Real Estate Talking Point: Underleases - a risky business?

"The derivative nature of an underlease … is such that its survival can depend on the ongoing existence of the superior lease."

Whilst typically there is only one freehold ownership in a parcel of land in England and Wales, there can be any number of leasehold interests; therefore, provided that the terms of each lease so permit, a tenant who first takes a lease from a freeholder can underlet all or part of the land to someone else who, in turn, can then underlet again (and so on). The question thus arises – if one of the leases in a structure is terminated, do the leases sitting underneath fall away too? And, if not, in what circumstances can landlords inherit undertenants if their immediate tenant steps out of the picture?

In this article, Siobhan Burton discusses the implications for landlords and undertenants when a superior lease is terminated by way of a surrender, the exercise of a break right or forfeiture, and explores the remedies which may be available.

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