Underlease

A lease that is not held directly from the freeholder, but from a tenant.

The most common way for an underlease to arise is for a tenant to create one out of an existing lease. The tenant of the existing lease would be the landlord of the underlease created from it. A headlease (www.practicallaw.com/resource.do?item=:20756008) may become an underlease, if an overriding lease (www.practicallaw.com/2-107-6955) is created, but this is uncommon.

Where an underlease is created out of another underlease, it is sometimes described as a sub-underlease. An underlease granted out of a sub-underlease may therefore be known as a sub-sub-underlease and so on.

An underlease should be granted to expire before the lease out of which it is created. If it is not, the underlease may operate as an assignment of the lease, instead of creating an underlease.

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