A commercial real estate attorney should have one goal: protecting you.

When creating or negotiating a commercial real estate lease, the attorney will ensure that nothing is left up to chance. If it’s not in writing, it doesn’t exist.

Disputes arise between the landlord and tenant when there is a lack of communication, especially if the basis is an item that isn’t explained in the lease. For example, who is responsible for a faulty HVAC system or unexpected repairs?

That’s why a proper lease is so important. If these items are not addressed in the lease, it can lead to litigation, which means more of your time and money.

Purchase agreements

A purchase agreement is an in-depth document that contains conditions and disclosure forms. These documents contain deadlines for things such as earnest money deposit, inspections, contingency removals, as well as the condition of the property that is sold. This is signed by and agreed to by both parties.

If either party needs more time, it is imperative for the party to notify the other one well in advance. This maintains a smooth relationship between the landlord and tenant and allows time to create an extension.

Similarly to a lease, you want to know what exactly you are getting into. A commercial real estate attorney will help you know and understand your obligations and understand what you are getting into what your options are for getting out if it if necessary.

Get it in writing.

If you rent a commercial property, you need to have all of your terms written in detail and agreed to by landlord and tenant. Oral lease agreements are often thought of as being an easy way to create an agreement. However, that creates opportunity for confusion and misinterpretation.

Do you have a personal relationship with your landlord? That’s great – but you still need to have an agreement that holds each party responsible.

When you work with a commercial real estate attorney, she will discuss your concerns and your documents. Consider these questions:

With an attorney and a well-crafted lease, these questions will be answered in detail.

Option Agreement

A long-term lease locks you into the agreement for a certain amount of time. It could be one year, five years or even more. During that specified time, you are, of course, obligated to the terms of the agreement.

In the unfortunate event that your business becomes unsuccessful, you would be obligated to continue your five-year lease, paying 60 months worth of rent/lease. That’s a large amount of money! With the option agreement, the tenant has a pre-negotiated lease term once the original lease ends. That means the tenant knows the amount of time and rent that will be set going forward.

Avoid Conflict

No matter the lease option that you partake in, a commercial real estate attorney is key. She looks out for your best interests and makes sure that your lease is detailed and fair.

Call me to discuss your lease options and learn how to protect yourself and your business!

Disclaimer
The transmission and receipt of information contained on this website does not constitute an attorney-client relationship. Persons should not act upon information found on this website without first seeking professional legal counsel.

As the end of 2019 approaches, there will be a few things in commercial real estate leases that will change in 2020 that you need to know about.

Short-term Lease

Lease accounting standards will be changing for private companies. Lease costs will be accounted for differently, which means short-term leases will be more popular than ever.

Currently, long-term leases (longer than 12 months), have a large amount of bookkeeping that is required with ASC 842. The shorter-term leases will affect their balance sheets, but in different ways.

Short-term commercial real estate leases are becoming more popular. Tenants appreciate these leases due to the benefits such as:

  • Flexible space
  • Co-working
  • Pop-ups
  • Shared space
  • Changing demands

Tenants will experience more flexibility, which gives landlords less certainty with budgeting and planning and their tenant mix.

If the landlord is using a discounted cash flow model, the short-term lease could cause him/her to change to a valuation model. There are a few factors that carry weight in the valuation model:

  • Higher expenses
  • Shorter leases
  • Lease commissions
  • Marketing costs
  • Change in vacancy rate
  • Rental premiums to offset expenses
  • Replacement building costs

Tenants may consider entering a short-term lease and reassessing annually. Reassessing can save him/her money if there’s a better economic leasing option available.

Landlords may provide incentives to tenants in order to agree on a long-term lease. This guarantees a fixed rental income for the Landlord each month for a longer period of time, as opposed to the short-term lease.

Short-term leases affect the tenant, landlord, and both parties in their capacity as a borrower. This shorter commercial real estate lease may affect a borrower’s access to credit. Initial direct costs and disclosures will be required on the balance sheet, instead of as a footnote. All lease types cover the possibility that the borrower may default. The good news is, for the most part, the rate of defaults has stayed low.

Recourse Loans

The borrower is personally liable for the loan due if using a recourse loan. Recourse loans “can help a lender recoup its investment if a borrower fails to pay the liability and the value of the underlying asset is not enough to cover it. A recourse loan lets the lender go after other assets of that debtor that were not used as loan collateral.

