In today’s market, many Ts are burdened with leases that they would like to get rid of. In practice, it can be very difficult to find someone else prepared to take an assignment of the lease (perhaps because the rent is higher than the current going rate, and because of concerns about dilapidations liabilities). The other option is to sub-let the whole or part of the property so as to recover rent from someone else. The problem, of course, is that most leases contain alienation clauses preventing a sub-lease being granted out of T’s lease at less than the higher of the passing rent and the open market rent. Thus, if the property is over-rented, subletting will not usually be a viable option. 


In practice, there are three devices that T’s consider using as a way of getting around such a restriction on subletting: 


side deed with sub-T: for some years, the favoured option was for sub-T to take a valid sublease (at the passing rent), but for there to be a supplemental side deed between T and sub-T documenting a lower rental figure (which would be the amount that T would actually collect from sub-T). However, such a tactic was effectively vetoed by Homebase [2002], and will not succeed unless there is full disclosure of the side-letter to L when consent for the transaction is sought;


reverse premium: another approach is to build into the sub-lease documentation a refund to sub-T of the excess rent by way of a reverse premium staggered over the term of the sublease. The disadvantage of this tactic is that it brings a risk for the sub-T, who must be satisfied with the financial covenant strength of T (from whom they will be receiving the staggered payments);


indemnity: probably the best approach is that mentioned by Lightman J in Crestfort [2005]. This involves an indemnity provided by a related company to L, with a deed standing to one side of the sublease. In this way, the terms of the headlease are not breached and the arrangement is not caught by Homebase [2002]. But, the company giving the indemnity would need to be satisfactory to sub-T (and L). 


In practice, attempts to use any of these devices are rare. Most Ts prefer to negotiate direct with Ls in the hope of being able to obtain a compromise (with L having to balance continued occupation against the risk of void space and a potential liability to business rates). Source: DLA Piper LLP.