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Head-lease - effect of ending Print
L grants a lease to T, who then sublets to sub-T. What is the effect on sub-T if the head-lease (between L and T) is ended?
  • Ended by a break clause: if T exercises a break clause in the headlease then that will bring an end to the sublease. However, sub-T will have LTA 1954 business tenancy protection (unless that protection has been validly excluded).
  • Ending by surrender or merger: T cannot derogate from its grant to sub-T. Accordingly, the sublease will remain in existence even if the head-lease is surrendered or merged.
  • Ended by forfeiture: the forfeiture of the head-lease will automatically bring the sublease to an end. But, sub-T has the right to seek relief from forfeiture under s146(4) LPA 1925.
  • Ending by disclaimer: a disclaimer by a liquidator or trustee in bankruptcy only ends the head-lease if T is in exclusive occupation. Otherwise, the head-lease remains in existence and sub-T will have the right to apply for a vesting order under IA 1986 (so as to vest the head-lease in sub-T).

Note that it is only in the last decade or so that break clauses have become commonplace. From a practical point of view, when acting on behalf of a prospective sub-T, do take care to ascertain whether the head-lease contains a right on the part of that T to terminate the headlease by notice to quit/break. If there is such a break clause, and sub-T is contracting out of LTA 1954, then sub-T is exposed. See article in [2008] 204 Property Law Journal 13.  © Practical Lawyer

March 2008
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