Lessees win out in new subletting rule changes

by John Harrington

Pub operators ­ particularly on the high street ­ could find it easier to mitigate losses from struggling pubs by subletting, after some of the largest property owners in the country agreed to change the rules about subletting.

Twenty of Britain's largest landlords, members of the British Property Federation (BPF), have agreed to drop the clause in their contracts that prevents the occupier subletting at market rent.

Previously, commercial property leases, particularly older leases, would only allow the pub tenant or lessee to sublet the premises to a third party at below the existing passing rent. But, following the BPF's "declaration on subletting", lessees would be able to sublet the pub at a market rent.

Colin Wellstead, of property agent Christie & Co, said the move would allow a struggling pub operator who pays a rent of, for example, £150,000, to sublet the pub for £75,000, and therefore mitigate losses.

"The advantage is that some of the more difficult sites ­ particularly in the high street ­ could be sub-let at a lower rent," he said.

BPF director Ian Fletcher said: "The complaint that we get regularly is that a tenant may wish to vacate the premises or down-scale, and in these circumstances wants to be able to mitigate their losses by subletting. The basis of the change is to ensure that the tenant is subletting at the going market rate."

The change applies to any leases where negotiation began after 30 April.

Current tenants would also be able to sublet at the market rate, except when doing so would conflict with the terms of a separate contract.

Fletcher said the BPF intends to encourage all of its members to adopt the practice.