Commercial real estate subleases can be great in that you are typically able to lock in below market rental rates, shorter lease terms, and free furniture, however negotiating commercial real estate subleases can be tricky if you don’t know what you are doing. Negotiating the basic sublease terms is the easy part, but because most commercial sublease contracts are tied to the original master lease between the tenant and landlord it’s important that you and your attorney carefully review that before signing any sublease contract. Below are a few things to consider before signing a commercial sublease contract. (Note: In a sublease transaction the company wanting to sublease the space is the Subtenant, the company that currently leases the space would be the Tenant or Sublandlord, and the building owner is the Landlord) FinancialsJust like a Landlord or Subllandlord would want to review the Subtenants financials to ensure that they can afford to pay the rent, it’s important that the Subtenant review the Sublandlord’s financials. The reason is that in most leases if the Sublandlord defaults because they don’t pay rent then the landlord can lock the doors and ask you to move out. You won’t have any rights to stay. You need to make sure that the Sublandlord is financial sound. There are no guarantees however it will help mitigate your risks. Restoration ClausesNegotiate to avoid having to restore the space to it’s original condition. Many leases or subleases have a restoration clause. Be sure to include in your proposal for the subtenant to not be required to remove any of the original tenant improvements or restore or remove any subsequent alterations or improvements allowed to be made by Subtenant. The same goes for phone and data cabling. In most leases tenants are required to remove the data cabling on or before they move out of the space. Removing cabling can be expensive so Subtenants want to avoid this if at all possible and ensure that they are only “using” the existing cabling and not be responsible for removing after the sublease expires. Landlord Consent & Recognition & Subtenant AttornmentWith any sublease between a Subtenant and Sublandlord the Landlord (aka building owner) has final approval. This is usually stated in the Master Lease, and the terms and conditions of the consent is on a Landlord Consent to Sublease document that is attached to the sublease contract. If you are the Subtenant you want to also negotiate with the Landlord the right to occupy and lease the space in the event the Sublandlord defaults (e.g. does not pay rent, goes bankrupt, etc…). The termination of the lease by Landlord should not terminate the sublease, nor shall the Landlord disturb the Subtenants use and possession of the space. Additionally the Subtenant would have to Attorn to Landlord, which means the Subtenants obligations (e.g. to pay rent) are transferred to the Landlord. If the master lease is terminated for whatever reason the Landlord and Subtenant could create a new lease or continue the sublease. In any case the Subtenant needs to ensure that the the terms of the sublease remain the same. Right to Sub-SubleaseJust because the original lease has a sublease / assignment clause that does not mean the sublease / assignment right conveys to the Subtenant. The Subtenant needs to negotiate the right to sublease themselves in the event they need to dispose of the space. This might not be possible however you need to seek it when possible. The sublease option would have to be approved by both the Sublandlord and Landlord. Make sure to specify the time allowed that all parties have to consent or disapprove. If you let too much time go by you risk killing the deal. Related Images:[See image gallery at www.austintenantadvisors.com]via Tumblr Negotiation Tips When Subleasing Commercial Real Estate
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AuthorI help people and my clients find the right house to call their home. I specialize in home buying and selling, investment properties, luxury homes, and multi-residential properties. https://en.gravatar.com/nicholemhearn ArchivesCategories |