Sublease Positives And negatives
Subleasing to your company could be a cost-saving and time-saving option for tenants who have too much space. However, if you fail to assess and mitigate risks before signing a sublease, it can have serious repercussions. This type of situation is complex and requires a lot of consideration. These are some things to consider:
Benefits
Subleases might offer rents below market. Subleases usually remain responsible for the lease if they sublet. They may be willing to sublease the space at a lower rental to offset the ongoing cost. You may also find that rents have risen since the original lease was signed.
The tenant's buildout may be a benefit to you. If the space is suitable for your needs, it will save you the cost of building the space.
A sublease can allow for flexibility in terms of shorter lease terms.
Subleases make it easier to move in, and if you have the space properly planned for your use, it will save you time planning, permitting, and construction.
Subleasing is easier to obtain and may require fewer personal or corporate guarantees.
Negatives
Only the original tenant can grant rights to your company those they had in their lease. If you need different signage, property-use type, or parking, and it is not permitted in the original lease, the sublease will not allow it.
It is possible that you will not be granted the right to extend the lease beyond the current term. The original tenant is usually responsible for the lease terms and will not allow you to extend them beyond that term.
The original tenant may not be able to provide a sufficient tenant improvement allowance because they are not part of the landlord's business. You may have to cover some or all of the costs to modify the floor plan or get the space ready to go for your business.
A sublease can be very dangerous because it is subject to the original tenant not defaulting. Your sublease could comply, and you may receive notice that the original tenant has terminated your lease. You could then be subject to the new terms of your landlord or forced to vacate.
Asking the original landlord for a recognition agreement can help to reduce this risk. If the agreement is properly written, the landlord will honor the sublease if the tenant defaults. The landlord may reach a recognition agreement. If your company occupies the space, you can show the landlord the benefits to help him, or she agrees.
Subleases almost always require permission from the original landlord. To understand the rights of the tenant and the process for approval, you should also review the original lease.