For example, if a tenant stops paying rent, files bankruptcy and is eventually evicted, the landlord may have a lien on the tenant’s equipment. This may allow the landlord to sell the equipment in order to recoup the unpaid rent- of course, it depends on what the lease says, it will ultimately control. With recourse loans, the landlord cannot exercise that lien.

Recourse loans and landlord liens greatly reduce bankruptcy filings. Borrowers often use bankruptcy to avoid receivership and stop foreclosures. This is a pain to lenders and can take years to resolve.

Non-recourse Carveout Guarantees

With short-term leases, there are also non-recourse carveout guarantees.  This means that the guarantor is either partially or not liable for repayment of the principal and interest on the loan. It’s important to have a commercial real estate attorney that will negotiate the wording in this area. Non-recourse carveout guarantees are imperative. It ranks right up there with rate, proceeds and terms.

Texas has a quick, non-judicial process when dealing with foreclosures.

Learn more about how a short-term lease can benefit you by filling out the contact form at the bottom of the page today!

Disclaimer
The transmission and receipt of information contained on this website does not constitute an attorney-client relationship. Persons should not act upon information found on this website without first seeking professional legal counsel.

 

What Kind of Law Firm Do I Need?

A commercial real estate law firm has a very particular area of practice. A law firm that dedicates the bulk of its practice to real estate will have more focus and experience than a law firm that lists commercial real estate as one bullet point among many. Look for keywords that match your issue: landlord-tenant dispute, land acquisition, lease negotiation, etc.

A smaller firm will generally be more affordable than a larger firm. Larger firms have more resources, including employees, but they have to support those resources with higher costs. This is a reason why hiring lawyers can seem unaffordable to the general public. However, smaller firms often have more flexibility on their fees and more affordable costs for an average small business. Commercial real estate law firms that focus on small businesses, start-ups, real estate investors or other similar niches will probably have more affordable rates. They will also have more familiarity with the common issues and challenges facing this audience and will be more prepared to help.

How Do I Find A Law Firm I Can Afford?

The Internet is a great resource here. There are lots of sites online where you can find a law firm that can help you. The local chamber of commerce or a lawyer referral service will probably offer free referrals or access to their directories. Your own business and personal network could be a great resource to find an attorney as well.

I Can’t Afford a Commercial Real Estate Law Firm

Affordable doesn’t mean cheap. You’re paying for a customized, tailored legal solution and legal knowledge. Real estate brokers and Google can’t do that. If you don’t invest in a commercial real estate law firm at the beginning of the transaction, when there’s time to understand and evaluate the consequences of the transaction, you will pay the price. The opposition will have knowledgeable legal counsel that will protect them and advocate for their interests. If you don’t get help at the beginning, you will need a lot more help to navigate the legal and financial consequences of the poor deal you are trapped in.

Call several law firms and ask for a fee quote based on the transaction. Have all of the transaction information ready so you can answer the questions to get an appropriate quote. Be candid with the law firm. They may have some creative solutions regarding the fee.

If you feel you can’t afford a commercial real estate law firm to assist in your transaction and you’ve gotten fee quotes from several of them, then you are probably not ready for the transaction. Commercial real estate is an investment transaction, whether you are buying, selling, or leasing, and the transaction needs to be capitalized properly. Your commercial real estate attorney will require an investment up front, but you will reap the benefits in a properly negotiated transaction where you understand your legal and financial rights and obligations. 

Jenna Zebrowski focuses on affordable, tailored legal real estate solutions. Reach out today to set up a consultation or to receive a no-obligation fee quote.

Disclaimer
The transmission and receipt of information contained on this website does not constitute an attorney-client relationship. Persons should not act upon information found on this website without first seeking professional legal counsel.

Maybe it’s an exhibit at the back of the lease, or maybe it’s something you received in the mail that you are told to sign and return right away. Either way, your commercial real estate attorney should review it. That signed document could drastically change your commercial lease terms.

An estoppel is basically a short lease summary. It’s a legal document that summarizes key points the lender or purchaser of a property wants to confirm. By signing it, you’ve agreed to the terms – even if they don’t match the lease terms! 

The SNDA is the subordination, non-disturbance and attornment agreement. The purchaser wants to know that the tenant will treat the new owner like the previous one, that he/she will attorn and subordinate his/her rights. The landlord can sell the property and the tenant doesn’t get any say in the matter.

