Objective for the learner:

Upon the completion of this theory section, the learner should understand a base concept involved with sub-letting and renting spaces specific to hospitality sector businesses. They should also understand the pros and cons associated with each side and how to construct plan to reflect this.

Pass criteria:

PASS:
Learner to understand the base concept of sub letting. The pros and cons and the additional factors to consider.

PASS WITH MERIT:
Learners to understand the above and the identifying risks associated with sub-letting from the intermediary. Including in this will be outlining the three parties risks, benefits and opportunities both on a factual basis and on a theoretical concept prior to any agreement.

PASS WITH DISTINCTION:
Learners to understand and complete the above. Additionally, learners should complete a business plan/analysis including a SWOT analysis. Learners will also need to incorporate consideration of sudden termination of lease/lettings and how these factors may occur as well as risk factors to consider at the end of lease/let terms and how these will affect all parties.

Content:

What is a let/lease of a business:

A let/lease of a business is a rental of a space which can include equipment, fixtures and fittings. Usually prior to the let/lease the owner (or their management individual) will outline what can and cannot be done with the business including any changes or alterations.
Some leases/lettings can also restrict the type of business that can operate within their property.

Most leases and lettings come with a timescale where the business taking out the lease will be told how long they have access to the business. This is usually between 5-10 years but can be more or less depending on the establishment.

Some leases/lettings can include other things such as the property owner covering the bills, maintenance and other overheads, but this all comes down to the different types of business, ownership and property.

What is a sub-let?

A sub- let is when a business who rents or pays the property owner chooses to rent/let out the business or part of the business space to another person or individual.

The Sub-Let Chain

1. Property owner (Owner of the building)

2.Business (rents the property/building off the owner) = Intermediary business

3.Sub letting business ( rents the property off the intermediary business)

In some cases a property owner may lease or rent the building to themselves through different limited companies. This is perfectly legal but can be confusing so its best for any business looking at sub-letting to speak with their accountant before striking any deal.

What are the benefits to sub-letting?

For the property owner they continue to take payment for leasing out the space. and with a sub-letting business it means they are likely to have further security that the business occupying the let will be able to afford to pay.

For the business they have the added income from the sub-let business paying them the rent/lease for using the business space.

For the sub letting business they are likely paying a lower rent/lease compared to hiring out a whole business and are also given the benefit of usually having things like equipment and utilities covered in their payments.

What are the cons to sub-letting?

For the property owner they may not have direct control over the sub letting business which can make things complicated if the sub let business only has a contract with the intermediary business. Sub letting businesses may also damage property or ruin reputation which could lower the value of the premises.

For the business they also have a risk with the sub letting business who may produce poor quality food or not have the same level of passion as the business. If in contract the business may have little control over removing the sub-letting business.

For the sub letting business they also run the risk of not being in control. They may be doing very well and trading successfully, but they are relying on both the intermediary business and the property owner not pulling out, terminating a contract or selling the property.

Sample Assessment Questions

Identify and outline as many potential areas which could be beneficial to each individual/business. (24 Marks)

Complete a SWOT analysis from the prospective of the intermediary business who are sub-letting the kitchen to a catering firm (10 marks)

Scenario 1: A customer has complained about poor service and food quality. Food service staff are employed by the intermediary business and food is produced by the sub-letting business. Evaluate who is responsible for what and what you would include in an agreement between businesses to stop this happening? (15 marks)

Who is responsible for the property of the business? (1 mark)