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!
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