Subordination

The rights of the tenant greatly depend upon whether he/she has priority over the landlord’s mortgage, which is held by the lender. In many leases, the tenant has agreed to a provision where it subordinates its rights to any present or future mortgage the landlord places on the property. This automatic subordination clause, without corresponding non-disturbance language, could severely undermine the tenant’s rights if landlord defaults on its mortgage loan. 

Non-disturbance

When faced with either subordination requirements in the lease or any landlord requests, a tenant should request a non-disturbance agreement. 

It is prudent for the tenant to obtain a non-disturbance agreement from any existing mortgage lender when the lease is executed. The tenant should avoid agreeing to automatic subordination clauses that could undercut his/her priority, or negotiate such provisions to provide protections if automatic subordination is triggered. 

Attornment

Upon a loan default and enforcement by the lender, which usually involves replacing the landlord, the tenant agree to treat the new landlord just like the previous one (including rent payment obligations). 

In a soft leasing market, the new landlord wants to keep the current tenant. The lender should ask the tenant to attorn to the new landlord under these circumstances. Attornment would consequently protect the lender from the risk of the tenant vacating when the tenant has been paying above-market rent for the leased property. A well-drafted attornment clause will include an obligation of the tenant to attorn to any successor in title including any purchaser the lender might sell the property to following or as part of the exercise of the lender’s loan enforcement remedies.

There are two things that will be an advantage to any tenant – especially a tenant with a long-term lease or which has made a substantial investment in its tenant improvements (i.e. expensive buildout or ground lease with construction of the tenant’s own building).  

#1: To have the right to secure a SNDA from all existing mortgagees of the property 

#2: A commitment by the landlord to obtain such an agreement from future lenders as a condition to granting subordination to future mortgagees. 

How do you know if this language is in your lease?  Or should you sign that document that came in the mail from the landlord?  A commercial real estate attorney can help you understand and protect your rights and obligations under these documents.

Disclaimer
The transmission and receipt of information contained on this website does not constitute an attorney-client relationship. Persons should not act upon information found on this website without first seeking professional legal counsel.

Commercial sublease obligations can make or break your company financially. When subleasing a commercial space, the sublessee is motivated to reduce expenses, so the rent price can be attractive, but the sublessee will probably make some business concessions, including being bound by the original lease that may not have been negotiated properly or reviewed by an attorney. When negotiating a sublease, there are some important questions to ask. 

Q: Does the landlord need to consent to sublease?

A: The answer is almost always yes, but refer to the original lease agreement confirm.  Get the landlord’s consent in writing! 

Q: What is the landlord’s ability to terminate the lease or kick out the sublessor out of the space if the sublessee defaults?

A: It should be in the master lease, but a sublesse can modify these rights in the sublease, with everyone’s agreement. Negotiate so that the defaulting party is responsible for the costs and any damages incurred because of a default or eviction. 

Q: What is covered in the use clause

A: There may be restrictions on business terms, or what the space can be used for.  Make sure the landlord waives any of these restrictions that apply to sublessee’s business before signing the sublease!  Think about anything that is specific to your particular business, such as 24-hour access to and use of your space, parking access, delivery times and climate control.

Q: Why does the sublessor need to provide financials? 

A: When subleasing, the sublessee is essentially taking over the commercial real estate lease from the sublessor. The sublessor is usually required to prove to the landlord that the sublessee is a good business risk, because they are taking on the financial responsibility for the lease.  A traditional way to prove this is for the sublessee to provide financial information to the landlord to demonstrate that he or she can afford the rent.

Q: What about the section on attornment, right to cure and right to notice

A: Attornment means that if there is a new landlord, because the building ownership is transferred, then the sublessor and sublessee will agree to treat the new landlord like the old one, including paying rent. 

If the sublessor or sublessee does something wrong, whether it be monetary, such as not paying rent, or non-monetary, such as not fixing something, the right to cure comes into play. They defaulting party should receive legal notice about the issue and then be given a chance to fix the issue – the right to cure. 

How the landlord will tell the sublessee that something is wrong is typically described near the end of the lease. This is known as the right to notice.

The sublease might be a shorter document, but it’s important that it is drafted properly, or the sublessee might lose valuable legal rights upon signature. It doesn’t matter what’s fair, it matters what is in the lease. A smart sublessee will make sure that all of the documents that are needed (it might be more than one!) to make the sublease legal are reviewed by a knowledgeable commercial real estate attorney. Give me a call to set up an appointment today to discuss your sublease concerns!

