What is an underlying lease?

An underlying lease refers to a lease agreement that forms the foundation for a sublease or a secondary lease arrangement. In this context, the primary tenant (lessee) holds the original lease with the property owner (lessor) and subsequently leases the property to another party, known as the subtenant. The terms of the underlying lease dictate the conditions under which the subtenant can occupy the property, often requiring the subtenant to comply with the original lease's terms. This arrangement is common in commercial real estate and residential rentals.