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As a commercial tenant, you may wish to bring another business into your premises. This can be done either through a licence to occupy or by subletting part or all of the unit.
Both options can help you make better use of your space and generate additional income; however, there are significant legal differences. Choosing the wrong approach, or failing to follow the correct process, can create long-term legal and financial risks.
Licence to Occupy vs Sublease
Although they may seem similar, a licence and a sublease are not interchangeable.
Licence to Occupy
A licence gives someone permission to use allocated space but does not grant exclusive possession (the right to control the space and exclude everyone else). In simple terms, the occupier cannot treat the premises as their own, and the arrangement is usually short-term and flexible.
A licence is typically used when:
- You need a temporary occupier,
- You want to retain control over the space,
- The arrangement needs to be easy to end, and
- Shared use (for example, coworking space) is intended.
Sublease
A sublease creates a formal landlord–tenant relationship between the original tenant and the incoming occupier (subtenant). The subtenant usually has exclusive possession of the part they occupy and greater legal rights.
A sublease is common when:
- You no longer need all the space,
- You want a longer-term arrangement,
- Exclusive occupation is required, and
- The incoming party needs security to invest in the space.
Understanding which option fits your situation avoids accidentally granting rights you did not intend to give away.
But First, Check
Most commercial leases contain specific rules. Before you do anything, check your existing lease for:
- Whether subletting is allowed,
- Whether licensing is restricted or prohibited,
- What consents you must obtain, and
- Any conditions you must meet before granting occupation.
Many leases require the landlord’s consent, often in writing, before you can share your space with another party. Granting a licence or sublease without consent (if required) can put you in breach of your lease. Breaching your lease can expose you to termination risks (the landlord ending the lease), legal claims, or financial penalties.
Key Legal Requirements to Keep in Mind
- Comply with the Head Lease
Your sublease or licence must mirror (or at least not conflict with) the obligations in the original lease (the first lease between the landlord and the original tenant). Rent, use restrictions, insurance terms, and repair responsibilities all need careful alignment.
- Avoid Accidentally Creating a Tenancy
If you intend to grant a licence but accidentally grant exclusive possession and fixed terms, the arrangement may legally be treated as a lease. This can give the incoming occupier stronger rights than you intended, potentially including protection under the Landlord and Tenant Act 1954, which makes it much harder to remove them from the premises.
Careful drafting is essential.
- Think About Financial and Practical Impact
Consider:
- How rent will be shared,
- Service charge recovery,
- Maintenance responsibilities,
- Access and safety requirements,
- Insurance implications, and
- Any requirement for mortgage lender consent.
When to Get Legal Advice
Licensing or subletting can be highly beneficial, but the documentation needs to be drafted correctly to avoid disputes and protect your position. A commercial solicitor will ensure:
- The arrangement is legally compliant,
- The landlord’s consent is properly obtained (if required),
- Income and property interests are protected, and
- The occupier’s rights are clearly defined.
Remember
Both licensing and subletting offer flexible ways to maximise your commercial space. By checking your lease, choosing the right structure, and ensuring proper documentation, you can avoid unexpected risks and create an arrangement that works for all parties.
If you are considering licensing or subletting your commercial premises, our commercial team can guide you through the process and help you protect your investment. Call us on 01329 822 333.