Disclaimer
The transmission and receipt of information contained on this website does not constitute an attorney-client relationship. Persons should not act upon information found on this website without first seeking professional legal counsel.

An office lease agreement is a contract between the landlord and tenant to rent space. The tenant pays the rent and uses the space to conduct business ,and benefits because there is no capital expenditure to purchase the property. The landlord benefits because there is a steady stream of income.

About the Office Lease Agreement

A standard multi-tenant office lease agreement will either be a triple net (NNN) lease or a gross (all -inclusive) lease. If there are lots of smaller tenants in the office building and there is only one rental payment, it’s probably a gross lease

All of the operating costs of the building, like taxes, insurance, and common area costs, are included in the rental payment. If there are additional payments beyond rent and utilities, it’s probably a triple net lease. The tenant will pay its proportionate share of the costs of operating and maintaining the property in addition to the lease cost.

The office lease agreement draft is usually provided by the landlord and contains language that favors the landlord. It may be a standard office lease agreement or a boilerplate contract, but it still needs to be read and understood. It’s important that all of the negotiated changes are in the document and that the tenant understands what he/she is agreeing to. 

The landlord may state that the lease contains common or standard language, but that doesn’t mean the tenant has to accept it as-is. The landlord has a team representing his/her interests, so the tenant should have a team in place, too. A good commercial real estate attorney with experience can read the lease document and make sure the negotiated items are there, that you are protected both financially and legally, and that you understand the rights and obligations you are taking on when you sign the lease.

Single-Tenant vs. Multi-Tenant Locations

One thing to consider is if there are many tenants in the building or just one. If the tenant is the only occupant, then there is only one source of income for the landlord. The landlord will want to protect against the tenant’s default because mortgage, tax and insurance obligations don’t go away just because the building is vacant. 

A multi-tenant building means the risk is spread out, so there’s a diversification of income sources. The landlord might be willing to make concessions about the creditworthiness of the tenant, but that will probably mean a higher rental rate for the tenant.

You’ve got your team in place and they’ve got your best interest at heart. Your commercial real estate attorney should understand the tenant’s side and have experience dealing with the landlord, meaning they know what to push on and how to get the best deal without tanking the deal. Your attorney should also economize on legal fees and protect the relationship, too.

Getting a Good Office Lease Agreement

It can seem like there’s a lot of lease document for a simple office transaction. A simple transaction usually doesn’t mean a short lease, however!  Your commercial real estate attorney will help you understand the risk, rights and responsibilities of each party, and negotiate to protect your interests.

Disclaimer
The transmission and receipt of information contained on this website does not constitute an attorney-client relationship. Persons should not act upon information found on this website without first seeking professional legal counsel.

  1. General Exclusions

The tenant needs to understand what he or she is paying for to ensure that he/she is not being overcharged by a landlord who is trying to turn operating expenses into a profit center. Landlords might put language into the lease allowing for: 

  • Charging the cost of capital expenses and improvements when they occur
  • Including charges specific to one tenant through to all tenants
  • Charging a management fee or administrative fee (or both!) that are not market rate

Here are some areas where a reasonable landlord will negotiate in a commercial real estate lease:

  • Leasing commissions, legal fees, promotional costs, etc.
  • Charges relating to sewer or water connections
  • Entertainment or travel expenses
  • Cost of repairs, replacements, etc. covered by insurance
  • The cost of any alterations or improvements due to construction defects or compliance reasons
  • Repairs due to condemnation or casualty
  • Costs related to lease negotiations or disputes
  • Correcting a tenant violation of a lease
  • Depreciation 
  • Costs of renovating, redecorating or improving a space
  • Amounts paid to landlord-related parties for services that are above the market rate
  • Salaries of landlord employees that are mangers
  • Landlord’s general overhead and administrative expenses
  • New or additional structures
  • Capital expenses
  • Income, excess profits, franchise, transfer, estate or inheritance taxes 
  1. Capital Expenditures

Capital expenses are not capital improvements.  A new roof or air conditioner are not repair or maintenance items, but are capital improvements that benefit the project. These capital expenses often have a useful life beyond a tenant’s commercial lease term. Landlords like them because they are needed and it may increase operating expenses on a go-forward basis. Tenants don’t want to pay for more than their share of these expenses. A typical example is a replacement HVAC unit

The best way to resolve this is to compromise.  The tenant will pay for capital expenditures that reduce overall operating expenses, but those costs are amortized over the useful life of the improvement. 

