenant want to underlet?
1) Not using all of premises
2) Do not currently need it but might in future
3) Cannot find assignee
What is the rule on underletting if the lease is silent on it?
The tenant is free to underlet
What are the types of underletting covenants?
1) Absolute covenant
2) Qualified covenant
3) Fully qualified covenant
What is the rule on a qualified covenant?
In assignment / underletting it is fully upgraded to a fully qualified covenant, meaning that a landlord cannot unreasonably withhold consent
What are the landlord’s considerations for withholding consent?
- Financial strength
- Proposed use of premises
- Impact on landlord’s control over premises
What might a commercial lease impose as conditions to protect landlord’s interest?
- Prohibit underletting with unrelated properties
- Prohibit lump sum payments instead of market rent
- Prevent excessive rent-free periods
- Require underlease rent to be at least equal to headlease rent
- Require underlease to have no less onerous obligations than headlease
Is the relationship between landlord and undertenant privity of contract or privity of estate?
None – they have no direct relationship
Can a landlord directly enforce covenants against undertenant?
No
How can the landlord enforce against an undertenant?
With a direct covenant agreement as part of the license to underlet
What is a monthly periodic tenancy?
Agreement that continues indefinitely, rolling over each month, unless terminated with proper notice
