Jurisdiction(s):
United Kingdom

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Key definition

Surplus definition

What does Surplus mean? Surplus describes the excess of assets over liabilities in a fund, estate or entity at the end of a financial period, after allowing for movements in liabilities during that period. In with-profits life insurance, the surplus of a with-profits fund is the excess remaining once recognised liabilities (including technical provisions) are covered; it is used to support policyholder distributions by way of bonus declarations, or retained under smoothing to strengthen the fund’s “estate”. The term is a descriptive expression used across legal contexts rather than a single statutory definition. In insurance, its treatment is shaped by UK regulatory rules (including FCA/PRA...

Underletting Below Passing or Market Rent: Over-rented Leases, RICS Lease Code, Collateral Arrangements, Reverse Premiums and Drafting Pitfalls (England and Wales)

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Practice notes

When the market turns downwards, commercial occupiers with premises they no longer require can find it difficult to shed their obligations. In many cases, market rents will have slipped below the passing rent under the lease, which makes securing an assignee challenging. Leases in this position are often labelled over‑rented. The choices available to a tenant of an over‑rented property are few. Commonly, the most practical step is to grant an underlease. While this may not eliminate the tenant’s losses, it can help to offset expenditure, as some rent will be received and the undertenant will take on the usual Costs of occupation (including business rates).

That said, many commercial leases, particularly those drawn up in the 1980s and 1990s, imposed restrictions on:

underletting at below the passing rent; or
underletting at less than the passing rent or the market rent, whichever is the greater

These conditions were usually framed as absolute preconditions to any application for consent, leaving no room for the tenant to argue that they should be assessed against the test of reasonableness under the Landlord and Tenant Act 1927.

New leases & the Code

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Web page updated on 22/05/2026

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