  1. Management Fees

Another potentially expensive section is the issue of the management fee for the project. Landlords may hire an affiliated party to manage the property. There’s no guarantee that the rate being paid to the property manager is market rate, or that the landlord isn’t padding operating expenses and keeping the difference.

There are a couple of different ways to address this.  One solution is to specifically state that whoever the landlord hires as the property management company, that entity will not be paid more than the market rate.  Another solution is to simply to cap the cost of the management fee, usually as a percentage of the gross rent for the building. 

 

NEGOTIATION TIP: Watch out for a commercial real estate lease that charges an administrative fee AND a management fee!  It doesn’t matter how it’s calculated, it’s usually a landlord attempt to collect twice on the same charge. A good commercial real estate attorney can help the tenant negotiate to control this cost.

 

  1. Controllable Operating Expenses

Finally, another way to avoid overcharging for operating expenses is to cap the increase for “controllable” operating expenses. Controllable expenses typically excluded insurance, real estate taxes, and specific other items that are beyond the landlord’s control.

How do you know what other controllable expenses are?  Need help understanding the different fees and how to negotiate them?  Hire a commercial real estate attorney, who knows what to look for and will advocate for your best interests.

Disclaimer
The transmission and receipt of information contained on this website does not constitute an attorney-client relationship. Persons should not act upon information found on this website without first seeking professional legal counsel.

A landlord wants tenants if they meet this criteria:

1) A personal guarantee means that YOU are personally responsible, and the landlord or franchisor entity can go after your personal assets and bank account. Try a larger security deposit, or sharing the entity financials (after an NDA is signed, of course!). If there is a default, only the legal entity should suffer, not you personally.

2) If you sign a personal guarantee, and you are married, remove the partner. The landlord or franchisor may have access the legal entity and those of the guarantor, but joint marital assets (or separate property assets) that belong to a spouse might not have to be attached.

3) If you’re going to sign a guarantee, try to limit the time period. Set the guarantee to expire after a certain amount of time has passed or upon certain conditions (such as proof of the assets of the legal entity).

4) Alternatively, limit the personal guarantee. A capped amount will indicate the maximum amount of exposure for which the guarantor is personally liable.

A guarantee is a very personal thing. Let’s discuss how to minimize your personal exposure and protect your assets.

Security Deposit

But while most owners of smaller office buildings tend to prefer cash deposits, he notes that a cash security deposit does not protect against bankruptcy because it becomes part of the bankrupt estate.

He, therefore, recommends that a security deposit be in the form of a letter of credit, which is an agreement between the bank issuing it and the landlord and so does not become part of a bankrupt estate.


Disclaimer:

This article does not create an attorney-client relationship. This article is for general education purposes only and is not legal advice. You should consult with a qualified attorney before you rely on this information.

Triple Net Lease Form- Why Would You Sign One?

A “net” is an expense related to the lease. A “triple net” lease will refer to the three “nets” of commercial real estate leasing- real estate taxes, property insurance, and common area maintenance, or CAM (sometimes referred to as OpEx, or operating expenses). The triple net lease form is not a completely hands-off experience for Landlord, and it’s not owning the property in all but name for Tenant, either. Both parties must negotiate the triple net lease form carefully to set expectations, and downloading and signing a triple net lease form that isn’t tailored to your situation can create disastrous results.

Attraction of a Triple Net Lease Form

The triple net lease form (or NNN lease form) is attractive to Landlord- it’s guaranteed rental income while Tenant pays the NNN expenses.  It’s attractive to Tenant, too- a long-term lease, lower rent and flexibility with the building, since there’s no capital investment to purchase the land.

It Can Get a Little Tricky

A triple net lease is easier if there is a single tenant occupying an entire building.  If Landlord has multiple tenants and shared facilities or common areas, then the accounting and applicability gets more involved.  Tenant should contribute Tenant’s Proportionate Share of the NNN expenses to Landlord, and Landlord is responsible for using that money to make the payments for the insurance, tax, and operating expenses. Tenant’s Proportionate Share is based on how much space is occupied in relation to the property as a whole.

