Legal Definitions - underlease

An underlease (also commonly referred to as a sublease) occurs when a tenant, who holds a lease directly from a property owner (the original landlord), then leases all or part of that property to another party (the subtenant). In this arrangement, the original tenant effectively becomes the sublandlord to the new subtenant. The underlease agreement establishes a new, separate tenancy between the original tenant and the subtenant, but it cannot grant rights that exceed those held by the original tenant under the primary lease. Crucially, the original tenant remains primarily responsible to the original landlord for fulfilling all the terms and conditions of the initial lease agreement.

• Commercial Office Space Example: "Global Solutions Inc." leases an entire floor of a downtown office building from "Metropolitan Properties LLC" for a ten-year term. After five years, Global Solutions Inc. downsizes its operations and finds itself with excess office space. With permission from Metropolitan Properties LLC, Global Solutions Inc. enters into an agreement to lease a section of their floor to "Startup Ventures Co." for the remaining five years of their original lease.

  This arrangement is an underlease. Global Solutions Inc. is the original tenant and acts as the sublandlord to Startup Ventures Co., the subtenant. Metropolitan Properties LLC remains the original landlord. Global Solutions Inc. is still responsible to Metropolitan Properties LLC for the full rent and adherence to all lease terms for the entire floor, even though Startup Ventures Co. is occupying a portion of it.

• Residential Apartment Example: "Sarah" rents a one-bedroom apartment from "Riverbend Apartments Management" under a one-year lease. Three months into her lease, Sarah receives an opportunity for a six-month internship in another city. With her landlord's consent, she finds "Tom" to live in her apartment and pay rent for those six months while she is away.

  The agreement between Sarah and Tom is an underlease. Sarah is the original tenant and becomes the sublandlord, while Tom is the subtenant. Sarah's original lease with Riverbend Apartments Management remains active, and she is ultimately responsible for ensuring Tom pays rent on time and abides by all the rules of the original lease, even during her absence.

• Retail Store-within-a-Store Example: "Grand Department Store" leases a large retail space in a prominent shopping mall from "Mall Developers Inc." for a fifteen-year term. To enhance its offerings and utilize a specific area near its entrance, Grand Department Store decides to allow "Artisan Coffee Roasters" to operate a small coffee bar within its leased premises for a five-year period.

  This arrangement constitutes an underlease. Grand Department Store is the original tenant and acts as the sublandlord, providing a defined space to Artisan Coffee Roasters, the subtenant. Grand Department Store continues to be responsible to Mall Developers Inc. for the entire retail space, including the section occupied by the coffee bar, and must ensure Artisan Coffee Roasters complies with all relevant mall regulations.