When you’re negotiating your triple net lease form (or, rather, you’re working with your professional team to protect your interests and mitigate your risk), focus on these three triple net expenses and how each party will approach them in negotiations:

Insurance

Tenant pays for all or a portion of the insurance cost on Landlord’s property. Negotiate this section carefully:

  • Coverage should be adequate
  • Insurance company should be properly qualified, not just the lease expensive
  • Make sure Landlord is informed of coverage changes/lapses
  • Tenant should have to report/file a claim with a claimworthy event occurs

If Tenant doesn’t meet the insurance requirements, Landlord can default Tenant under the lease, but meanwhile, and pursue remedies that way, but meanwhile, there’s damage and no money to fix it. Also, if Tenant violates the insurance (like arson), then there’s no coverage, even if Landlord is listed as additional insured.

CAM/OpEx

This section should be highly negotiated in your triple net lease form, especially if this is a multi-tenant location.  Be very specific about what expenses are included, and excluded, from CAM or OpEx. Negotiation tip: watch for capital expenditures, insurance charges as part of CAM if already paid as a separate charge, and maintenance contract requirements.

Landlord should be very clear on the maintenance requirements and quality of work that Tenant is responsible during the Lease term.

Taxes

Who can protest the tax bill?  If no one protests it, and taxes increase more than those of comparable properties, Tenant is stuck with a higher bill, and Landlord may have difficulty finding a new tenant at the end of the lease term.

A triple net lease form involves a lot of negotiation and understanding the long-term consequence of those negotiations. Getting a form online won’t provided the customized solution necessary in this complex Landlord-Tenant relationship.  It’s important to have an experienced team in place to guide you through the process of negotiating a triple net lease form.


Disclaimer:

This article does not create an attorney-client relationship. This article is for general education purposes only and is not legal advice. You should consult with a qualified attorney before you rely on this information.

Commercial Sublease

A commercial real estate lease agreement is a lease between Landlord and Tenant.  But Tenant might have too much space, and want to bring in an additional tenant to share the space, and the costs.  Alternatively, the space might become too big or too small for Tenant, and it makes sense to have someone else take over the entire area.  That’s a situation where you need a commercial sublease.

Definitions

Landlord (lessor)- owner of the space

Tenant (lessee)- the renter of the space from the Landlord, may also be referred to as Prime Tenant

Subtenant (sublessee)- renter of the space from the Prime Tenant.

Lease- original agreement between Landlord and Tenant, may also be referred to as Master Lease

Sublease- agreement between Prime Tenant and Subtenant

Landlord’s Consent

The Master Lease will usually require Landlord’s consent to any Subtenant that Prime Tenant may propose.  Negotiation tip: Don’t rely on Landlord’s absolute discretion as a consent standard. Landlord may also charge a fee to review Subtenant for consideration.

The consent should either be a neutral standard or it should state exactly what criteria Landlord will accept for a subtenant.  Common factors include: the creditworthiness of the subtenant, if the use of the subtenant will compete with existing tenants or place an undue burden on the building (such as utilities or parking) and signage requirements.

Subleasing without Landlord’s consent, if it is required, can result in a whole host of financial and legal penalties.

Liability

Landlord may also require that Prime Tenant remain liable under the Prime Lease during the term of the commercial sublease.  This basically means Prime Tenant is acting as a guarantor for Subtenant, so if rent isn’t paid in a timely fashion, or there is damage to the space, Landlord can look to Tenant for remedy, even if Subtenant is at fault.

The Master Lease agreement will control over the commercial sublease. Everyone still has to abide by the conditions of the Prime Lease.  Subtenant should make sure it receives a copy of the Master Lease and any amendments or modifications.  Some of the information may be confidential (maybe they don’t want to share the name of the Landlord or the primary rent amount), but it’s important to know what Subtenant is being legally bound to. If Prime Tenant won’t share a copy of the Prime Lease, that is a big warning sign.

Subtenant should be aware of Prime Tenant’s financial situation.  If Subtenant pays rent to Prime Tenant, but Prime Tenant doesn’t send that payment to Landlord, there may be a lease default, and Prime Tenant and Subtenant could be terminated from the space.  Negotiation tip: make sure that Landlord can require Subtenant to pay Landlord directly in the event that Prime Tenant defaults.  That way, Subtenant has a better chance of staying in the space!

A commercial sublease can be a great arrangement if Tenant grows too big for the space or doesn’t need the entire space.  A Subtenant can help offset Tenant’s costs, and Landlord can get paid in a timely fashion.


Disclaimer:

This article does not create an attorney-client relationship. This article is for general education purposes only and is not legal advice. You should consult with a qualified attorney before you rely on this information.